RPX Spooks Trolls Lurking Under Patent Bridge

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For many companies, RPX represents a major weapon against so-called "patent trolls" -- NPEs (non-practicing entities) that buy up patents from individuals and organizations in need of additional revenue.

As the name implies, NPEs do no research and hold no patents of their own making. Their sole purpose is to snap up patents -- often from companies forced to liquidate their assets -- and look for products that might infringe on those patents they now hold.

[ Resourceful VCs can help you unearth treasure buried in your IT asset sheet. See "Banking on busted IT projects and dormant IP" ]

NPEs typically troll the patent office, news reports, and company product lines in hopes of finding infringements to patents in its library. Once a product is targeted, the NPE sends a letter to the product's maker, threatening to sue the supposedly infringing company unless it pays a license fee or settles out of court.

In many cases, it is cheaper for a large company to settle even if the case has very little merit, as legal defense could cost millions.

It is estimated that during the past 10 years litigation has increased by almost 300 percent and that patent infringement cases launched by NPEs represent about 16 percent of all patent litigation.

As you can guess, NPEs have been the bane of high-tech companies for years. This is where third-party patent aggregator RPX, which officially launches this week, comes in.

I spoke with John Amster, co-founder and co-CEO of RPX. Amster characterizes RPX as a "defensive patent aggregator." He says RPX's primary goal is to protect a company from litigation against a product or service that is already in the market. Ideally, the patents will also cover products and services offered by multiple companies.

Once RPX gains ownership of a patent, it takes the patent off the market, thereby reducing an existing product's susceptibility to patent trolls. RPX also allows member companies to license the patents RPX owns. As part of the contractual agreement between RPX and members, a provision states that RPX will not assert or litigate patents it acquires.

Focused almost exclusively on IT, including software, e-commerce, mobile communications, networking, and consumer electronics devices, RPX intends to buy as many patent as it can. Amster says the initial target is to buy $100 million in patents each year.

The company expects to raise this money through membership fees -- which range from $35,000 to $5 million depending on the size of the company -- and by attracting equity investors. The company is currently financed by Kleiner Perkins Caufield & Byers and by Charles Rivers Ventures. Its first two members are Cisco and IBM.

Although Steve Saunders, patent attorney and partner at patent firm Bromberg & Sunstein, found the idea intriguing, he contends there are still too many unanswered questions about whether RPX can make a difference against patent trolls. Nevertheless, he also said that if one of his clients had a significant number of patents and was at risk of "getting shot at," he probably would suggest that they become a member of RPX.

On the other hand, Saunders notes that even $100 million a year is a "small slice of IT," especially if you start to include international patents and possible lawsuits.

Amster notes, however, that $100 million per year is only the beginning. As membership increases, he says, so will RPX's impact on the industry.

"I hope to take inefficiency and cost out of the market and lower that 16 percent of patent litigation market," Amster adds.

RPX membership may have its privileges, but the question is, Will you join the club?

This story, "RPX Spooks Trolls Lurking Under Patent Bridge" was originally published by InfoWorld.

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