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No free ride in battle against patent trolls, says RPX co-founder

More details have emerged about RPX Corp, the anti-NPE (troll) venture first covered on this blog back in September. Designed as a defensive patent fund, RPX will invite companies to contribute between $35,000 and $4.9 million a year, depending on size, to join up. The money received will be used to acquire patent portfolios and, in some cases, to take out licences on patents, that might otherwise have been asserted against members. The first two companies to get involved formally are IBM and Cisco Systems.

I spoke with RPX co-founder John Amster earlier today and asked him what incentives there were to become actively involved with RPX. After all, one of the company’s promises is that it will never assert the patents it acquires against anyone – not just its own members. On this basis, isn’t there a case for saying that instead of paying close to $5 million a year, why not piggy-back on other people’s investments, let them pay RPX the money and still find that your troll troubles are not as great as they used to be? Amster actually came up with several very good reasons why this would not be the most effective of strategies.

The first one he described as being somewhat philosophical in nature. RPX is the first attempt to establish an independent means of developing effective defences against the activities of NPEs. It is a project run by people with many years of experience in operating in the field, backed by a team of high class technologists. Initial funding comes from two high-quality sources: Kleiner Perkins Caufield & Byers and Charles River Ventures. Quite simply, if Amster & co, backed by KPCB and CRV, cannot pull it off, will anyone be able to? “All operating companies have a stake in making this work; if they do not support it, it will not exist,” Amster said. And then how do you fight back against troll activities? Indeed, if you do not attempt to counter NPEs, do you have any right to complain about them in the first place?

Moving from philosophy to practicality, while it may be possible to piggy-back some RPX activity, you should not count on it. The idea is to concentrate specifically on the needs of members. “We will not be buying rights to cover people who are not paying us,” says Amster. So, while you may get lucky now and again, the chances are that most of the time you will not. And in some cases you definitely will not. Amster cited the theoretical example of a litigation involving 10 companies – five of which were RPX members, five of which were not – up against an NPE asserting a patent. “We might well buy a sub-licence to the technology for our members and leave the other five to their own devices,” he explained. It would not be something RPX would always do, and there are reasons why they would not want to do it, but it is there as an option. “Our aim is to deploy the capital we have available in the way that directly benefits our members the most,” Amster said. If you add sub-licensing and buying together, he believes that in many cases companies paying RPX $4.9 million a year will end up saving themselves $20 million or more on what they would have paid to sort out their NPE troubles alone.

Finally, from a purely economic perspective, Amster revealed that companies getting involved with RPX early on would be doing so on the basis of reduced fees. Not only will pricing and licence structures change over time, but you have to be a member to benefit when patents are sold by RPX. If you join later on and a particularly valuable right has already been disposed of, you do not get any benefit.

Although IBM and Cisco are the only two confirmed RPX members at present, Amster says there should be more arrivals before Christmas. And he is hopeful that at least some of these will be start-ups. This will show, he said, that the RPX model is scaleable and can work for companies of all sizes. Apparently, RPX is talking to dozens of companies at the moment; at the larger ones conversations tend to take place with VPs of IP, licensing and/or litigation; at smaller businesses it is with the CEO. Contract terms are kept short and sweet – Cisco and IBM have both been active in helping RPX develop clauses that will give member companies a strong comfort level with regard to RPX never suing for patent infringement or otherwise holding non-member companies hostage. In future, Amster hopes that the client contact will be in the finance department, rather than in the IP/legal department. “If we get to that stage,” he said, “then I know we will have succeeded.”

On paper, RPX is a great idea if you want to lessen your chances of being hit by NPEs. However, paper does not count. The important thing now is to deliver. If member companies do see the time and money they spend on NPEs decreasing because they have signed up, then the word will spread and Amster and his colleagues will earn a fortune. The worry has to be, though, that too many organisations decide to wait and see whether the expertise the RPX team claims to have actually turns out to make a difference. This is one that will be worth keeping an eye on.


Joff Wild
IAM Magazine
24 November 2008

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IP management, Licensing, Patents, IP business, IP finance

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