Patent Bubble – Stay Out of Trouble


Year 2016: A global Intellectual Property bubble with a massive ‘pump and dump’ operation was one scenario forecast by European Patent Office published in “Scenario for the Future” (2007).1

Problem:

Is the European Patent Office prophetic and could we be heading for another crisis?

Maybe – at a stretch: The value of companies in the high tech sector has been increasing for many years now mainly due to their intangible asset valuation increases.

Intangible assets – especially patents – are open to manipulation in value, which in turn leads to excessive trolling.  We can map the world’s largest patent trolls that we are aware of.  However, it is manipulation that, if it takes us by surprise, leads to the crisis.

Ownership of patent underlying technological advances leads to power. Those with the means to manipulate the value of such technology – in the present and the future – are empowered. This is an analogy to the valuation of homes that led to the Global Financial Crisis.

Solution:

Expert systems can be used to reveal if and when a patent bubble has emerged?2 Using computers to model scenarios so as to raise the alarm when a risk comfort zone has been breached is now possible. Central banks do this to maintain currencies; we monitor oceans before a tsunami, volcanos before they erupt, and health before a disease outbreak.

We could also monitor patent “tsunamis”. For example, when particular groups take excessive ownership of particular classes of patents then we have a situation that is similar to when hedge funds took excessive positions in relation to particular stocks leading to the global financial crisis.

Such groups could comprise speculators similar to hedge funds, technology trolls and … even governments (the latter to stop excessive royalties being paid to offshore locations).

Who should watch for the emergence of such bubbles before it is too late? An international organisation such as WIPO would be well suited in such a role.

Predicting the future

We do have the means of collecting and monitoring patent activity since patents are online with an array of information including, in some patent offices, patent licensing and patent assignment.

But changes in patent ownership or patent licensing are not always recorded on the relevant patent register(s).  This may be due to poor housekeeping, administrative delays or the prohibitive expense (and effort) associated with assigning large, multi-jurisdictional portfolios.

So let’s make recording of assignments and interests in registered IP mandatory and easier across jurisdictions. This would permit monitoring for the emergence of a patent bubble through movements on official patent records. Patent registers would thus become tools for accurately monitoring when technologies are changing hands in fast succession. This would allow modelling for when such exchanges place unnecessary risk to a nation, such as payment of excessive royalties offshore to use technology necessary for the national health (e.g. pharmaceutical patents, computing, etc).

Importantly, a patent index could be developed – analogous to a commodities index, in which trades in certain classes of patents (each class equivalent to a separate commodity) at certain values can be tracked. This would enable a spot market in patent trades, thus providing an indicative value of a patent within a class.

We have patent indexes (e.g. Ocean Tomo3 etc); however, they are limited in their scope so could not be used to predict a patent bubble. Regulators need tools to be objective, non-revisionary and reliable, which is why associating patent indexes with official patent records maintained by patent offices around the globe would be a powerful tool.

If we could improve the valuation of intangible assets and measure statistical aberrations in patent trades, would this allow us to detect a patent bubble?

What might be telling indicators?

  1. banks lending excessively for investment in junk patents only to find that the loans cannot be re-paid;
  2. exponential increases in patent classes on a patent index; and/or
  3. a significant increase in speculation in patents leading to an increase in patent litigation to protect the underlying investment. This results in the court system being over-come with patent litigation and the loosening of regulations to enable non-lawyers to conduct patent litigation through specially convened patent Courts. (What? This is already happening in the UK? Is this a sign?)

Use logic before a bubble emerges

If the predictions of the European Patent Office for 2016 are to be believed, now is the time to put in place mechanisms to monitor the movement of trade in patents, such as:

  1. making the recording of patent assignments and licenses mandatory across all jurisdictions;
  2. having non-revisionary patent value indexes listed at respective intellectual property offices and collated by WIPO; and
  3. employing expert systems to monitor movement in such indexes.

—————————

1.            European Patent Office: Scenarios for the Future: How might IP regimes evolve by 2025? What global legitimacy might such regimes have? Edition 2007
http://documents.epo.org/projects/babylon/eponet.nsf/0/1CC07CE47F2A5473C12572CA0047EF3F/$File/Scenarios_Market_Rules.pdf

2.            See Buchanan, Mark (2009) Economics: Meltdown modelling.  Could agent-based computer models prevent another financial crisis? Nature 460, 680-682 (2009).

3.            Ocean Tomo Intangible Asset Market Value: http://www.oceantomo.com/productsandservices/investments/intangible-market-value

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