Five Minutes With David Silverman

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Five Minutes with David Silverman


David Silverman is the chief operating officer of the Intellectual Property Exchange International (IPXI), which was founded by Ocean Tomo. He began his career in 1982 trading futures in the pits of the Chicago Mercantile Exchange, then left in the 1990s to start his own trading arcade. He was elected to the CME Board of directors four times and was a candidate for CME chairman in 1998, but lost by two votes. He spent a few minutes talking to MarketsWiki senior editor Sarah Rudolph.

Q: How did you get involved with the Intellectual Property Exchange?

A: I was doing consulting work in financial services and met with Ocean Tomo. I read their business plan and was blown away by the idea and by the business opportunity and wanted to be a part of it. I’ve been doing it for more than a year.

Q: Can you explain how it works?

A: We have a proprietary methodology for valuing patents. We can create an index on a specific company or technology space that fluctuates according to certain metrics, such as how many patents the company is creating, how many patents are dying, the average age of the patents, pending litigations, what the interest rates are (which affects a company’s research and development), what acquisitions are going on, what developments might undermine one business and make another stronger. We could create an index around all the drugs created to cure cancer, or all the patents related to lithium ion batteries for hybrid cars.

There are 7 million U.S. patents. Our technology allows us to reach into that huge pool, extract any patents, and put a fence around those patents and create an index. The indexes operate similarly to other indexes, like the S&P500 or VIX.

In the U.S. alone, intellectual property is around $5.5 trillion dollars, and it is hugely inefficient. You need two things for a great marketplace: huge size and huge inefficiency. The market won’t build itself, but at least we have the basic raw materials. It’s like FX in 1972 or interest rates in 1975. We can add in price discovery, risk management, and liquidity. Right now it is very opaque…we’ll make it transparent.

Q: What do you see as the big innovations taking place now or in the near future?

A: We do a lot of business with big companies who own thousands of patents. In any technology space you see innovations that make your head spin. But it’s often very difficult for those companies to monetize their technological innovations, to get a return on capital. These companies or government agencies are trying to change the world, with such things as battery technology that might help relieve our dependence on foreign oil, for example. But many patents are abandoned. The life of a patent is 20 years, and it must be renewed three times during that period. It’s too costly to renew unless you are seeing real progress with your patent. About 30% of all patents are abandoned, some for good reason, but abandoned patents are an inefficient use of shareholder money.

We are developing a product called a “unit license” that will help companies abandon fewer patents. It’s analogous to an IPO in the capital markets, because it will help with price discovery—which is extremely difficult in the current intellectual property environment. We expect our first one in the second quarter of this year.

Q: In the 26 years you’ve been in the industry, what do you consider your biggest success?

A: Being in the trading world for 26 years. To have survived this long and seen all the different kinds of markets develop, to weather one crises after another up until this one-- which is by far the worst I’ve ever seen. I’m fortunate to still be around doing business with interesting people and being able to contribute.

Q: What’s the most fun you’ve had in the business?

A: I really love talking to traders. What I’ve done mostly is trade. My best friends are traders and we all speak a language not many people know how to speak. I might not like them all, but I respect anyone who makes a living the way I did for 26 years. And I am constantly learning from others. It’s a lot of fun to learn something new, which happens all the time.