Evolving IP market spawns a raft of new approaches
Whether it’s by asserting patent rights or defending against so-called trolls, entrepreneurs and investors are trying new IP business models.
By Tam Harbert, Contributing Editor -- EDN, January 1, 2009
It may be a bad time to start a business, but in the area of intellectual property (IP) there seems to be a new company with a new business model forming every couple of months.
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Much of the attention has focused on so-called patent trolls, also described as non-practicing entities (NPE) because they neither make nor sell products, whose business model is to acquire patents and then target large, profitable companies in the hope of getting license revenue. Most recently, defensive patent aggregators have emerged that are trying to buy up patents in order to keep them away from patent trolls. But more and more entrepreneurs, venture capitalists, hedge funds, and other investors are trying to figure out how to make money by buying and selling patents.
The type and number of businesses based on IP assets are proliferating quickly, according to Raymond Millien, a partner and CEO of PCT Capital LLC, who spoke at a hearing in December 2008 on the evolving IP market by the US Federal Trade Commission in Washington, DC. He ticked off 17 different business models other than traditional IP law firms and operating companies that have IP portfolios, adding that “there are probably more evolving as we speak.” (See "IP business models: 17 and counting" below.)
Indeed, one of the latest is RPX Corp, formally launched in September. Co-founded by two former executives at Intellectual Ventures and an IP attorney, the company has backing from venture capital firms Kleiner Perkins Caufield & Buyers and Charles River Ventures. Its approach is similar to Allied Security Trust (AST), which came out of stealth mode last summer.
Both RPX and AST are trying to solve the problem of patent trolls and the havoc they wreak on operating companies, said Dan McCurdy, CEO of AST. But AST is a non-profit trust whereas RPX is a for-profit company. Also, AST’s individual member companies make their own decisions about whether to buy a particular patent. In contrast RPX staff decides what patents and rights to buy, without consulting its members, then licenses all of the portfolio to all of its members. The company’s VC funding gives it agility and independence to buy patents and licensing rights quickly, two strong advantages in the IP market, according to John Amster, RXP co-founder and co-CEO.
As of mid-December, the company had only five subscribers, including Cisco and IBM. But it hopes to grow that to 20-some members and to buy about $100 million in patent rights by the end of 2009, said Amster. The company charges a sliding subscription fee, ranging from $35,000 to $4.9 million based on the customer’s revenue and profitability. RXP wants to attract as many members as possible, not only because those fees are its revenue, but also because “we’re trying to buy a significant enough volume of rights that we actually have an impact on the overall NPE problem,” he noted.
| 1995 | 17 |
| 2008 (as of Dec 5) | 343 |
Like AST, RPX swears off litigation, insisting that its approach is purely defensive. However, it will use its patent dealings to “encourage” companies to become RPX members. Specifically, RPX may sell patents back into the market once it secures perpetual licenses for its members. At that point, Amster explained, he may call non-member companies in the technology areas of those patents informing them that he may sell the IP. “Whether or not those patents end up in the hands of somebody who’s going to assert them against you, I have no idea,” he’ll say to the company. “But it is a possibility.”
Amster insisted that’s not a threat and said a threat would be RPX announcing it would sue non-members for infringement and trying to collect licensing fees. It’s simply that non-members may face a threat from someone else who purchases the patents, he noted.
That sounds like a patent-troll strategy to some. In fact, Amster said he has no objection to the patent-troll model. “We have no religion here about non-practicing entities,” he said. “We don’t think there is anything wrong with offensive licensing.”
RPX, he said, will buy patents or licenses from NPEs in order to protect its members. RPX’s business model can be advantageous for the NPEs, too, Amster pointed out. “If an NPE is planning litigation against 20 companies, we think we can actually get them paid a reasonable amount of money quicker and more efficiently than if they do it through litigation.”
Meanwhile, another IP business launched last spring – PatentFreedom – has already changed its business model. The company, which researches and sells information about NPEs and their activities, initially tried selling annual subscriptions of $50,000 to $75,000 to large operating companies. That proved a tough sell, but many law firms, government agencies, and a variety of companies were interested in the data, according to AST's McCurdy. So now the company plans to cater to a broader set of customers at a lower price – around $15,000 a year. “At $15,000, it’s roughly the price of filing one patent application,” McCurdy noted.
IP business models: 17 and counting
| Type of model | Examples |
| Patent licensing and enforcement companies | Acacia Research, Lemelson Foundation, NTP |
| Institutional IP aggregators/acquisition funds | Coller IP Capital, Intellectual Ventures, RPX |
| IP/technology development companies | Qualcomm, Rambus, Tessera |
| Licensing agents | Fairfield Resources, IPValue, ThinkFire |
| Litigation finance/investment firms | Altitude Capital, Rembrandt IP Management |
| IP brokers | Bramson & Pressman, Ocean Tomo, ThinkFire |
| IP-based M&A advisory | Analytic Capital, Inflexion Point, PCT Capital |
| IP auction houses | FreePatentAuction.com, IPAuctions.com |
| Online IP exchanges, clearinghouses, bulletin boards, and innovation portals | InnoCentive, Open-IP.org, The Dean’s List |
| IP-backed lending | IPEG Consultancy BV, Paradox Capital |
| Royalty-stream securitization firms | AlseT IP, UCC Capital |
| Patent analytics software and services | Intellectual Assets, Patent Café, The Patent Board |
| University tech-transfer intermediaries | Texelerate, UTEK |
| IP transaction exchanges and trading platforms and best practices development | Gathering2.0, IP Exchange Chicago |
| Defensive patent pools, funds, and alliances | Open Invention Network, Allied Security Trust |
| Technology/IP spinout financing | Altitude Capital, IgniteIP, New Venture Partners |
| Patent-based public stock indexes | Ocean Tomo Indexes; Patent Board WSJ Scorecard |
Source: PCT Capital LLC, December 2008
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Tam:
Interesting article. For sake of completeness you might next time want to include the High-End IP Brokerage Players -- Pluritas, IPotential, IPinvestments Group and Inflexion Point Strategy. These players actually conduct the lions share of the high-end assignment transactions done with the world's leading technology and IP investment companies.
Thank you.
Sincerely,
Robert Aronoff
Managing Director, Pluritas
Robert Aronoff - 2009-8-1 09:38:00 PST -
Tam,
Timely article. There are many ways to monetize IP. Some models are less apparent than others. IP-holders (and investors) should not loose sight that ROI is not a simple metric. In my new book, From Assets to Profits - Competing for IP Value and Return (Wiley) experts from Goldman Sachs, HP, IBM and smaller entitites look at several IP business models and revisit the established ones.
Bruce Berman
CEO
Brody Berman Associates
Bruce M. Berman - 2009-2-1 13:04:00 PST
