5 Questions With: Gerard Pannekoek On Trading Patents

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WASHINGTON, April 19, 2011 -- Gerard Pannekoek is President and CEO of the Intellectual Property Exchange International (IPXI), a company set to launch the first financial exchange focused on intellectual property rights. The Chicago-based company was created in 2008 and is currently looking to launch its initial public offering (IPO) between the summer and early 2011. In late 2010, IPXI recruited Pannekoek, who was then retired, based on his prior experience as president and chief operating officer of another start-up, the Chicago Climate Exchange (CCX) which traded emission credits.

Contributor Christina Lee checks in with the CEO on the company’s progress toward an IPO.

CL: What criticism and feedback has the company received from possible participants?

Over last year, I think there’s been a tremendous shift in acceptance of our model by the corporate and industry world, due to a number of facts. Probably the most important is the industry feedback that we have received through our outreach to large corporate IP owners and universities. What we’ve done is really listened to corporations rather than label them as skeptics, and we’ve worked with them to provide adequate answers. In the end, no new business model is going to work until industry buys in. You need to take their concerns into consideration and adapt your model. I think that has been a big part of our progress and what I would consider an overall change in the attitude of the corporations toward IPXI. It’s changed from skepticism to cautious acceptance, which is terrific. Now it’s all going to gear toward proof of concept, which we will see in the next 12 months.


CL: Can you tell me about one of the significant changes in the IPXI model in adapting to industry concerns?

GP: One of the biggest issues that we had originally modeled in the IPXI model was the issue of enforcement: How do you handle litigation within this IPXI model? We had anticipated a great role for the exchange or an exchange subsidiary to be actively involved in that. With the help and feedback of industry, we’ve changed that model from the exchange perspective to a much more objective role, whereby either the IP sponsor or third party funders will finance litigation. In other words, to make the long story short: IPXI will not benefit from any litigation. I think this was one of the very important outcomes of industry feedback.


CL: What conditions do you need in place to go to market?

GP: Ideally, I’d like to go to market with a diversified offering of about five to eight ULR (Unit License Right Contract) offerings from different IP owners - so large corporates, maybe a medium sized company, maybe one or two universities, a national lab - all in different industries to be really diversified. That is, if I were king for a day.


CL: What sort of trading volume do you expect?

GP: Like any other startup market, it’s going to start extremely slow. That does not really scare or concern me. Like with the Climate Exchange, we did 500 tons on day one and then we didn’t have any trades for two weeks. Ultimately, that grew to become a tremendously liquid market. I think we, by definition, have a captive buyers market because those are the active licensees. Licensees that should’ve taken a license under the traditional licensing model, should under IPXI as well. If you combine that with one or two liquidity providers, I think that will be a good start of a market.

I want to be absolutely clear that this will be, for a long time, a work in progress. To use an analogy, I think that we have built the Wright Brothers attempt at the first plane but we certainly don’t have the Boeing 747. And that will be the most interesting work over the next couple of years but we have something that industry, as well as ourselves and even the financial world, to a certain extent, believe can fly, and that’s exciting.


CL: Do you have any second thoughts about coming out of retirement?

GP: Actually, every day (Laughs). It’s been a very interesting 12 to 14 months. I always expect things to go faster than they really do. Am I happy with the progress? Absolutely. Would I have wanted it to happen sooner? Absolutely. It’s been a really interesting challenge so I guess from that perspective, I don’t regret it. It has had an impact on my quality of life. A lot of travel and a lot of long days, weeks and months but that’s what’s part of starting a new company.


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