An NPE Update January 16, 2015 Governing
Description: An NPE Update January 16, 2015 Governing Innovation: the law, economics, and political economy of patent systems Harvard University Daniel P. McCurdy, Senior Vice President, RPX Common Questions about NPEs Volume: Is NPE patent risk growing
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slide1. An NPE Update January 16, 2015 Governing Innovation: the law, economics, and political economy of patent systems
Harvard University
Daniel P. McCurdy, Senior Vice President, RPX<br>
slide2. Common Questions about NPEs Volume: Is NPE patent risk growing or shrinking? Who is most impacted?
Severity: What is the cost?
Source: What patents are being asserted? Where did they originate?
Market: What is the status of patent sales?
Economics: What are the economics of the NPE business model?<br>
slide3. NPE Defendants Backlog Down as Terminations Outpace Additions Source: RPX Research
Methodology Notes: “Total active NPE defendants” is the total number of NPE case/active defendant pairings. “Backlog” is the number of total active NPE defendants at the end of a given year. For example, at the end of 2010 there were 4,659 total active NPE defendants.<br>
slide4. No One Is Immune ~2,000 Unique Companies Sued in 2014 Source: RPX Research<br>
slide5. Not Just a Big Company Problem Unique NPE Defendants Named
(i.e. AT&T counted once) Total NPE Defendants Named
(i.e. AT&T counted 65 times) Source: RPX Research<br>
slide6. More Litigation in Certain Sectors New Campaigns 2014 Defendants Added 2014 Source: RPX Research<br>
slide7. Common Questions about NPEs Volume: Is NPE patent risk growing? Who is most impacted?
Severity: What is it costing the industry to resolve NPE suits?
Source: What patents are being asserted? Where is their origin?
Market: What is the state of the secondary market for patents?
Economics: What are the economics of the NPE business model?<br>
slide8. NPEs Cost Industry ~$13B in 2013 Total Direct Costs of NPEs Source: RPX Research. RPX NPE Cost Study Report 2013<br>
slide9. ~70% of NPE Cost Is Litigation Source: RPX Research. RPX NPE Cost Study Report 2013 Patent litigation
Legal fees to outside counsel / vendors
Settlements and judgments Non-litigation assertions
Legal fees to outside counsel
License fees Other NPE-related costs
Patent acquisition
Validity challenges outside of litigation
Clearance searches<br>
slide10. 95%-tile
$17.2M Wide Distribution of Resolution Costs Cost to Resolve an NPE Suit Source: RPX Research. RPX NPE Cost Study Report 2013 Median
$520K Up to $500M+ 75%-tile
$1.9M 25%-tile
$150K<br>
slide11. Larger Companies Pay More to Resolve Suits Source: RPX Research. RPX NPE Cost Study Report 2013 Average Cost to Resolve Defendant Revenue Average Cost to Resolve
(Excluding Suits >$10M) Defendant Revenue<br>
slide12. Legal Costs Generally Exceed Settlements Source: RPX Research. RPX NPE Cost Study Report 2013 Total Cost
to Resolve Legal Cost Settlement<br>
slide13. Common Questions about NPEs Volume: Is NPE patent risk growing? Who is most impacted?
Severity: What is it costing the industry to resolve NPE suits?
Source: What patents are being asserted? Where is their origin?
Market: What is the state of the secondary market for patents?
Economics: What are the economics of the NPE business model?<br>
slide14. Most NPEs Assert One Patent per Case Patents per NPE Case in 2014 Source: RPX Research<br>
slide15. Dot-Com Boom: Fertile Ground for NPEs? Priority Date of NPE Asserted Patents 2014 Source: RPX Research<br>
slide16. Half of NPE-asserted Patents Are “Software” Patents in 2012 NPE Litigations Note: Based on random sample of 825 patents litigated in 2012. Results have 95% confidence within a +/-5% interval
Source: RPX Research Claims categorized as a computer-implemented invention<br>
slide17. Will Alice Change Landscape for Software Patents? Alice Corp v. CLS Bank decision in June 2014
Programming a general purpose computer to apply an identified abstract idea is not sufficient to overcome a §101 invalidity challenge
16 of 20 Alice-related challenges to validity have been successful to date
7 of 9 summary judgment motions were successful
7 of 9 Rule 12 motions were successful
2 PTAB challenges were successful
Many unsettled questions both on substance of decision and implications for process Note: Based on identified decisions as of October 15, 2014
Source: RPX Research<br>
slide18. OpCo Original Patentee in >70% of NPE Litigations 2013 NPE Litigations Source: RPX Research Operating Company Individual Inventor University<br>
slide19. Patents Transacted in ~60% of NPE Litigations 2014 NPE Litigations Source: RPX Research Patent Transacted Patent Not Transacted
(but often marketed)<br>
slide20. Common Questions about NPEs Volume: Is NPE patent risk growing? Who is most impacted?
Severity: What is it costing the industry to resolve NPE suits?
Source: What patents are being asserted? Where is their origin?
Market: What is the state of the secondary market for patents?
Economics: What are the economics of the NPE business model?<br>
slide21. Portfolios Offered to RPX Have Steadily Increased Open Market Portfolios Source: RPX Research<br>
slide22. Wide Mix of Portfolios Offered 2014 Open Market Source: RPX Research E-commerce and Software Semiconductors Mobile Communications and Devices Networking Consumer Electronics and PCs Media Content and Distribution Financial Services Other Sectors<br>
slide23. RPX tracks a robust open market for patents Portfolio Transaction Rate >40% From 2010-2011 (>50% to NPEs) 1. RPX considers a portfolio to have transacted if:
a) at least one patent from the portfolio transacted with a recorded execution date after RPX was offered the portfolio; and
b) the transaction was to a third party
Source: RPX Research and Analysis 1<br>
slide24. Around 30-40% of portfolios transact, >50% to NPEs Portfolios Transacted1 in Open Market, 2009-2012 1. 2009-2012 timeframe based on date of portfolio offer, not transaction date. RPX considers a portfolio to have transacted if:
a) at least one patent from the portfolio transacted with a recorded execution date after RPX was offered the portfolio; and
b) the transaction was to a third party
Note: 2013-2014 numbers excluded from this slide due to typical lag time for portfolio to transact (average 300 days from offer to execution date)
Source: RPX Research and Analysis<br>
slide25. Major US Patent Buyers and Sellers Open Market 1. NPE = Non-practicing entities earning revenue primarily through monetizing patents or operating companies monetizing non-core patents
2. “Marketed” based on portfolios offered to RPX from 2013-2014
3. “Sold” and “Bought” based on portfolios marketed 2011-14 1 2 3 3<br>
slide26. RPX Open Market Prices Average RPX Price per US Patent Source: RPX Research<br>
slide27. Common Questions about NPEs Volume: Is NPE patent risk growing? Who is most impacted?
Severity: What is it costing the industry to resolve NPE suits?
Source: What patents are being asserted? Where is their origin?
Market: What is the state of the secondary market for patents?
Economics: What are the economics of the NPE business model?<br>
slide28. Common Questions about NPEs Volume: Is NPE patent risk growing? Who is most impacted?
Growing through 2013, some decline in 2014. Broad impact across industry
Severity: What is it costing the industry to resolve NPE suits?
$13B total cost to industry
Median cost to resolve one NPE suit ~$500K, but average cost is several million
Source: What patents are being asserted? Where is their origin?
Most asserted patents transacted first. Most come from operating companies
Market: What is the state of the secondary market for patents?
Robust, many transactions, NPEs are ~50% of buyers
Economics: What are the economics of the NPE business model?
Maybe 10-20% of industry cost goes to patent holders
Based on publicly traded company performance to date it is difficult to make money
NPE economics supports proactive risk management solutions Source: RPX Research<br>
slide29. An NPE Update January 16, 2015 Governing Innovation: the law, economics, and political economy of patent systems
Harvard University
Daniel P. McCurdy, Senior Vice President, RPX<br>
Harvard University
Daniel P. McCurdy, Senior Vice President, RPX<br>
slide2. Common Questions about NPEs Volume: Is NPE patent risk growing or shrinking? Who is most impacted?
Severity: What is the cost?
Source: What patents are being asserted? Where did they originate?
Market: What is the status of patent sales?
Economics: What are the economics of the NPE business model?<br>
slide3. NPE Defendants Backlog Down as Terminations Outpace Additions Source: RPX Research
Methodology Notes: “Total active NPE defendants” is the total number of NPE case/active defendant pairings. “Backlog” is the number of total active NPE defendants at the end of a given year. For example, at the end of 2010 there were 4,659 total active NPE defendants.<br>
slide4. No One Is Immune ~2,000 Unique Companies Sued in 2014 Source: RPX Research<br>
slide5. Not Just a Big Company Problem Unique NPE Defendants Named
(i.e. AT&T counted once) Total NPE Defendants Named
(i.e. AT&T counted 65 times) Source: RPX Research<br>
slide6. More Litigation in Certain Sectors New Campaigns 2014 Defendants Added 2014 Source: RPX Research<br>
slide7. Common Questions about NPEs Volume: Is NPE patent risk growing? Who is most impacted?
Severity: What is it costing the industry to resolve NPE suits?
Source: What patents are being asserted? Where is their origin?
Market: What is the state of the secondary market for patents?
Economics: What are the economics of the NPE business model?<br>
slide8. NPEs Cost Industry ~$13B in 2013 Total Direct Costs of NPEs Source: RPX Research. RPX NPE Cost Study Report 2013<br>
slide9. ~70% of NPE Cost Is Litigation Source: RPX Research. RPX NPE Cost Study Report 2013 Patent litigation
Legal fees to outside counsel / vendors
Settlements and judgments Non-litigation assertions
Legal fees to outside counsel
License fees Other NPE-related costs
Patent acquisition
Validity challenges outside of litigation
Clearance searches<br>
slide10. 95%-tile
$17.2M Wide Distribution of Resolution Costs Cost to Resolve an NPE Suit Source: RPX Research. RPX NPE Cost Study Report 2013 Median
$520K Up to $500M+ 75%-tile
$1.9M 25%-tile
$150K<br>
slide11. Larger Companies Pay More to Resolve Suits Source: RPX Research. RPX NPE Cost Study Report 2013 Average Cost to Resolve Defendant Revenue Average Cost to Resolve
(Excluding Suits >$10M) Defendant Revenue<br>
slide12. Legal Costs Generally Exceed Settlements Source: RPX Research. RPX NPE Cost Study Report 2013 Total Cost
to Resolve Legal Cost Settlement<br>
slide13. Common Questions about NPEs Volume: Is NPE patent risk growing? Who is most impacted?
Severity: What is it costing the industry to resolve NPE suits?
Source: What patents are being asserted? Where is their origin?
Market: What is the state of the secondary market for patents?
Economics: What are the economics of the NPE business model?<br>
slide14. Most NPEs Assert One Patent per Case Patents per NPE Case in 2014 Source: RPX Research<br>
slide15. Dot-Com Boom: Fertile Ground for NPEs? Priority Date of NPE Asserted Patents 2014 Source: RPX Research<br>
slide16. Half of NPE-asserted Patents Are “Software” Patents in 2012 NPE Litigations Note: Based on random sample of 825 patents litigated in 2012. Results have 95% confidence within a +/-5% interval
Source: RPX Research Claims categorized as a computer-implemented invention<br>
slide17. Will Alice Change Landscape for Software Patents? Alice Corp v. CLS Bank decision in June 2014
Programming a general purpose computer to apply an identified abstract idea is not sufficient to overcome a §101 invalidity challenge
16 of 20 Alice-related challenges to validity have been successful to date
7 of 9 summary judgment motions were successful
7 of 9 Rule 12 motions were successful
2 PTAB challenges were successful
Many unsettled questions both on substance of decision and implications for process Note: Based on identified decisions as of October 15, 2014
Source: RPX Research<br>
slide18. OpCo Original Patentee in >70% of NPE Litigations 2013 NPE Litigations Source: RPX Research Operating Company Individual Inventor University<br>
slide19. Patents Transacted in ~60% of NPE Litigations 2014 NPE Litigations Source: RPX Research Patent Transacted Patent Not Transacted
(but often marketed)<br>
slide20. Common Questions about NPEs Volume: Is NPE patent risk growing? Who is most impacted?
Severity: What is it costing the industry to resolve NPE suits?
Source: What patents are being asserted? Where is their origin?
Market: What is the state of the secondary market for patents?
Economics: What are the economics of the NPE business model?<br>
slide21. Portfolios Offered to RPX Have Steadily Increased Open Market Portfolios Source: RPX Research<br>
slide22. Wide Mix of Portfolios Offered 2014 Open Market Source: RPX Research E-commerce and Software Semiconductors Mobile Communications and Devices Networking Consumer Electronics and PCs Media Content and Distribution Financial Services Other Sectors<br>
slide23. RPX tracks a robust open market for patents Portfolio Transaction Rate >40% From 2010-2011 (>50% to NPEs) 1. RPX considers a portfolio to have transacted if:
a) at least one patent from the portfolio transacted with a recorded execution date after RPX was offered the portfolio; and
b) the transaction was to a third party
Source: RPX Research and Analysis 1<br>
slide24. Around 30-40% of portfolios transact, >50% to NPEs Portfolios Transacted1 in Open Market, 2009-2012 1. 2009-2012 timeframe based on date of portfolio offer, not transaction date. RPX considers a portfolio to have transacted if:
a) at least one patent from the portfolio transacted with a recorded execution date after RPX was offered the portfolio; and
b) the transaction was to a third party
Note: 2013-2014 numbers excluded from this slide due to typical lag time for portfolio to transact (average 300 days from offer to execution date)
Source: RPX Research and Analysis<br>
slide25. Major US Patent Buyers and Sellers Open Market 1. NPE = Non-practicing entities earning revenue primarily through monetizing patents or operating companies monetizing non-core patents
2. “Marketed” based on portfolios offered to RPX from 2013-2014
3. “Sold” and “Bought” based on portfolios marketed 2011-14 1 2 3 3<br>
slide26. RPX Open Market Prices Average RPX Price per US Patent Source: RPX Research<br>
slide27. Common Questions about NPEs Volume: Is NPE patent risk growing? Who is most impacted?
Severity: What is it costing the industry to resolve NPE suits?
Source: What patents are being asserted? Where is their origin?
Market: What is the state of the secondary market for patents?
Economics: What are the economics of the NPE business model?<br>
slide28. Common Questions about NPEs Volume: Is NPE patent risk growing? Who is most impacted?
Growing through 2013, some decline in 2014. Broad impact across industry
Severity: What is it costing the industry to resolve NPE suits?
$13B total cost to industry
Median cost to resolve one NPE suit ~$500K, but average cost is several million
Source: What patents are being asserted? Where is their origin?
Most asserted patents transacted first. Most come from operating companies
Market: What is the state of the secondary market for patents?
Robust, many transactions, NPEs are ~50% of buyers
Economics: What are the economics of the NPE business model?
Maybe 10-20% of industry cost goes to patent holders
Based on publicly traded company performance to date it is difficult to make money
NPE economics supports proactive risk management solutions Source: RPX Research<br>
slide29. An NPE Update January 16, 2015 Governing Innovation: the law, economics, and political economy of patent systems
Harvard University
Daniel P. McCurdy, Senior Vice President, RPX<br>