Tech Talk—Intellectual Property Auction Site Draws Heavy Action

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Call it eBay for intellectual property.

Patent & License Exchange Inc. of Pasadena is hosting online auctions on its Web site www.pl-x.com that are attracting heavy hitters in the world’s bustling intellectual property sector.

Universities, research institutions, government agencies, companies, scientists and inventors are selling, licensing or auctioning off their patents and a wide range of intellectual property at the site.

And business is booming.

That’s because there are billions of dollars in unused intellectual property in today’s technologically rich landscape, according to Patent & License Exchange co-founder Alex Arrow.

“Any company that sells a product is going to have technology and undeveloped products that they haven’t launched,” Arrow said. “They may not know it, but they own intellectual property.”

And much of that intellectual property is “wasting away.”

“The world’s technology-owning companies have much more technology that they’ve created than they can commercialize,” he said. “They create new products and they’re commercializing only a fraction. What they don’t commercialize can go to waste, or it can be licensed by other companies.”

Arrow, who holds a physics degree from Cornell and a medical degree from Harvard, founded pl-x two years ago with another scientist, former UCLA medical school professor Mir Kossovsky.

While at UCLA, Kossovsky was awarded 17 patents for everything from drug-delivery systems to flavor and fragrance stabilizers. Because he did not want his creations to go to waste, Kossovsky tried to license them back from the university, so he could commercialize them. But that proved nearly impossible because the school was concerned about getting ripped off in the marketplace.

“Patents and other intellectual property sit around unused and unsold because sellers don’t know how to value them and fear the risks of selling them outright,” said Arrow.

Arrow, Kossov-sky and Kossovsky’s wife, Bear Brandegee, set out to build a business around a new, objective way of valuing intellectual property, one that borrows heavily from the world’s most developed trading market, the stock market.

On the pl-x Web site, users can track the performance of a certain industry sector, and the site will offer a suggested price for a patent.

Pl-x has some major backers. Ernst & Young has taken an undisclosed minority stake in the company and has signed on to help set up the exchange around the world. Swiss Re New Markets, another equity stakeholder, has stepped up to cover liabilities for companies that buy intellectual property that goes sour. Chicago Title Corp., the title insurance and real estate services giant, has agreed to provide escrow services for transactions.

Last March, when most investors were fleeing from dot-com deals, pl-x attracted $30 million in its third round of financing. Santa Monica-based venture firm TMCT Ventures LP, one of Southern California’s largest venture capital funds, led the investment round.

Pl-x generates revenue from an annual subscriber fee $15,000 for for-profit companies and $5,000 for not-for-profit entities and from a commission it takes on the closing value of each transaction. The company also sells data to various media organizations.

A slew of L.A. companies and institutions, ranging from Cyrano Sciences Inc. to Lakeshore Entertainment to the University of California, are active on the pl-x site.

Legit Online Music

Launch Media Inc. in Santa Monica could emerge as a shining example of an Internet music company that can find success without relying on pirated songs and by relying heavily on Internet advertising.

While many ad-based Web sites are biting the dust, the business model seems to be paying off for Launch.

Earlier this month, the company was rated by Deloitte & Touche as one of the 500 fastest growing technology firms in North America, with five-year revenue growth of 1,384 percent.

For seven years, Launch has used technology first in CD-ROM format and now via the Internet that brings music to consumers. Instead of offering digital versions of copyrighted songs as MP3 did or writing software to locate pirated music on other people’s computers as Napster did Launch obtained licenses for songs and videos from music publishers and labels.

Launch also takes a novel approach to advertising.

Contrary to popular belief, said CEO and founder David Goldberg, Internet consumers don’t hate advertising. They just hate the way it’s typically displayed.

“Our consumers are annoyed by the traditional banner ad,” Goldberg said. “They don’t like advertising where the creative is not good. They don’t like ads that are displayed in a way that interrupts their programming or that’s not targeted at them.”

But if the advertising is creative, carefully targeted and well placed, consumers will not only look at the ad, they’ll enjoy it, Goldberg insisted.

“In general, people who thought they could build a business just by selling banner ads are not in business anymore,” Goldberg said. “You’ve got to have something that delivers the message that advertisers want to deliver. If you’re Coke, you don’t want to reach out to consumers through a banner ad. You want to make an emotional connection with the consumer, to get them out of the chair and to go get a Coke.”

Coca Cola Co., General Motors Corp., AT & T; Corp., Procter & Gamble Co. and Kellogg Co. are among Launch’s advertisers.

To make that crucial “emotional connection,” Launch offers advertisers TV-like commercials and other ads that are cleverly integrated with the site’s music content.

But Goldberg’s ultimate vision for Launch is not to turn consumers on to cool ads; it’s to turn music fans on to new music. He hopes Launch technology will soon replace radio by streaming personalized digital music directly to listeners via the Internet.

Launch plans to debut that technology early next year in Japan, where wireless technology has far outpaced the technology in the United States. The company will serve up personalized, CD-quality digital music on personal digital assistants.

Possibly, in due time.

Although it is growing fast, the company is not yet profitable. Last year, Launch posted a net loss of $37.5 million on revenue of $16.6 million. In the first half of 2000, Launch lost an additional $24.1 million on revenue of $14.3 million.

Investors are definitely wary. Launch shares were trading below $3 apiece late last week, way below their initial public offering price of $22 in April 1999.

Analysts, however, expect that the company’s increased advertising revenue will eventually carry Launch to profitability.

Staff reporter Hans Ibold can be reached at [email protected].

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