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Guy Spier on Reciprocal Patent Exchange
Posted by: Grass Hopper (IP Logged)
Date: February 19, 2014 08:56AM

The one that came up was Reciprocal Patent Exchange (RPX). So I was introduced to the whole world of intellectual property. First of all, IP is a big deal. What I learned is that 200,000 or 300,000 patents get granted every year and nobody completely knows what the patent covers or doesn’t cover. But in the US and Western countries, the policy is, we grant people patents. A patent lasts 25 years. What does that patent give you the right to do? It gives you the right to pull somebody to court and say, ‘You’re violating my patent.’ It’s an interesting right and it becomes a lot more interesting or uncertain when you realize the scope. At the end of the day a judge has to decide was the patent being violated or not? What happened with Apple versus Samsung is extremely unusual because what happens is like nuclear warfare between two countries, when you have two big corporations with a lot to lose you can counter-sue each other and you can say, ‘If you’re going to get me on violating this set of patents I’m going to get you on others so why don’t we just call it a day? You get on with your business and we’ll get on with ours.’ This is what usually happens.

Then there are these things called patent trolls. They just sue people for violations of patents and collect some kind of reward. If I’m a patent troll, I will acquire a pool of patents from somebody and haul Apple into court and I say, ‘You’re violating this set of patents.’ I didn’t invent it, and I don’t have a business off it, but I own the IP. The law is if you own the IP, you’re the inventor. The problem that Apple has is Apple has to go and defend that. Now if I was some other operating business Apple would say, ‘Let’s sit down and talk. Let’s see what you’ve got. Let’s get some arbitration, we don’t really want to go to court. We can see you’re a small business, you’re trying to grow this division. Why don’t we buy a whole bunch of stuff from you? Why don’t we license you?’ There’s some kind of business arrangement that settles it out. Not with the patent trolls. The patent trolls say, ‘We don’t have a business. We are secure. You can’t sue us for anything but we can sue you for that.’ So at the end of the day Apple settles.

This is a huge cost to American industry. On the one side they’re hated by people like Apple and the other large companies and on the other side they’re the champions of inventors who often feel they’ve been screwed over by big industry. What Reciprocal Patent Exchange does is they go to all these companies that are basically settling at the court’s door or they’re paying these companies to go away and they say, ‘Why don’t we pool our resources?’ To cut a long story short, it’s fractional ownership of patents. Like fractional jet ownership, fractional patent ownership. You pay a subscription to us, we’ll acquire all this IP and you’ll never get sued on account of this IP. It doesn’t take away the legal risk entirely, but it massively reduces the legal risk and they now have much more buying power because it’s on behalf of all of their clients and they have something like 200 clients. It is a really interesting business and it’s cheap and they generate massive amounts of cash. Really, really interesting, but at the end of the day I put it in the ‘too hard’ pile.

Source: Fall 2013 edition of Graham and Doddsville

Stocks Discussed: RPX,
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