It should be simple to create, transfer, and manage licensees to ensure a win-win outcome. But it's not. There is very little information available in the public domain as to basic license terms or cross-license, royalty which affects the value of the patent. The licensing world can better promote innovation if it is more transparent as future inventors will know how much their labor of love is worth (if any) which incidentally involves a lot of highly paid legal eagles. More importantly, we have the technology now which can incorporate “conditions” such as “IF then” in a “smart-contract” over a decentralized network governing the relationship between licensor and licensee. This is much better than paper agreements or lawyers’ demand letters.
Non-Fungible Token NFT is primarily used to represent some visual representation vide its unique identifier (hence non-fungible) similar to a dollar bill it has a unique number. The problem is that there is nothing in the NFT to represent an agreement with the buyer of the NFT and seller/creator such as what happens with the IP or in Art the copyright? Without assigning this copyright, the buyer is basically getting a licensed copy to view and not own. The license usually means the ownership to possess the object is not transferred, similar to a license to enter a shopping mall, one is allowed to enter within a fixed time of opening but not otherwise. According to copyright law, the creator owns the IP of his or her creation unless explicitly assigned to the buyer. I have taken Patent Licensing to the next best use case for NFT mainly because I have redesigned the way a license can be issued without royalty by making use of the marketability of the NFT as the means to control production and hence profitability. In short, the more a licensee wants to make use of a patent IP the more NFT he or she has to buy. More on this later.
A Patent is granted by statute for its non-obviousness, it must-have utility, and is exclusive to the patentee for 20 years from the date of application. It has exclusivity over some useful Methods, Systems or Articles by excluding others save for licensee. At least in the US, not everyone applying for a Patent will get one. In the last 20 years, allowance averaged around 200-300K per year and the USPTO [issued Patent #11,000,000 in May 2021](https://www.uspto.gov/about-us/news-updates/uspto-issues-patent-number-11000000#:~:text=USPTO issues patent number 11%2C000%2C000,-May 11%2C 2021&text=WASHINGTON – The United States Patent,in American innovation and ingenuity.) marking the 11 mio patents mark since 1790. The only President of the United States to hold a patent was Abraham Lincoln for a "device to buoy vessels over shoals"; it consisted of a set of retractable floats mounted on the sides of riverboats. Currently around 3.34 mio patents are in force mostly by Big Tech. For example for wind power generation, GE is the prolific holder of those patents.
Notwithstanding the expenses (costing more than a family car) needed to apply and maintain a patent, there is a rigorous examination process, and unique to the US even after issuance, the issued patent may be nullified in a secondary challenge before the USPTO’s Board by a process known as Inter-Parte Review or IPR conducted by administrative “Judges” who usually work as an attorney in private practice when directed by the Director of USPTO upon an application. The fact that patents ought to be challenged in Court is now by law deferred back to this IPR process making the patenting process even more uncertain and devaluing the patent to some extent worthless. The demise of patents started with [eBay Inc. v. MercExchange, L.L.C](https://en.wikipedia.org/wiki/EBay_Inc._v._MercExchange,_L.L.C.) which removed the availability of injunction and continued with the AIA under the Obama administration on the reasoning that we need to rid “bad” patents. In fact, examples like a swingable to go side-ways and IBM’s infamous toilet booking system (in a plane) were often raised. In my view, the fact that patents can be issued for these “inventions” does not mean they are “bad” because patent laws allow for a patent to be issued for novelty and non-obviousness. If there is a problem then the definition of novelty and non-obviousness should be examined rather than applying hindsight arguments such as “bad”. Google got its patent by using a method to count references being cited by others as a better indicator of importance. This is commonly known in the academic world as a citation. This is a well-known concept for most researchers building their knowledge on top of others by citation, except such practice was not combined with a machine over the internet for the purpose of ranking outputs for searches, hence the non-obviousness element. I have been there and fought with USPTO over my very first patent application which took 13 years to be issued. I was lucky as it was allowed 1 week before “Alice”.
MY RADICAL SOLUTION is for licensing to be made as simple as possible by offering said license openly and competitively at the market price without any reference to “royalty”. The onboarding process has to be child play to get as many participants who own patents and want to license them for whatever reasons .To encourage a market price, the number of licenses offered with be limited and fixed to a figure reflecting the profitability of using the invention say net profit per year. In short, each NFT for a patent license will allow the holder to use the IP and to earn profits up to USD 5.0 million per year until expiry or abandon or revoke by Court or USPTO etc. The assumption here is that when the invention becomes profitable and the licensee wishes to be even more profitable then he or she has to buy more NFT which is limited. And this is where the pricing can be achieved. In contrast, using a royalty percentage is archaic as one argues over this, takes months to come to an agreement and is fixed while a market mechanism driving the right to make more of the invention (hence profitability) will be fairer as it opens up a dynamic opportunity to readjust the rewards to both licensor and licensee.
In contrast, the traditional way is to identify “parties” and agree on the “royalty” for licensing. This is possible if the party has been using said invention prior to issuance of the patent (Patent application is open to all after 18 months). However, such negotiation is often contentious and the party may not agree that it needs a license and will use all means it could to resist. Hence getting to any agreement is a nightmare, and time-consuming and the patentee is placed at a disadvantage as the onus is on him or her to prove a need for a license. The identity of the party is also critical as well-known Big Tech has a tendency to resist licensing, they rather pay their lawyers to invalidate or appeal given it is always a David v Goliath dispute. Sole patentees usually have no chance unless they are well endowed. By using blockchain wallets (to bid for the NFT) anonymity is preserved for the buyer up to the time whereby he or she has to reveal for purposes of accounting for the profit made (depending on Financial Year End).
FOR FIRST-TIME PATENTEE/LICENSOR, a reserve price that may be equivalent to breakeven for the patentee (to recover all the expenses involved in patent issuance) is required for the auction to open. We also limit the number of NFT to be offered and the Net Profit value for each is USD 5 Mio per year by practicing the invention. These are framed within the Standard License and may be customized with the Patentee. This would suffice for small-time licensees and those wanting to take a dip into the invention for the first time.
OUR SOLUTION is not to merely embed a license in the NFT by using its properties/functions build into the smartcontract but also for expediency for example failure to comply with the conditions of the license such as disclosing net profit earned meant the NFT will be burnt without further notice. Our solution is to replace the “royalty” component to allow competitive bids for the upfront value for each NFT and by limiting its quantity then and only then can one determine its value based on future streams of payments after discounted. The best discovery method is obviously by Auction. If designed correctly, auctions can distribute resources fairly, according to Stanford economists Robert Wilson and Paul Milgrom. The pair were awarded the 2020 Nobel Memorial Prize in Economic Sciences for their [improvements to auction theory and inventions of new auction formats.](https://news.stanford.edu/2020/11/19/bid-picture-nobel-prize-winners-explain-auction-theory-collaboration/#:~:text=If designed correctly%2C auctions can,inventions of new auction formats.) For the moment opensea.io will be the preferred market even though it mainly caters for “Art”.
COMMODITIZATION. If you are using my FREE to mint on Polygon, our Generic Licensing Agreement says that only 100 will be issued during the lifetime of the patent. And this NFT’s value will also be determined by how profitable the invention is as each NFT is limited to Net-Sales of USD 5 Mio PA. This means if the Net- Sales jump to 10 Mio in the next year then an additional NFT is needed else in breach of this Generic License. By agreeing to limit the quantity of NFT, the higher demand will have a higher impact on the price. This also means the Patentee/Licensor must not sell all his limited NFT in the first instance. The main benefit for the small-time Patentee who does not want to practice; is to be able to get some return from NFT licensing as early as possible without the time-consuming negotiations and costs. Of course, when minting ones NFT, the Patentee can exclude my Generic license by inserting one’s own in the “metadata” properties tab.
OUR SOLUTION FOR LICENSED PATENTS/PORTFOLIOS is to COLLATERALISE them instead of fractionalizing them as above. For example, Big Tech may have bundled patents together (as a portfolio) and cross-licensed them to their competitors in return for the same. The better way is of course to monetize them by offering a fixed number of NFT that provides an income stream from the portfolio (existing licenses would be “royalty” based). This will assist the holders to realize some of their IPs instead of merely cross-licensing them.