An Audacious Vision, a Decade of Progress, and So Much More to Do
Nearly 10 years ago, John Amster walked into my office and said, “I have an idea.” Thirty seconds into his pitch, I interrupted him, “It’s a great idea; we have to do this. How can I help?”
From my perch as Cisco’s VP of global intellectual property, I had seen assertion entities buying patents for a pittance and then using them to file suits in faraway venues with damages demands sometimes in the billions of dollars. Moreover, they were impervious to counterclaims because they did not make or sell anything of their own; rather they existed solely to extract outsized settlements from innovative companies. These “patent trolls” as they came to be called, started as a slow trickle in the early 2000s, but by 2008 they were filing thousands of infringement lawsuits each year, escalating to pandemic proportions eventually becoming a $10B+ per year problem for operating companies. (For an entertaining yet accurate depiction of the troll problem, I encourage you to watch this John Oliver episode).
We began to realize these patent assertion entities were increasingly bankrolled not only by contingency-fee lawyers but by sophisticated financial types, including hedge funds, private equity, and even university endowments. Some even reinvented themselves into publicly-traded companies to access additional avenues for capital.
This wasn’t just a legal problem. It was a business and industry problem, rooted in market fundamentals with huge financial interests at stake. The existing patent market was inherently irrational. As an antidote to the enormous waste in this litigation-driven model, we could create a solution that would be profitable in its own right, but only if we aligned interests with those of our clients, by acquiring patents that they felt posed the most risk and for defensive purposes only.
During this time, there were naysayers — those who were adamant the only way you could make money on patents was to sue people (which we pledged never to do) — and there were skeptical venture capitalists (for whom patents weren’t much on the radar yet). Yet despite them, some of the most fun I’ve ever had is working with John, the other founders Geof Barker and Eran Zur, and a number of in-house thought leaders on crafting the vision for how we could turn the traditional model on its head: how we could create a company not about enforcement, but built on trust. We would forge a collaborative, proactive, and economically fair defense against predatory licensing that was distorting the market and creating a tax on innovation.
An Audacious Vision
Our mission was to create an industry-wide clearinghouse for patents. We would start by providing a platform where operating companies — even competitors — could come together, put their trust in a single entity that would monitor the marketplace, combine resources and dollars, and share data, insight, and experiences to acquire risky patents before they fell into the hands of patent assertion entities.
We could be the countervailing force to these assertion entities that were scooping up patents, for very little money, from inventors by promising outsized future returns from the eventual lawsuits that would be filed. Because we could pay cash upfront and eliminate millions in attorneys’ fees from years of protracted litigation, more dollars would flow to the inventor than would under an assertion model, where 90% transaction costs are common. The value paid for the patents could be based on market value rather than litigation hold-up.
If we failed to preemptively acquire a portfolio, the model would allow us to obtain dismissals in active lawsuits more efficiently, in bulk and at “wholesale” license rates and standardized business terms rather than have individual companies waste money and resources, defending lawsuits and negotiating in parallel essentially the same issues and terms.
And because we were reducing the risk and cost of patent suits, and had amassed an enormous bunch of previously unknown data, wouldn’t it be cool if, one day, companies could buy patent insurance as commonly as they buy Directors & Officers liability insurance? That way no one would have to fight this problem alone.
The ultimate vision was to create a new paradigm where the value of patents could be determined with rationality and predictability using market forces, not just lawyers in a courtroom. Not only would millions in attorneys’ fees be avoided, but valuable engineers and C-suite executives of innovative companies would no longer be summoned to testify at trial in remote jurisdictions. Inventors could be paid a fair value for their patents without the high transaction costs or risks of litigation. Start-ups wouldn’t be put out of business when their hard-raised investor capital was spent on high-priced attorneys as opposed to employees driving innovation.
Oh the Progress We’ve Made
Fast forward almost a decade. We, and the operating companies who put their trust in us and this idea, have made enormous progress in what we initially set out to do, thanks to:
- Our early investors (Kleiner, CRV, Index) — who believed in this ambitious vision and in the founding team;
- Our early-adopter industry thought leaders — who were willing to sign up for multi-year subscriptions in an unheard-of model where they gave us wide latitude in determining what patents were potentially risky and should be bought on behalf of the group;
- The 350+ client companies, including the largest enterprises in the world to fledgling startups — who are now part of the RPX platform, making it possible to harness the collective knowledge of the network so that one company no longer has to face this risk alone;
- The $2B+ in deployed capital — that removed risk of litigation from nearly 17,000 issued and pending US and foreign patents from the market and obtained more than 1,000 dismissals — representing over 20% of our clients’ cases;
- The creation of and successful execution of over 30 large syndicated deals — through which we were able to clear threats from massive portfolio of patents that originated from innovative technology companies, including Nortel/Rockstar, Kodak, and Micron/Round Rock Research;
- The A rated, Lloyd’s-backed patent insurance — that covers not only patent infringement lawsuits, but brings the power and intelligence of the entire RPX network to help our 200+ policyholders avoid claims in the first place;
- Judicial and legislative patent reform — including a record number of Supreme Court cases and the America Invents Act (AIA), for which we aided our clients’ efforts by providing data, testimony, and reports;
- The validity challenges or “IPRs” we filed on questionable patents — thanks to the new inter partes review (IPR) process established by the AIA before the US Patent and Trademark Office, we are successfully invalidating (with an industry-leading success rate of over 95%) dozens of patents that should never have been issued in the first place;
- The deep research, analysis, and rigor we brought to expose the murky business of patents — allowing us to provide unprecedented visibility into the complex interconnections between patent assertion entities, individuals involved, financial backers, and the sources of patents, including an increasing number from operating companies who are under tremendous pressure to monetize their portfolios;
- The most comprehensive database solution on patents and patent litigation that utilizes AI and machine learning to surface the most accurate, timely, and relevant proprietary and public data available anywhere — accessible via a cloud-based tool to our clients, but also made readily available to the government, courts, think tanks, academics, and more;
- The data and insights our members contributed to harness collective intelligence — including a multi-year industry-wide cost study, to not only mount a better defense, but also to provide real insight on the true costs of patent litigation and better inform Congress and the courts on patent reform;
- The many talented people who came to work at RPX on a germ of an idea — and helped “reduce it to practice.” And the employees today who continue to work so diligently every day looking out for our clients’ best interests.
Much More to Do
What we’ve accomplished so far is working, but as with most important endeavors, success is never final. Our work in many ways has only just begun. My colleague Bob Heath likens our work to antivirus software: the fact that your computer isn’t acting up proves that the solution is working — but the threats remain and evolve.
We know that patent assertion entities and patent risk adapt to the changing environment — we’ve seen it again and again. Already on the horizon: seasoned patent assertion entities are increasingly taking their US litigation skills to Germany, China, and other new territories. And in this dynamic global economy where fortunes seem to rise and fall with the wind, we are seeing more and more operating companies developing entangled relationships with patent assertion entities as they look to thwart would-be competitors and recoup their massive R&D investments spent building patent portfolios.
All of which makes our work here together more relevant and critical. RPX continues to focus on anticipating changes, evolving, and expanding our services to head off these new problems before they get out of hand. Patent insurance, for example — just a pipedream 10 years ago — is gaining momentum and has serious potential to completely transform the nature of patent risk. We are proving that patent risk can be insurable, predictable, and budgetable — allowing insureds to conserve valuable time, resources, and dollars for innovating in their businesses.
We also have something today that did not exist 10 years ago: a strong platform from which to proactively address threats, drive efficiencies, reduce costs, and, perhaps most importantly, clear a path for our clients to focus on what they do best: developing and bringing to market innovative products and services.
With ongoing input and support of our clients, we will continue to accelerate our evolution to address new market and industry trends. This platform is the launching pad for the next wave of innovation in the intellectual property and legal tech space, and I have confidence that RPX, together with our community, will continue to lead us through this exciting chapter.
Yesterday, we announced that I’ve joined RPX’s Board of Directors. I am delighted and honored to join this group of highly talented and dedicated professionals (Shelby Bonnie, Sandy Robertson, Tom Ryder, Steven Fingerhood, Frank Dangeard, Gil Palter, Andy Africk, and Magdalena Yesil) who have helped steer RPX from a newly public company in 2011 to where it is today. I will remain as Executive Vice President for a transition period until September 1, 2017.
With this appointment, I move from a more tactical role to one focused on the overall direction and strategy of the company. Having been a part of RPX since its inception, I remain deeply committed to ensuring we remain true to our roots, including (1) using trust and transparency in serving our clients, (2) aggregating the power and intelligence of our network for the collective benefit of the industry, and (3) leveraging this platform along with data and technology to drive efficiency, cost reduction, and effectiveness for innovative companies.
The RPX executive team remains committed to our longstanding mission of creating a rational clearinghouse for patent rights and providing extraordinary service to our clients. I look forward to working with them as a member of the Board to accomplish these goals. Whether in my office or a board room, my door is always open to the RPX community and the next audacious idea.
Originally published on LinkedIn on April 12, 2017.
Mallun Yen is a public company officer, technology executive, board member, founder, and investor who has built organizations in Fortune 50 companies to seedling start-ups. Follow her on Twitter @mallun and LinkedIn https://www.linkedin.com/in/mallun.