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Over the last couple of years, a handful of companies have created Web sites to buy and sell intellectual property: B2B for IP. They went out and raised tens of millions of dollars and picked suggestive, futuristic domain names — most notably, yet2.com (for yet to come) and pl-x.com (for patent and license exchange). Today, the names reflect a grim reality rather than anticipate an effervescent one. The transactions that these companies hope to profit from have yet to come, and the market potential for trading IP remains a big, fat X — the variable for unknown. Yet2.com Inc. and The Patent & License Exchange, Inc., both founded in early 1999, are waiting to broker their first deals. An exchange for intellectual property and technology sounds like a good idea. Research and development spending tops $200 billion a year in the United States alone, according to the National Science Foundation. Many companies, universities, and laboratories develop technology that they themselves never fully exploit. But it’s difficult to match buyer and seller and set prices. It’s been a classically illiquid market. And the Web has not changed that. Could it be that the complex work of licensing technology is not susceptible to Internet time and Internet technology? Will these companies burn through their cash before an online marketplace emerges? “I think a lot of the companies [running online exchanges] will run out of money,” says Conrad Langenhagen, director of strategic planning at yet2.com. The challenge — and opportunity — for these exchanges is twofold. They must create a liquid market, and they must do it on the Web. No small feat. A brief survey of the exchanges and how they are doing follows: PATENT & LICENSE EXCHANGE Pl-x.com is the brainchild of Nir Kossovsky, a former professor at UCLA Medical School and deputy Los Angeles coroner and the holder of 17 patents. Frustrated by the difficulties in licensing technologies he developed, Kossovsky set out to make it easy to bring buyers and sellers together. He’s raised more than $30 million from heavyweights like Ernst & Young, SOFTBANK Corporation, and even Chicago trial firm Bartlit Beck Herman Palenchar & Scott. Kossovsky says it’s not his money but his tools and approach to match supply with demand that make the difference. “Just finding each other is only half the battle,” Kossovsky says. The other half is to minimize risk for both buyer and seller. Unlike grain, oil, and pork bellies, technology is not easy to price. So Los Angeles-based pl-x.com developed a way to put a price tag on technology, using the Black-Scholes option-pricing model. The Black-Scholes formula was the breakthrough that led to the explosion of the U.S. financial options markets in the 1970s and 1980s. Kossovsky believes it can play a similar role for intellectual property. Others are less sure that the intricacies of technology are subject to the certainties of a formula. Pl-x.com also offers patent insurance, escrow services, and standard documentation. William Heise, the director of licensing at Eastman Chemical Company, says that he is close to striking a deal on pl-x.com. The pricing model gave him confidence that he was charging enough for the license, while the insurance will give the buyer a longlasting security blanket. Kossovsky has an impressive list of advisers, including former patent commissioner Bruce Lehman and former priceline.com patent lawyer Jeffrey Brandt. Now he just needs some deals to close. Pl-x.com’s fees will be 5-12 percent of the license fee. YET2.COM Yet2.com also plans to charge a middleman’s fee of 10 percent (up to a $50,000 cap). Based in Cambridge, Massachusetts, it has also raised a mountain of money — $25 million, with a second round about to close. But yet2.com differs fundamentally from pl-x.com. Companies must qualify in order to join pl-x.com. Only 300 or so companies are pl-x.com subscribers, and there is only one user name per company. Yet2.com, on the other hand, is open to anyone. The Boeing Company, E.I. du Pont de Nemours and Company, Procter & Gamble Company, and Motorola Inc. are all founding members, but so are mom-and-pop companies and a critical mass of foreign companies. “We have thousands of companies, and tens of thousands of individual users,” says Langenhagen. Like pl-x.com, however, yet2.com hasn’t closed a transaction. In June, in The Wall Street Journal, yet2.com claimed to be just weeks away from helping to arrange a deal between Boeing and Touchbridge Systems, a New York-based home networking startup. As of early November, the deal was pending. Keith Miller, Touchbridge’s chief executive, hasn’t lost interest in Boeing’s technology. He’s just busy testing and tweaking it to make sure it does what he wants. The Web might have brought window-shoppers to browse, but it can’t make them click, no matter how many millions of dollars in venture capital are at stake. IPNETWORK.COM Christine Hearst Schwarzman, the founder of IPnetwork.com, doesn’t have to worry about when she will close her first deal. In May her company announced that City Lights Software, Inc., had licensed the images used in the inspirational book “Stumbling Toward Enlightenment: An Illustrated Crisis Companion.” Unlike her competitors, Schwarzman has focused her exchange on trademarks and copyrights — the soft side of IP. She often litigated trademark and copyright cases when she practiced at New York’s Cowan, Liebowitz & Latman, so it was a natural choice. But it was also a practical one. Schwarzman didn’t want to wait the two years it typically takes for a licensing deal to take shape. IPnetwork.com has brokered about a dozen deals in which money has traded hands, taking a 10-15 percent cut. The deals are small change, but they are signed, sealed, and delivered. “I’d love to say we had a whopper,” Schwarzman says. “I’ll stand on the top of the Chrysler Building when we do.” IPnetwork.com has attracted such licensors as Marvel Entertainment, Inc., and Harvey Entertainment Company, which is offering Casper the Friendly Ghost, Richie Rich, and other images. One of the lessons of IPnetwork is that an exchange is not enough. Companies also want to track and manage their licenses and have other licensing tools. In this business, for example, it’s a pain making sure that manufacturers are using the proper colors, type styles, and designs. The Grinch always looks the same, and IPnetwork has a tool to help that happen. “I want to be Levi Strauss selling blue jeans and pickaxes to the people running to the Gold Rush,” Schwarzman says. Schwarzman has raised about $25 million from companies like Omnicom Group Inc. and big-name investors like Craig McCaw, enough to have nice offices in New York’s Graybar Building above Grand Central Station. THE DARK HORSES Two other exchanges, UVentures.com and TechEx.com, have set their sights lower, perhaps because they raised less money. The number of employees at these sites reaches double digits on a good day. The other exchanges have 50 or more employees each. UVentures, short for UniversityVentures, Inc., is located in New York’s sewing machine repair district. Run by Craig Zolan, a thirty-something new-media lawyer, UVentures is trying to help universities and nonprofit institutions find buyers for their technology. More than 200 institutions have listed more than 7,000 different technologies. Zolan says that more than 700 introductions have been made through UVentures. But so far, no matches. Zolan hopes to make money by taking a 2.5 percent to 7.5 percent fee. He says he expects to close his first deal before the end of the year. He also expects to be chasing additional money soon to supplement his $2 million launch money. “We’ve accomplished quite a bit more than our competitors with quite a bit fewer resources,” Zolan says. TechEx.com is also trying to transfer technology from the public to private sectors, but it will also assist two private companies trying to strike a deal. The site was created at Yale and spun out as a life sciences specialty exchange. TechEx doesn’t charge money when it brings together buyers and sellers. “I don’t think that Pfizer and Amgen need TechEx to stand between them to do a deal,” says Jerry Williamson, chief executive. What they do need, Williamson hopes, is information about deals and tools to assist them with deals. (The model is a variation of Walter Wriston’s belief that information about money is becoming more important than money itself.) One possibility is to automate the creation of agreements governing the transfer of research materials between organizations. TechEx is in the process of trying to convert its corporate members to an annual site license ($1,000-$20,000). TechEx’s owner, UniversityVentures, Inc., started with about $5 million in the bank and may raise more next year. But it isn’t trying to raise as much as yet2.com or pl-x.com. Those companies will need to do 1,000 deals a year to make money on their investments, says Williamson. That sort of deal flow hasn’t happened. At least not yet.

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