The Executive’s Guide to Intellectual Property Tokenization

Imagine being able to earn royalty income from Michael Jackson’s smash record, ‘Heal the World.’

A couple of decades ago, before blockchain technology, that would have been a mere fantasy. However, it’s a possibility today through a concept known as intellectual property tokenization. 

Eager to find out how? 

In this article, we explore intellectual property tokenization, some examples of real-life intellectual property tokenization projects, its benefits, and how to tokenize intellectual property rights. 

In a hurry? 

Here are some key facts:

TL;DR: 

• Intellectual property refers to all intangible creations of the mind. E.g., books, articles, music, artworks, etc. 
  
  
• Intellectual property rights are the legal ownership rights to creations of the mind
  
  
• Intellectual property tokenization is the process of converting the ownership or usage rights to IP assets into digital tokens on blockchain platforms
  
  
• Common examples of IP tokenization projects include CryptoKittles, Molecule, and Ethernity. 
  
  
• Tokenization of intellectual property facilitates IP monetization, global accessibility, transparency, fractional ownership, and streamlined royalty management

What is Intellectual Property? 

Intellectual property refers to intangible assets that are creations of the mind conceptualized through human intellect and creativity. While IP assets may not be tangible, they are highly valuable to businesses and individuals. More so, they’re created with significant intellectual effort. 

Examples of intellectual property (IP) assets include: 

• Literary and artistic works, e.g., books, articles, paintings, music compositions, etc.
  
  
• Inventions, e.g., machines, pharmaceutical drugs, software algorithms, etc. 
  
  
• Designs, e.g., graphics, product designs, etc.
  
  
• Cinematographic works, e.g., films and videos. 
  
  
• Proprietary brand materials, e.g., logos, brand names, advertising slogans, etc. 
  
  
• Trade secrets, e.g., proprietary formulas, marketing strategies & formulas, business processes, etc. 

To ensure that the creators of these IP assets get rewards for their intellectual and creative efforts, the creators are usually granted IP Rights to prevent the unauthorized use of their works. These IP Rights usually come in different forms depending on the nature of the IP asset. Some of them include: 

• Patents: for protecting inventions 
  
  
• Trademarks: for protecting proprietary brand materials 
  
  
• Copyrights: for protecting literary and artistic works 
  
  
• Trade Secrets: for protecting confidential business information
  
  
• Industrial Designs: for protecting the ornamental or aesthetic part of an article
  
  
• Geographical Indications and Appelations of Origins: for indicating goods that have a specific geographical origin

What is Intellectual Property Tokenization?

Intellectual property tokenization is the process of converting the ownership or usage rights to IP assets into digital tokens on blockchain platforms. This means creating tokens that represent various forms of ownership of the IP asset. 

As such, the tokenization of intellectual property creates an awesome opportunity for IP monetisation because buyers can then trade or use these IP asset tokens just like physical assets after acquiring them. Let’s say the Coca-Cola company decides to tokenize the IP rights to the famous secret Coca-Cola recipe. This would mean the created tokens would represent ownership or usage rights to that recipe. The same thing applies to other types of IP rights like patents, copyrights, trademarks, etc. 

By tokenizing IP rights, IP management becomes a bit more streamlined as IP becomes more liquid and accessible. Moreover, most businesses consider IP as a crucial factor influencing business strategy, market positioning, and competitive advantage. So, tokenization as an advancement definitely puts a positive spin on things. But we’ll talk about this in more depth shortly. 

For now, let’s examine real-life instances of intellectual property being tokenized. 

Examples of Real-life Intellectual Property Tokenization Projects 

The following are some real projects involving the tokenization of intellectual property. Most of them involve the combined use of non fungible tokens and intellectual property.

1. CryptoKitties  – Tokenizing Digital Collectibles as NFTs

CryptoKitties is a blockchain-based game where players collect and breed digital “furrever” cats. These cats are one-of-a-kind cats that are 100%-owned by each player after collection. 

The digital cats collected in CryptoKitties are non fungible tokens and intellectual property created by digital artists. As such, the game creates a thriving marketplace for digital collectibles and intellectual property. For more context, there have been reports of a person purchasing Dragon, a CryptoKitty for a whopping sum of 600 ETH (approximately $170,000)

2. Red Bull Racing — Tokenizing F1 Racing NFTs 

Formula 1 racing team Red Bull Racing collaborated with blockchain-based platform Bondly to create non fungible tokens representing iconic moments from the team’s racing history. In this instance, the iconic moments being tokenised as NFTs are intellectual property assets. 

The project gives the racing team a chance to engage its fans and monetise its intellectual property. These NFTs include exclusive images, videos, and virtual experiences, thus providing fans with unique ways to engage with the team while monetising its intellectual property. 

3. Ethernity  — Tokenizing Digital Art

Ethernity is another notable example of IP tokenization focused on digital art. The platform allows artists to tokenize their digital art into NFTs to facilitate ownership and trading on the blockchain. By doing this, Ethernity is empowering digital artists to get monetary value for their intellectual property. 

Ethernity’s service offering also borders on tokenization RWA as the platform leverages its EVM-compatible Layer 2 on Optimism to transform real-world assets and global franchises into blockchain-native experiences. 

4. Royal Platform — Tokenizing Music Intellectual Property 

The Royal.io platform is currently building tokenization projects at the intersection of music and crypto. Its unique value proposition unlocks economics for both musicians and listeners by enabling artists to tokenize their music rights. Concurrently, it also allows fans and investors to purchase fractional ownership of songs and albums. 

5. Molecule — Tokenizing IP Rights to Scientific Data

Molecule is a platform whose main goal is to support translational science and reduce human suffering through scientific discoveries through the tokenization of intellectual property. The platform is driving public involvement in bringing the best scientific research to the market. 

With Molecule, researchers can create Intellectual Property Tokens (IPTs), which represent fractional governance rights over the intellectual property generated from the research. In turn, investors can purchase these IPTs to become stakeholders who have a unique opportunity to participate in the decision-making and future directions of the research. These opportunities include patents on novel compounds, proprietary screening systems, and potentially even therapeutic methods. 

How cool is that? 

These projects represent some of the ongoing efforts in the field of intellectual property tokenization. But how can businesses benefit from this novel approach? Jump to the next section as we discuss some tangible benefits of intellectual property tokenization.

Benefits of Intellectual Property Tokenization

The following are the potential business benefits of intellectual property tokenization for all stakeholders involved in the IP ecosystem. 

1. Increased Liquidity in the IP Market 

Dividing an intellectual property asset or ownership rights into smaller bits of tradable tokens makes it easy to buy and sell the IP without affecting its underlying value. The tokens can be easily traded on blockchain platforms or marketplaces. 

This, in turn, makes it easy for creators to get quick financial rewards for their intellectual efforts. The Molecule platform is a good example of this, as it makes it easy for investors to gain access to potentially groundbreaking scientific research. Compared to traditional methods, this is more effective and efficient. 

2. Global Accessibility 

IP tokenization eliminates the geographic barriers that may exist between IP right owners and potential investors. Due to the use of blockchain technology, this global accessibility makes the IP market more inclusive for all interested participants. 

Molecule also qualifies as an excellent example in this instance. Regardless of a researcher’s location, investors around the world can become stakeholders as long as they’re interested in the research direction. 

3. Transparency and Security 

The process of transferring IP rights ownership between parties can be very sensitive, and malicious entities may want to hijack this process fraudulently. However, the risks of this can be greatly reduced with the help of blockchain technology and smart contracts. 

Tokenization makes IP transactions and sharing more traceable and secure because blockchain technology provides an immutable record of who gets access to what. Smart contracts, on the other hand, can be used to define foolproof conditions that guarantee the authenticity of IP transactions. 

4. Fractional Ownership 

Tokenization of intellectual property creates a unique opportunity for different investors of varying investment appetites to own different sizes of the same IP asset. This is a good thing because some investors with limited resources might have otherwise been discouraged from investing in these IP assets. 

Furthermore, fractional ownership promotes community involvement and creates earning opportunities for fans and enthusiasts instead of only corporate entities. 

5. Streamlined Royalty Management 

Royalty payment disputes are among the most common issues musicians face, especially with record labels, streaming companies, and licensing organizations. However, with the tokenization of intellectual property rights in music, they could avoid these disputes by utilizing smart contracts that explicitly dictate the payment terms in code. This can also prove advantageous in situations where franchises want to use these songs for advertising purposes. It eliminates the need for intensive legal back-and-forth. 

Imagine if your business is getting a piece of the royalties from Michael Jackson’s Heal the World record without any hassle. That’s one of the possibilities with the tokenization of intellectual property. 

6. Novel Funding Models 

With investors around the world now having unrestricted access to the IP market, there are newer funding opportunities for different, exciting projects. Creators can now issue IP tokens in a bid to use them to raise capital for research, development, and creative projects. 

Molecule’s tokenization model comes to mind as an excellent example of this once again. When investors take interest in a particular research, they can purchase its IPTs and the researchers can use the funds to advance the research in the decided direction. 

Sounds exciting enough? 

Let’s discuss how you or your business can also get some skin in the game. 

How to Tokenize Intellectual Property Rights

The following is a breakdown of the steps to transform traditional IP assets into digital tokens on the blockchain. 

1. Verification of Ownership Over the Asset

Firstly, you need to establish a legitimate claim to the intellectual property asset you’re about to tokenize. You must be able to prove beyond a reasonable doubt that the entity tokenizing the IP asset is indeed the legitimate owner to prevent future disputes. 

You can verify ownership of the asset by providing evidence like registration documents for patents, trademarks, copyrights, or legal agreements for trade secrets. This automatically means any creator who thinks they’ve created something novel should have filed for these registrations prior to making an attempt at IP tokenization. 

2. Asset Valuation

After establishing clear ownership claims over the asset, you need to evaluate it to ascertain its true value, potential market demand, and feasibility for tokenization. Your goal here should be to determine the economic value that the tokens will represent before making the conversion. These speculations will enable you to put a fair price on each token unit. 

Therefore, you need to quantitatively determine the IP asset’s value both in the current and future market based on its revenue-generating potential, commercial applicability, and competitive advantage. 

3. Creating the Tokenomics 

A digital asset’s tokenomics refer to its economic model, i.e., how it will be created, distributed, and used within the ecosystem. At this stage, you’ll also be deciding how much rights the ownership of a unit of your IP token will afford an owner. This is why it is important to have ascertained the IP asset’s value in step 2 above. 

In summary, creating the tokenomics is about dividing the IP asset into digital tokens representing fractional ownership. 

4. Developing Smart Contracts 

After splitting the IP asset into tokens, you can start writing smart contract code that’ll govern the ownership, transfer, and use of the IP tokens. Basically, this is about stating the conditions that must be satisfied before an investor takes ownership of the IP assets. 

Additionally, smart contracts can also specify licensing restrictions and conditions for using the IP rights. 

5. Choosing the Blockchain Platform for Tokenization 

Choosing the blockchain platform for tokenization is about selecting your preferences for the entire ecosystem. You have to evaluate several factors to ensure the platform aligns with the specific requirements of the IP asset and its intended use. 

The process also involves choosing your preferred token standard, such as ERC-721, ERC-1155, and other specialized standards. 

6. Building the App to Manage the IP Tokens 

Now, it’s time to start building some client-facing infrastructure, such as the app. This is the interface that investors from around the world interact with when they want to purchase some of your IP tokens. 

This digital platform should facilitate the secure creation, transfer, and management of tokenized IP assets. Therefore, before delving fully into this, you should define the platform’s core functionalities, select a convenient technology stack, and ensure its full security. 

7. Token Issuance and Distribution 

After generating the non fungible tokens and intellectual property tokens, you can start distributing them to the appropriate stakeholders. For a project with no prior investors, the entity with ownership claims to the IP assets will distribute them to investors who show interest. 

8. Token Release on the Secondary Markets

Finally, you can now make your IP tokens available for trading on exchange platforms. This final step allows interested investors and stakeholders to purchase different token units on blockchain-based exchanges or marketplaces. 

Conclusion: Leverage the Tokenization of Intellectual Property for IP Monetization

So, yes, you could be earning income from Michael Jackson’s song if he tokenized the song’s IP rights and you purchased it. 

But not to worry, you can still benefit from intellectual property monetization. You may have a novel artistic work, a trade secret, a fan-favorite film, or any fine creation of the mind. 

Here at Debut Infotech, we have a seasoned team of real world asset tokenization experts who can help you tokenize the intellectual property rights to these IP assets. 

Reach out to them today to start reaping the benefits of IP monetization. 

Frequently Asked Questions (FAQs)