My company, Intellectual Ventures, is misunderstood. We have been reviled as a patent troll—a renegade outfit that buys up patents and then uses them to hold up innocent companies. What we’re really trying to do is create a capital market for inventions akin to the venture capital market that supports start-ups and the private equity market that revitalizes inefficient companies. Our goal is to make applied research a profitable activity that attracts vastly more private investment than it does today so that the number of inventions generated soars.

“That’s preposterous,” some might say. “Inventing can’t be a business in its own right. It’s too risky, and inventions are too intangible to generate sufficient profits by themselves. Inventing and inventions can’t be separated from the companies that turn the ideas into actual products. And the notion of creating a liquid market for inventions is absurd.”

I couldn’t disagree more. In the 1970s, people said the same thing about another type of intangible intellectual property: software. Back then, everyone in the computer industry believed that software was valuable only because it helped to sell mainframes or minicomputers and that you could never sell software by itself. As a result, software engineers worked for computer manufacturers or for companies that used computers. Very few independent software vendors existed, and those that did were barely profitable. As a business, software was hopeless. Everyone said so.

Everyone was wrong, of course. Over the next three decades, software became one of the most profitable businesses in history. I know because, as a manager and ultimately the chief technology officer at Microsoft, I had a ringside seat to this amazing success story.

Software owes its ascent largely to two crucial developments. First, software vendors gradually persuaded software users—through both education and lawsuits—to respect intellectual property rights and pay for something that they might otherwise simply copy. Then vendors liberated software from hardware by overcoming system incompatibilities and developing solutions that could work on many different brands of computer. When the PC revolution hit, software became an industry in its own right.

I believe that invention is set to become the next software: a high-value asset that will serve as the foundation for new business models, liquid markets, and investment strategies. The surprising success Intellectual Ventures has had over the past 10 years convinces me that, like software, the business of invention would function better if it were separated from manufacturing and developed on its own by a strong capital market that funded and monetized inventions.

Sidebar Icon What an Invention Capital Market Would Do For:

The lessons we have learned so far suggest that a full-fledged invention capital system could solve many of the problems that have long plagued both inventors and the consumers of inventions: inadequate funding for applied research, an inefficient market for connecting companies with the inventions they need and for monetizing inventions, a balkanization of the inventors and inventions required to tackle big problems, and an enforcement and arbitration system that simultaneously permits too much infringement and relies too heavily on lawsuits to determine price.

My company—the largest of a new breed of invention capital firms—is leading the drive to solve these problems. It is still early days. But I’m convinced that if we and firms like us succeed, the invention capital system will turbocharge technological progress, create many more new businesses, and change the world for the better.