WO2000075828A1

WO2000075828A1 - Business method for creating and trading a security for assets which currently lack liquidity

Info

Publication number: WO2000075828A1
Application number: PCT/US2000/014508
Authority: WO
Inventors: Sam G. Stolzoff
Original assignee: Stolzoff Sam G
Priority date: 1999-06-03
Filing date: 2000-05-25
Publication date: 2000-12-14
Also published as: AU5292800A

Abstract

A method for trading assets on an exchange and a method for creating securities in said assets. The assets selected from the group consisting of art work, intellectual property rights, real estate property rights, oil rights, mineral rights, and water rights. The method includes, in part, the following steps: establishing a medium for selling the assets such as the internet; assessing the value of the assets; dividing the assets into shares; selling the shares through the medium; determining the shareholder controlling the rights in the asset; the controlling shareholder distributing dividends to the other shareholders in proportion to the amount of shares held by the shareholder; periodically ascertaining which shareholder has a majority of the shares; allowing the majority shareholder to demand transfer of control and/or possession of the asset.

Description

BUSINESS METHOD FOR CREATING AND TRADING A SECURITY FOR ASSETS WHICH CURRENTLY LACK LIQUIDITY

BACKGROUND OF THE INVENTION

1. Field of the Invention

This invention relates generally to business methods, and more specifically to

business methods for creating and trading a security in assets and rights which

currently lack liquidity.

2. Description of Related Art

A brief review of the current art of trading may be of value in assisting one in

understanding the value of the invention claimed herein. Current methods of trading

assets and securities include:

(a) Current auction format - The current auction format consists of a group of

buyers who place bids for an entire piece of property. This mechanism excludes

many people from participating for several reasons. The main reason, however, is

that the whole property must be purchased outright. This format generally prevents

the majority of people from participating because of the cost limitations of purchasing

the entire property all at once.

(b) Current Securities - In order to compensate for the high cost of entering the

market for a large piece of property, such as a company, several different type of securities have been created. The various forms of securities are a result of the

company wanting to obtain capital, and include, stocks, bonds, and warrants. These

each give rights to the investors of the stocks, bonds, and warrants.

In the case of stock, an investor is given the right to vote for those who will

make up the board of directors. In the case of bonds, investors are given the right to

the payment of interest in the form of a dividend, as well as the proceeds of the sale of

the company's assets in the case of insolvency. There are also convertible bonds,

which begin as a bond but can be converted into stock in certain conditions. Warrants

give the investor the ability to purchase stocks at a price that is potentially at a

discount to the current market value.

There is another type of security which applies to consumable products. This

is called a commodity contract. Commodity contracts allow an individual to lock in a

price at which he would like to purchase or sell such items as wheat, pork bellies, soy

beans, oil, and other consumable items.

All of the above mentioned securities trade in an auction format on an exchange

where buyers, sellers, and market makers have the ability to transact at their leisure.

The market for companies is very liquid because they are traded in units that are

affordable to investors of all types.

These current securities formats, however, do not apply to many types of

property, making these properties illiquid. Illiquidity comes from cutting off capital

sources, the types of properties which are currently illiquid are works of art, oil

rights, water rights, mineral rights, and intellectual property rights.

The aforementioned types of securities are ill suited for auctioning smaller pieces of property such as works of art, oil rights, water rights, mineral rights, and

intellectual property rights. Stock is not appropriate because there is no guarantee for

the investor that they will be able to participate in any of the profit from the

development of the property. Bonds are inappropriate because they are vehicles that

are used to create debt, and give no rights to profits either. Options are not

appropriate because they expire eventually. None of these securities offer the

investor any monetary incentive to invest their money.

(c) Limited partnership - The limited partnership is another method for

generating capital in exchange for an interest in the profitability of an asset. The

limited partnerships allow individuals to benefit from the partial interest in the

profitability of an asset. Investors, called limited partners, purchase units of

ownership in exchange for dividend payments or income derived from the

development of the asset. Limited partnerships, however, give the investor no control

over or ownership in the asset, and the investor is often left owning a valueless

interest in the profits of an asset that did not generate a profit.

(d) Conclusion - From the preceding descriptions, it is apparent that the

business methods currently being used have significant disadvantages. Thus

important aspects of the methods used in the field of the invention remain amenable to

useful refinement.

SUMMARY OF THE INVENTION

The present invention introduces such refinement. This invention allows an

owner of an asset such as art work, intellectual property rights, real estate property rights, oil rights, mineral rights, and water rights an opportunity to obtain capital in

exchange for an equity interest in the asset as well as a dividend payment. Therefore,

currently illiquid assets can now be made liquid through use of the present invention.

This method creates a means for gaining capital in exchange for equity interest in any

valuable asset. Further, this method benefits both the sellers and the purchasers.

This method benefits the seller because it allows for a large group of buyers to

participate, and as a result, creates greater demand. The seller is also benefitted

because the method allows the seller to decide what interest the seller wishes to sell of

the asset.

This method benefits the purchasers as dividends in the form of cash or more

shares in the asset. Purchasers also have the opportunity to diversify their financial

portfolio. Further, the purchaser can eventually control, be in possession of, or

become the owner of the asset without having to purchase the asset all at once.

The limited partnership was established in an attempt to compensate for the

lack of liquidity in certain assets, however, there are can be severe consequences to

investing in a limited partnership. The main risk in investing in a limited partnership

is that the general partner can abscond with all the investment money and still retain

ownership of the asset. Thus leaving the limited partners with nothing. The present

method is superior because it protects the investor's investment in two ways. First,

the investors are protected by the fact that the investors have actual equity interest in

the asset itself. Second, the investors are protected by the fact that dividends are

being distributed on the investment, either in cash, profits, or additional shares of the

asset. As such the original owner can lose control of the asset to the investors. Hence, certain risks associated with limited partnerships are addressed by this

invention to make the method more attractive than limited partnerships.

All of the foregoing principles and advantages of the present invention will be

more fully appreciated upon consideration of the following detailed description, with

reference to the appended drawings.

DESCRIPTION OF THE PREFERRED EMBODIMENTS

While the invention will be described in connection with preferred

embodiments, it will be understood that it is not intended to limit the invention to

those embodiments. On the contrary, it is intended to cover all alternatives,

modifications, and equivalents as may be included within the spirit and scope of the

invention as defined by the appended claims.

The first preferred embodiment of this invention is a method for trading rights.

The rights can be intellectual property rights, real estate property rights, oil rights,

mineral rights, water rights, and any other currently illiquid rights. Intellectual

property rights encompass patents, trademarks, copyrights, and trade secrets.

Further, the use of the term copyrights is intended to encompass all works which are

or will be protected under the copyright laws.

The first step of the method includes establishing a medium for selling the

rights. The medium can be an Internet based company. This company will bring

together the owners of the rights and prospective purchasers of the rights.

The second step of the method includes assessing the value of the rights that

are to be sold. Assessment of the rights can be accomplished through several avenues, and can be dependent upon what rights are being assessed. For all the rights a very

important indication of value of the rights would be reports of the prior success,

capabilities, or production already received through the exploitation of the rights, as

well as an accounting of prior income generated and any increase in value of the

particular property as a whole. Another indication of the value of the rights is

through taking surveys of interest in the specific market of the particular rights. If the

rights are real estate, oil, mineral or water rights, than a geological survey would be

helpful in assessing the value of the rights being sold.

The third and fourth steps of the method include dividing the rights into shares

and then deciding the percentage of the shares to be sold. The percentage of shares to

be sold can range from a percentage greater than zero and equal to one -hundred

percent. The fifth step includes selling the shares by direct auction through the

Internet and as a result, the purchasers of the shares become shareholders. The direct

auction format includes a minimum initial offering and after that the shares are open to

bidding. Once shares are purchased the next steps of the method include discovering

the amount of shares held by each shareholder, and then distributing dividends to the

shareholders by the controlling shareholder. The dividend amount is proportional to

the amount of shares held by the shareholder.

There are several methods for distributing the dividends to the shareholders.

First, the controlling shareholder can pay cash in an amount proportional to the

amount of shares held by the shareholder. Second, the controlling shareholder can pay

with shares representing his own equity interest, thereby diminishing his own equity

in the rights and increasing the equity interest in the rights of the shareholders. Lastly, the controlling shareholder can pay dividends based on the amount of profits earned

by exploitation of the rights. Further, the dividend can be paid in any combination of

the three methods described above. The amount of the dividend will be determined by

market forces. Less attractive assets will require that higher dividends be paid.

Conversely, shares in more valuable assets may be attractive to investors even though

the dividend is less or no dividend is paid at all.

Another step of the method includes ascertaining the shareholder with a

majority of the shares in the rights. The last step of the method includes allowing the

majority shareholder to demand transfer of control of the rights to the shareholder

with the majority of shares or any other person or entity the majority shareholder

desires to have control of the rights. Further, the majority shareholder is not

necessarily a single person, the majority shareholder can include a coalition of many

individual shareholders who aggregate their shares together in order to control a

majority of the shares.

The second preferred embodiment includes a method for creating a security in

title to a piece of art work. The first step of the method includes assessing the value

of the art work that is to be sold. Assessment of the art work is done similarly to the

assessment done for the rights discussed above as well as an accounting of prior

earnings as a result of touring would also be effective. The second and third steps of

the method include dividing the art work into shares and then deciding the percentage

of the shares to be sold. The percentage of shares to be sold can range from a

percentage greater than zero and equal to one-hundred percent. The fourth step includes selling the shares by direct auction through the

Internet, and as a result the purchasers of the shares become shareholders. The direct

the amount of shares held by each shareholder and distributing dividends to the

shareholders by the shareholder controlling and possessing the art work. The dividend

amount is proportional to the amount of shares held by the shareholder.

There are several methods for distributing the dividends to the shareholders.

with additional shares in the rights in an amount proportional to the amount of shares

held by the shareholder. Lastly, the controlling shareholder can pay dividends based

on the amount of profits earned by exploitation of the art work in an amount

proportional to the amount of shares held by the shareholder.

Another step of the method includes ascertaining the shareholder with a

majority of the shares in the art work. The last step of the method includes allowing

the majority shareholder to demand transfer of possession and control of the art work

to the shareholder with the majority of shares or any other person or entity the

majority shareholder desires to have control of the art work. Further, the majority

shareholder is not necessarily a single person, the majority shareholder can include a

coalition of many individual shareholders who aggregate their shares together in order

to control a majority of the shares.

In a third preferred embodiment the invention includes a method for creating a security in oil, mineral, and water rights. The first step of the method includes

assessing the value of the rights to be sold. Assessment of the rights is done similarly

to the assessment done for the rights discussed above. The second and third steps of

the method include dividing the rights into shares and then deciding the percentage of

the shares to be sold. The percentage of shares to be sold can range from a percentage

greater than zero and equal to one-hundred percent. The fourth step includes selling

the shares by direct auction through the Internet, and as a result the purchasers of the

shares become shareholders. The direct auction format includes a minimum initial

offering and after that the shares are open to bidding. Once shares are purchased the

next step of the method includes distributing dividends to the shareholders by the

controlling shareholder. The dividend amount is proportional to the amount of shares

held by the shareholder.

There are several methods for distributing the dividends to the shareholders.

with additional shares in the rights in proportion to the amount of shares held by the

shareholder. Lastly, the controlling shareholder can pay dividends based on the

amount of profits earned by exploitation of the rights in an amount proportional to

the amount of shares held by the shareholder.

The another step of the method includes ascertaining the shareholder with a

majority shareholder to demand transfer of control of the intellectual property rights

to the shareholder with the majority of shares or any other person or entity the majority shareholder desires to have control of the rights. Further, the majority

to control a majority of the shares.

In a fourth preferred embodiment the invention includes a method for creating

a security in intellectual property rights. The first step of the method includes

assessing the value of the intellectual property rights to be sold. Assessment of the

intellectual property rights is done similarly to the assessment done for the rights

discussed above. The second and third steps of the method include dividing the

intellectual property rights into shares and then deciding the percentage of the shares

to be sold. The percentage of shares to be sold can range from a percentage greater

than zero and equal to one-hundred percent. The fourth step includes selling the

shares by direct auction through the Internet, and as a result the purchasers of the

held by the shareholder.

There are several methods for distributing the dividends to the shareholders.

held by the shareholder. Lastly, the controlling shareholder can pay dividends based on the amount of profits earned by exploitation of the rights in an amount

proportional to the amount of shares held by the shareholder.

Another step of the method includes ascertaining the shareholder with a

majority of the shares in the intellectual property rights. The last step of the method

includes allowing the majority shareholder to demand transfer of control of the

intellectual property rights to the shareholder with the majority of shares or any other

person or entity the majority shareholder desires to have control of the intellectual

property rights. Further, the majority shareholder is not necessarily a single person,

the majority shareholder can include a coalition of many individual shareholders who

aggregate their shares together in order to control a majority of the shares.

The following are two examples demonstrating the economic power of the

invention. In Example 1, a museum has ownership of an etching, such as the

Turbulent Solace by Nena Hsu. The museum not only owns the painting, but it also

owns the copyright in the image of the painting. The museum may wish to generate

capital, which it can readily do by selling Turbulent Solace, however, the museum will

no longer be in possession of the etching, which is important to the museum's art

collection. The invention allows the museum to sell equity in either the etching itself,

or equity in the copyright, or both. One unique benefit to the museum, if it only

wishes to sell equity in the copyright, is that the museum can retain possession of

Turbulent Solace even if it sells all of the copyright in the image. Further, the museum

can also sell less than fifty percent of the equity of the etching itself and still maintain

possession and control of the etching. Therefore, the museum can readily obtain a

cash flow as necessary without having to jeopardize possession of the painting. The benefits to the purchaser of shares in Turbulent Solace would be many.

First, there will be a return on investment because the museum will be distributing

dividends to the shareholders based on the amount of shares each shareholder holds.

The shareholders dividends may be derived from exhibition revenue or from any other

source. The investors would also benefit by having the opportunity to diversify their

portfolios beyond traditional investment vehicles. Museum quality art frequently

appreciates over time. If the etching is later sold to another museum, then the

investors will receive a profit on the sale of their shares. The invention is a benefit for

small, individual investors because historically such investors have not been able to

participate in the sale of such museum quality art. Investors may believe that

Turbulent Solace will command such a high premium in the future that investors will

buy shares even if no dividend is paid. The museum benefits because the invention

makes the museum's illiquid art assets liquid without removing them from display in

the museum.

The second example of the invention that illustrates its usefulness involves a

company that has various intellectual properties of value. Currently, when companies

want to generate capital they must go public and sell shares of the company. This is

generally not possible for small companies because purchasers have low interest in

investing in small, unproven companies. On the other hand, such a company may

have an impressive patent portfolio that has value independent of the company's

sales history. The company may wish to raise capital by selling shares in a portion of

one or more of its patents. Applying the invention method would allow the small

company the ability to raise capital through the selling of equity interests in the ρatent(s). This may be attractive to investors because the company could fail, but the

patents may not lose their value because the value in the patent monopoly is not

necessarily a function of the performance of the company. Further, this method

would allow a company with several intellectual properties to sell equity interest in

only one property or part of one property.

Claims

I Claim:

1. A method for trading rights, said rights selected from the group consisting of

intellectual property rights, real estate property rights, oil rights, mineral rights, and

water rights, said method comprising the steps of:

establishing a medium for selling the rights;

assessing the value of the rights;

dividing the rights into shares;

deciding the percentage of the shares to be sold;

selling the shares by direct auction through the medium thereby creating

shareholders, wherein the shareholders being either a majority shareholder or a

minority shareholder;

discovering the amount of shares held by each shareholder;

determining the shareholder controlling the rights;

the controlling shareholder distributing dividends to each shareholder

proportional to the amount of shares held;

periodically ascertaining the shareholder with a majority of the shares in the

rights; and

allowing the majority shareholder to demand transfer of control of the rights to

the shareholder with the majority of shares.

2. The method of claim 1, further comprising transferring the control of the rights

to the shareholder with the majority of shares.

3. The method of claim 1 , wherein the medium is the Internet.

4. The method of claim 1 , wherein the dividends are zero.

5. The method of claim 1, wherein the step of distributing dividends comprises

supplying the shareholder with additional shares in the rights in an amount in

proportion to the amount of shares held by the shareholder.

6. The method of claim 1, wherein the step of distributing dividends comprises

distributing profits earned by exploitation of the rights in an amount in proportion to

the amount of shares held by the shareholder.

7. The method of claim 1, wherein the majority shareholder is a coalition of many

shareholders.

8. A method for creating a security in the title of ownership of chattel by having

shares that represent an equity interest in the chattel, shareholders who own the

shares of the chattel, and a controller of the chattel, the chattel being art work and the

physical piece of art work being separate from the copyright in the art work, said

method comprising the steps of:

establishing a medium for selling the rights;

assessing the value of the art work;

dividing the art work into shares; deciding percentage of the art work in shares to be sold;

selling the shares by direct auction thereby creating shareholders, wherein the

shareholders being either a majority shareholder or a minority shareholder;

discovering the amount of shares held by each shareholder;

determining the shareholder controlling the rights;

distributing dividends to each shareholder proportional to the amount of shares

held by the shareholder, wherein the dividends are distributed by the controlling

shareholder;

ascertaining the shareholder holding a majority of the shares in the art work;

and

allowing the majority shareholder to demand transfer of possession and control

of the art work to the shareholder with the majority of shares.

9. The method of claim 8, wherein the step of distributing dividends comprises

distributing cash to the shareholder in an amount proportional to the amount of shares

held by the shareholder.

10. The method of claim 8, wherein the step of distributing dividends comprises

supplying the shareholder with additional shares of the art work in an amount in

proportion to the amount of shares held by the shareholder.

11. The method of claim 8, wherein the step of distributing dividends comprises

distributing profits earned by exploitation of the art work in an amount in proportion

to the amount of shares held by the shareholder.

12. The method of claim 8, wherein the majority shareholder is a coalition of many

shareholders.

13. A method for creating a security in oil, mineral, and water rights by having

shares that represent an equity interest in the rights, shareholders who own the shares

of the rights, and a owner of the rights, said method comprising the steps of:

establishing a medium for selling the rights;

assessing the value of the rights;

dividing the rights into shares;

deciding percentage of the rights in shares to be sold;

selling the shares by direct auction thereby creating shareholders, wherein the

shareholders being either a majority shareholder or a minority shareholder;

discovering the amount of shares held by each shareholder;

determining the shareholder controlling the rights;

distributing dividends to each shareholder proportional to the amount of shares

held by the shareholder, wherein the dividends being distributed by the shareholder

controlling the rights;

ascertaining the shareholder holding a majority of the shares in the rights; and

allowing the majority shareholder to demand transfer of control of the rights selected from the group consisting of oil, mineral, and water rights to the shareholder

with the majority of shares.

14. The method of claim 13, wherein the step of distributing dividends comprises

held by the shareholder.

15. The method of claim 13, wherein the step of distributing dividends comprises

supplying the shareholder with additional shares of the rights in an amount in

proportion to the amount of shares held by the shareholder.

16. The method of claim 13, wherein the step of distributing dividends comprises

the amount of shares held by the shareholder.

17. The method of claim 13, wherein the majority shareholder is a coalition of

many shareholders.

18. A method for creating a security in intellectual property rights by having

of the rights, and a owner of the rights, said method comprising the steps of:

establishing a medium for selling the rights;

assessing the value of the rights; dividing the rights into shares;

deciding percentage of the rights in shares to be sold;

selling the shares by direct auction thereby creating shareholders, wherein the

shareholders being either a majority shareholder or a minority shareholder;

discovering the amount of shares held by each shareholder;

determining the shareholder controlling the rights;

distributing dividends to each shareholders proportional to the amount of

shares held by each shareholder, wherein the dividends being distributed by the

shareholder controlling the rights;

allowing the majority shareholder to demand transfer of control of the

intellectual property rights to the shareholder with the majority of shares.

19. The method of claim 18, wherein the step of distributing dividends comprises

held by the shareholder.

20. The method of claim 18, wherein the step of distributing dividends comprises

supplying the shareholder with additional shares of the rights in an amount in

proportion to the amount of shares held by the shareholder.

21. The method of claim 8, wherein the medium is the Internet.

22. The method of claim 13, wherein the medium is the Internet.

23. The method of claim 8, wherein the medium is the Internet.