RPX Issues Second Quarter Results And Comments On The ‘Patent Bubble’

Patent aggregator RPX recently released its second quarter results which kept pace with its previous report, posting $38.8 MM as compared with $34 MM in the first quarter. Total equity has increased to $250 MM.  According to its earnings forecast, RPX expects to see about $150 MM in total revenue this year. At the top end of RPX’s rate card, this represents about 25 customers, but since RPX allegedly recognizes subscription revenue over the subscription term, they’ll need to sign up a lot more than that.  Also, during the call, CEO John Amester admitted that many of their newest customers are toward the lower end of the rate card.

On a personal level, it was really an eye opener to hear investors ask Amester serious questions about the performance of patents as an asset class, rather than the “mudslinging” normally heard in the media.  Also interesting were John Amester’s comments about the results of the Nortel patent auction.

First, it’s pretty clear from the final price that there were some unique factors at work in the bidding for these assets. … [T]here were strong strategic imperatives driving the bids that went well beyond normal accepted formulas for valuing patents.

Amester also referred to the outcome as a “strategic battle between operating companies” and referred to the result as “an outlier.”  Amester commented that “the final price reflects that dynamic far more than it reflects the intrinsic value of the patents in our view.” This echoes comments I made immediately following the auction when I observed that the desire of incumbent smartphone players to keep out a competitor clearly drove the bidding, to the benefit of Nortel’s creditors.

I too have been asked if I’ve seen a “bubble” in transaction prices since Nortel. First of all, it wasn’t that long ago, so give it some time. Second of all, my answer has been pretty much the same as Amester’s.

Because of the unique nature of the Nortel auction, we don’t expect that the final pricing and valuation will have a lasting effect on most of the transactions we are involved in.  We haven’t seen Nortel being used as a comp for the simple reason that NPEs have the same costs and risks in asserting patents as they have always had. The open market is driven primarily by NPEs.

On the other hand, Amester said they have seen a spike that I’ve been noticing since well before the Nortel auction, which is more operating companies interested in monetizing their patent assets.

RPX is also apparently working on some new products, including an “insurance offering to cover a portion of NPE legal defense costs.”  They are also making data available to its customers via a private portal.  The portal is part of its effort to rationalize the patent market by “increas[ing] transparency and availability of information to all participants.”  Of course, Amster tells us the information is “proprietary” and evidently is only available to its customers. I guess he was just kidding about “all participants.”

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• RPX Winning Over Investors One Soul At A Time (gametimeip.com)
• Patent Aggregator RPX Accused Of Extortion, Racketeering & Wire Fraud (gametimeip.com)
• How I Learned To Stop Worrying And Love The IP Bubble (gametimeip.com)
• The Volatile Business Of Patent Licensing (gametimeip.com)