Patent owners, including several currently relying on litigation, are “fleeing” RPX in favor of ICAP’s new Covenant Not to Sue (“CNS”) program, according to a source working closely with the brokerage firm. RPX may not be dead quite yet, but ICAP has their shovels out, ready to lend a hand digging RPX’s grave. Patent owners predictably prefer ICAP to RPX for a number of reasons, but a good turn-out of corporate representatives ready to acquire rights will confirm that both buyers and sellers want an ala carte marketplace for IP dealmaking.
Right before their IPO, I predicted that patent owners would become increasingly reluctant to work with RPX as their client base expands. After the $38.5 M purchase of rights to the Round Rock portfolio, I predicted that patent owners recognized a significant value in ICAP’s process and that buyers would respond to an efficient alternative to litigation. Significantly, both predictions are starting to take shape, which threatens the very existence of the patent licensing ecosystem upon which RPX relies.
For those that don’t know, the CNS auction is a new process, which debuted earlier this spring, where the buyers bid for a “Covenant Not to Sue” from the patent owner, rather than bidding on outright ownership of the patent. The covenant is a legally binding agreement preventing the patent owner from enforcing its patent rights against the winning bidder, effectively amount to a non-exclusive right to use the inventions claimed. The auction is the brainchild of ICAP Patent Brokerage, heavily promoted by CEO Dean Becker and SVP Kevin Fuir, and presents a significant opportunity to both “sellers” and “buyers” of convenants.
Consider the “sell” side first. When RPX approaches patent owners, they need to offer a price that will compensate for all clients in RPX’s current roster, regardless of whether each client has any need for the technology or not. In effect, RPX asks patent owners to make one sale that will effectively exhaust their ability to monetize the patent with almost 100 companies. For the opportunity, RPX effectively seeks a “bulk discount” for the privilege of monetizing a huge chunk of the market in one fell swoop. In addition, RPX then uses your patent to “pitch” other companies with whom patent owners would otherwise have separately dealt. As RPX’s client roster expands, this offer becomes less and less attractive unless RPX brings more and more cash to the table, effectively choking off the company’s growth.
Not even with a free 100-roll pack of toilet paper thrown in does the RPX “wholesale club” pricing model present value to most patent owners. Instead, ICAP attracts patent owners with an opportunity to put the entire market in competition with one-another, providing both cash value and priceless information. Consider, at the end of the auction, patent owners not only have a high bid (at least as of that day) for rights to practice their technology, but they also know the number of bidders. These two numbers combined can provide a valuable check on the likely size of the market for the patent owner’s technology.
Next, consider the “buy” side. When RPX approaches potential new clients, it attempts to sell its existing portfolio, lock stock and barrel, along with promises of expansion. Of course, by acquiring a diverse array of patented technology, RPX attempts to appeal to the entire market. However, the inefficiencies of this process are blatantly obvious. While convergence of technologies makes RPX’s approach seem reasonable, the simple fact is that a great deal of RPX’s patents are largely irrelevant to a great deal of their clients. In addition, RPX pledges never to use its patents offensively in the first place. Unless the price of a membership represents a discount to the disposal of current patent litigation a potential client is dealing with, the decision to become a member is likely based more on coercion and threats than on reason.
Further, since RPX members get lifetime vesting after a short membership term, the company cannot grow without continuing to acquire patents. RPX’s ability to acquire patents is short-circuited by the size of its client roster. In addition, RPX thrives on the expensive conflict and confrontation of patent litigation. Patent owners seeking out alternative monetization strategies threatens to disrupt this whole process.
Finally, ICAP effectively keeps RPX out of auction process entirely by prohibiting syndicated bidding. Each bid submitted via ICAP can purchase only a single CNS, and bidders may bid on behalf of only one buyer. This prevents RPX from syndicating cash from multiple buyers to dominate the market. RPX likely will participate as a proxy bidder just to have a role in the ICAP auction, but in that respect they provide no more value than any other proxy.
ICAP’s auction is scheduled for September 27-29 in Los Angeles. RPX’s funeral arrangements have not been announced.
- RPX Winning Over Investors One Soul At A Time (gametimeip.com)
- Patent Aggregator RPX Accused Of Extortion, Racketeering & Wire Fraud (gametimeip.com)
- RPX Issues Second Quarter Results And Comments On The ‘Patent Bubble’ (gametimeip.com)
- ICAP’s Newly Envisioned CNS Auction Adds To Available Portfolio (patentcalls.com)
- ICAP Adds On-Line Fraud Detection Patents To September CNS Auction (patentcalls.com)