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Is Rockstar patent peace paving the way for a clearinghouse?

KM or years, conventional wisdom has held that patents are a "special" kind of asset. Technologically complex and legally uncertain, patents supposedly couldn't be priced fairly and consistently. In theory, the way to establish patent values and license terms was bilateral negotiations between willing parties; in reality, the terms have more often been dictated by litigation.

But the rise of defensive patent aggregators shows that there is a rational and acceptable way to determine patent value--the open market. In the wake of collaborative buying efforts, litigation has not disappeared, as many non-practicing entities find themselves continuing to turn to litigation as a primary method of generating payment.

Over the past few years, defensive acquisition has been successful enough to demonstrate that patents aren't intrinsically "special." They are assets like any other, with particular valuation metrics and attributes that can be defined and quantified. For years, industry experts have opined about the possibility of a comprehensive clearinghouse that includes almost every owner and user of patents. Patents are especially well-suited to a clearinghouse because they can be used by many participants simultaneously. With hundreds of users potentially needing a license to a particular patent or portfolio, a multi-party market can be constrained by the sheer number of differently situated participants, variable license terms and complexity of customized transactions.

A clearinghouse is built on market principles, with a single, trusted intermediary providing objective guidance on asset valuation, license terms and payments between parties. It provides transparency and fairness while adding efficiency and reducing risk.

In January, RPX acquired the remaining 4,000+ patent assets owned by Rockstar, which had purchased those patents as part of a larger portfolio out of the Nortel bankruptcy auction for $4.5 billion in July 2011.

A number of those patents were the basis of eight lawsuits involving 16 different companies in multiple courts and nearly 30 challenges by defendants before the U.S. Patent & Trademark Office. What could have been years of litigation between Rockstar and defendants was instead resolved through a negotiated deal that dismissed all outstanding actions, avoiding future litigation and the splintering of patents to multiple owners, thus saving hundreds of millions in attorneys' fees.

RPX paid $900 million, which it aggregated from the syndicate participants, each of which received a license to the Rockstar portfolio. We worked openly with all the parties to analyze the patents and ensure fair license terms and rates for each participant. We managed the payments and centralized the legal work and negotiations. And in the end, the deal exchanged a large amount of patent value between owners and users in one very efficient transaction managed by a single trusted entity.

Many see the Rockstar deal as a model for a larger, industry-wide system for establishing and executing patent transactions. The keys to the deal were trust and transparency. In this case, the participants knew RPX and our track record. They trusted our valuations and our assessments of the various license obligations. They knew we would never litigate the patents and that their licenses would eliminate any future risk. And because the transaction was transparent, every licensee knew that the deal was competitively neutral.

Needless to say, it is too early to know whether the mechanisms behind a deal like the Rockstar transaction can scale from $1 billion to $10 billion and from 30 licensees to 300 or 3,000. But a deal of this magnitude is proof that the conventional wisdom about patents is being turned on its head. Patents can be cleared on a large scale when valuations are reasonable and reflect the market demand. With a critical mass of participants and rational expectations in a trusted environment, a highly efficient, market-based system to transact patents is entirely possible.

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Title Annotation:IP Trends
Author:Yen, Mallun
Date:Apr 1, 2015
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