Unlocking Wealth: Tokenizing Intellectual Property Now

Authored by Babak Akhlaghi on April 12, 2025. One of the fundamental flaws in traditional IP frameworks is how difficult it is to monetize them. This is natural due to their intangible nature. How can you sell something you can’t see? Nevertheless, IP is arguably the most valuable asset of any company. Without it, they cannot maintain exclusivity to their idea or raise funds effectively.

Even with a proper IP protection, raising funds, is not an easy task. Ask any startup trying to secure capital. They have a valuable IP portfolio surrounding the very product they’re developing, but in an increasingly tight fundraising environment, it has become challenging to raise money.

Part of the reason is that inventors struggle to value their IP, which makes it harder to attract investment. Traditional fundraising methods add to the problem. Startups spend months negotiating term sheets with VCs and companies, only to then involve lawyers who draft agreements and haggle over provisions until both sides agree. By that point, they’ve already lost significant time and money to legal fees. Every dollar matters for startups, and on top of these costs, they often have to give up equity just to secure funding.

Tokenizing IP Changes Everything

Tokenizing IP will fundamentally change the relationship between creators and their IP. Take patents, for example. Patent portfolio tokenization involves converting patents into digital tokens on a blockchain. These tokens represent fractional ownership of future royalties or revenue derived from licensing or enforcement of patents.

These tokenized patents can then be associated with smart contracts that automatically enforce royalty-sharing agreements and distribute payments to token holders. Investors can buy tokens and gain stakes in future royalty revenue without directly engaging in IP licensing. Startups can raise funds to build their products without giving up board seats or equity. All they need to do is monetize their valuable IP and share the royalty revenue.

A Practical Example of Tokenizing Patents

Imagine you’re a startup with a valuable patent portfolio. You can tokenize it by issuing 1,000 tokens using a blockchain like Ethereum. Each token might represent 0.1% of royalty rights to the patent portfolio. If the portfolio generates $1 million in licensing fees, each token earns $1,000.

If you need $500,000 to finish your product and commercialize it, you can sell 500 tokens (50% rights to future royalties) to investors. A smart contract coded on the blockchain includes your license terms such as royalty rates, terms, field of use, and rules for revenue sharing.

When a company wants to license your portfolio, they find it on a marketplace, agree to the terms, and pay through the blockchain. The smart contract activates and executes instantly. If you receive $1 million in licensing fees in the first year, the smart contract sends $500,000 to you and $500,000 to the investors who own 50% of your patent tokens.

This benefits startups because they don’t have to chase payments, royalty splits are automatic and error-free, and they don’t give up equity or board seats. It works for investors because it’s transparent, tradeable like stocks, and payments are automatic. They don’t need to audit startup books, and their risk is tied to IP performance rather than management decisions.

Attribution and Enforcement at Scale

Tokenizing IP will certainly help with attribution and enforcement of IP rights. Each digital token has a verified owner. For example, the creator of art who tokenizes their work will be the registered owner and can determine licensing terms for its use.

The licensing terms might permit non-commercial use while restricting commercial use or allowing it subject to a 10% royalty fee. Terms can also specify whether derivative works are permitted and the boundaries within which such derivatives may be created. As long as creators operate within these boundaries, they would be considered legitimate owners and marked as such in the graph-based asset structure.

This way, as art evolves in the digital arena, it becomes easier to track its origin and provide proper attribution. This solution is notably scalable as massive amounts of data are being produced, particularly with AI evolution.

Furthermore, tokenizing IP can make enforcement of rights easier for owners. Licensing terms can include enforcement provisions such as arbitration and choice of law clauses. It will help identify infringing uses and initiate takedown actions more efficiently. Lastly, tokenized IP assets can act as a deterrent because systems creating such tokens should technically be able to identify and flag infringing usage, exposing bad actors.

Challenges at the Intersection of Law and Technology

Tokenizing IP is exciting and will open new doors to monetizing IP portfolios, allowing inventors and startups to benefit from their innovations. However, significant challenges lie ahead.

From a legal standpoint, IP laws vary widely across jurisdictions, and tokenizing IP that can be traded across jurisdictional boundaries must account for this reality. Creating standardized agreements applicable in all jurisdictions won’t be easy. Legal language is often nuanced and open to interpretation, while smart contracts require precise, deterministic logic. Translating complex legal terms like “fair use” or “reasonable efforts” into executable code presents a significant challenge.

Technically, valuing each tokenized IP asset remains difficult due to the intangible nature of intellectual property. Another technical challenge is interoperability. IP is generated off the blockchain technology, which must be updated with newly granted or generated IP.

New Business Models and Power Dynamics

Automated royalty flow and transparent ownership will build trust between creators and consumers of IP. Consumers would know who owns the IP, and payments execute automatically. There’s no need for expensive audit provisions or legal fees for drafting agreements. People can trade tokenized IP much like stocks in a market, with just a click on their computer.

As IP assets become tokenized, they function like company shares and can be traded or sold like stocks. However, a significant difference is that stocks are associated with equity, whereas tokenized IP can be limited to the intellectual property itself and won’t dilute startup ownership. We can envision scenarios where tokenized IP values fluctuate based on speculation about how well the IP portfolio will perform and generate revenue.

Adoption Patterns and Resistance

Legal challenges will be significant. I suspect the broad adoption and enforcement of smart contracts won’t be easy. Interoperability among different systems producing tokenized IP may also be challenging, as will enforcement across non-interoperable platforms.

Like almost everything else, I believe larger, more established companies will adopt this model later. It’s always harder to move giants, whereas smaller companies and startups looking for creative ways to monetize their IP to fund operations will adopt more quickly. Similarly, universities with technology transfer offices may be among the early adopters.

AI and the Future of Ownership

A tokenized IP asset can specify licensing terms, including whether it can be used for training AI. For instance, terms may state that the asset is allowed as training data for educational purposes but not for commercial applications. This clarity strengthens the rights holder’s position in litigation if someone violates the specific licensing terms.

It will also help identify AI-generated creative works that have used tokenized IP in their generation. This may help resolve ambiguity around data sources in generative AI output and provide proper attribution, even if the final result is determined to be fair use.

For creating a truly universal IP infrastructure, blockchain interoperability across various systems is extremely important; otherwise, the system won’t function effectively. Someone might easily steal tokenized IP from one system and use it in a non-interoperable system to avoid enforcement or royalty payments. However, AI could potentially identify these infringing uses across the internet and flag them to system operators for takedown or enforcement actions.

Ownership will evolve in groundbreaking ways. Traditionally, it ties to equity in a company, represented by stocks and shares. However, it could soon expand to include percentage stakes in tokenized IP connected to a company, separate from equity. A hybrid model may also arise. Specifically, under a programmable IP framework, tokenized IP assets could also link to equity in the company, creating a more dynamic and innovative way to define ownership.

Opening New Doors

Tokenizing IP assets can open the door to entirely new ways of thinking about monetization of patents and other intellectual properties. Ask any individual inventor, and one of their biggest struggles is monetizing their IP portfolio. It’s challenging and often falls outside the domain of expertise of the patent attorneys who drafted and prosecuted the applications.

The Struggles of Monetizing Patents in Traditional Frameworks

Patent offices worldwide offer platforms for listing patents available for licensing, but their effectiveness is unclear. Even if these platforms work well, licensing a patent is complicated. It demands the resources to develop and commercialize the technology, a significant challenge for startups or individuals.

As an entrepreneur and a teacher of legal aspects of entrepreneurship at the University of Maryland College Park, I know firsthand the rewards and challenges of entrepreneurship. Entrepreneurs must tackle numerous tasks, including forming a company, drafting bylaws, hiring employees, creating IP assignment agreements, managing vendors, handling cash flow, and scaling operations. These hurdles come even before addressing the complexities of commercializing licensed patents.

Licensing patents isn’t easy and requires considerable time and resources. This naturally limits the pool of potential licensees. Even when someone is willing, the process of finalizing a licensing agreement is outdated and cumbersome. It involves contacting the inventor, negotiating agreements through lawyers, and monitoring the licensee to ensure they meet commercialization milestones.

How Tokenization is Redefining IP Ownership and Accessibility

By programming IP into tokenized assets, you make them easily available and tradable, opening the pool of potential buyers to individuals with no interest or means to commercialize patents but who want to own a piece of future royalties for a fair token price.

I suspect we’re moving toward this model in the next 3-5 years, opening new doors for patent owners, particularly individual inventors not interested in or capable of developing products captured by their patents. It will be equally valuable for startups strapped for funds to grow and develop their products.

Exciting times lie ahead when we can trade tokenized IP assets like stocks, accessible to ordinary people at their fingertips. This will create new incentives for innovation, allowing people to reap the benefits of their creativity more directly than ever before.

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