PATENT TRANSACTION MARKET
without, as far as anyone can see, manufacturing, producing or selling products covered by those patents. What’s more, this makes them difficult to countersue.
In 2010 there were “more than 2600 occasions when a company found itself in litigation with an NPE”, according to Patent Freedom, a US-based, business-backed organisation that is critical of NPEs. Te sticking point is that NPEs seem to assert patents without contributing anything to innovation, so they are viewed as taking away from a market without giving something back in return.
Model behaviour
Intellectual Ventures and RPX Corporation are arguably both NPEs. Based and most active in the US, they buy, license and sell patents that cover inventions in the consumer electronic, soſtware, e-commerce, information technology and communication, medical devices, and advanced physics and engineering areas, as well as many others. Tey both appear to be good investments too. Venture capital firm Charles River Ventures was an original investor in RPX, and it is still one of the company’s biggest stockholders. Intellectual Ventures was forced to reveal the identities of its investors to the US District Court for the Northern District of California in May. “Certain funds of Charles River Ventures” emerged. Te area where Intellectual Ventures and RPX differ is the use of patent litigation.
Intellectual Ventures asserts the patents it owns, as evidenced by the patent infringement complaints it filed against McAfee, Symantec, Trend Micro, Elpida Memory, Hynix Semiconductor, Altera, Lattice Semiconductor and Microsemi Corporation in December 2010.
Companies have always invested in research and development and filed for patents to protect those investments, but now more than ever they are going on the offensive. If one company cannot out-sell a competitor, it may try to out-litigate it.
A competitive edge is not the only reason to litigate a patent. Tere are companies that do not manufacture or otherwise produce anything in the industries where their patents are normally used. ‘Non-practising entity’ (NPE) is oſten used to describe companies like Intellectual Ventures, Acacia Research, Millennium Partners and Round Rock Research LLC because they assert patents and agree licensing deals for patents
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An Intellectual Ventures spokesperson had this to say on the company’s use of patent litigation: “Our goal is always to provide companies with access to our portfolio through licensing. From time to time we do litigate when companies choose to use our intellectual property without a licence and our discussions with them are no longer productive.”
Steve Mallouk, vice president of client engagement and channel sales at Intellectual Ventures, does not focus on patent litigation when he describes what the company does. For Intellectual Ventures, its business model focuses on licensing, and it sees litigation as a means of achieving licensing deals.
“In terms of the business model, we do four things. We acquire patents, we package patents, we license patents and we sell patents,” he says. Patent litigation is a tool that is available to a
company like Intellectual Ventures to use when it needs to, but it does not define how the company wants to achieve its aims. “We’ve always said that we believe that licensing is the most efficient way to transact in the patent industry,” he adds.
Intellectual Ventures is a firm believer in what it calls the “invention gap”, between the technology that companies want to make and the patents that they hold for it. Intellectual Ventures recognises that “all ideas are valuable, that all companies have an invention gap and that [it] is the best
partner...to help them address that invention gap”.
Mallouk gives the smartphone sector, which has seen its fair share of patent litigation, as an example. “No single player in that space owns the rights to all of those patents,” he explains. “Te difference between those is the gap. If you look at any technology business, the gap is growing over time because functionality is converging and the pace of technological change is increasing.”
Filling an invention gap is why many customers choose to work with Intellectual Ventures over its competitors, he says. Te company differentiates itself by creating different patent packages based on the needs that a particular customer will have. “We look to create a portfolio of patents in a technology or product sector that will be relevant to our customers, because one of our value propositions is we provide efficient access, a kind of a one-stop shop efficient access to a large pool of patents for our customers,” says Mallouk.
RPX takes a slightly different route. It does not define itself as an NPE because it does not assert the patents in its portfolio in litigation. Mallun Yen, executive vice president of RPX and head of corporate development, M&A and structured acquisitions, says that the core of the company’s business model is “defensive patent aggregation”.
“Tis means we acquire patents or licences to patents that may be asserted against our current or prospective clients,” she explains. “Our clients look to us to reduce the risk that they may face from patents that are already in litigation or might fall into the wrong hands.”
RPX does not meet the common definition of an NPE—aggressively acquiring and litigating patents— because the company is “unique” and was created to “clear risks in a particular
space...in some ways you could say it’s analogous to insurance”, says Yen. Yet it, like Intellectual Ventures, transacts in the patent market and profits from the licensing deals that it does with its clients.
Te emergence of companies like RPX has further clouded the definition of an NPE. Te
World Intellectual Property Review November/December 2011 19
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