Nonpracticing entities (NPEs) are companies that produce no product or service, but they give much business to lawyers.  NPEs selectively purchase patents on the open market to sue major corporations in the relevant industries.  The NPE will file patent-infringement lawsuits on behalf of society in general and all the supposed little guys who are not being compensated for their inventions as Roger Parloff reports (“Taking On the Trolls” Fortune, March 17, 2014, pp. 132–140):

NPEs therefore serve not only small inventors, . . . but also society at large by preserving the incentive systems that our Founding Fathers wrote into the Constitution to ensure that the Thomas Edisons of the world would be motivated to provide the rest of us with the maximum possible benefit from their genius.” (p. 134)

For example, in 2013, AT&T faced 54 of these suits.  AT&T was not the only company targeted that year.  Other companies include Google (43), Verizon (42), Apple (41), Amazon (39), and Dell (34), just to name a few.

This is where the “defensive aggregators” arrive.  The biggest one is RPX, run by John Amster.  Amster’s business plan entails securing a sizeable subscription fee from client companies.  In turn, RPX preemptively purchases the potentially troublesome patents before they become ammunition in the hands of the NPEs.  If RPX acts too late, it still goes to bat for the client by negotiating settlement fees.  Thus, RPX is:

a market-based solution to the NPE phenomenon.  . . . Amster is trying to build a patent clearinghouse that will lift the burden of NPE litigation from tech companies’ backs while enabling legitimate inventors to get paid quickly.” (p. 134, 136)

For most companies, settling out of court is ultimately much more economical than sending their legal gladiators into the litigation arena.  Given the legitimate concerns among inventors, this seems to be a win-win solution.  On the other hand, not everyone feels so positive about it:

Purists at either end of the spectrum scorn RPX’s approach.  Some in the anti-troll camp revile RPX as just another breed of troll or, at best, a company that could easily metamorphose into one if its current business model fails to produce satisfactory results for shareholders.  On the spectrum’s other end, one NPE, Cascades Computer Innovation, brought an antitrust suit against RPX in 2012, accusing it of acting as a monopsonist—a buyers’ monopoly—that collusively drives down the value of the settlements to which NPEs are entitled.” (p. 135)

Regardless of which end of the spectrum you inhabit, I do not think interest will dissipate any time soon.  A growing number of these NPE lawsuits are filed each year (3,608 in 2013).  With RPX being the largest defensive aggregator, what it does will likely drive the nature of the industry.

This is why lawyers have all the fun.

About James Meadows

Currently I serve as a training team manager for Johnson Controls at a customer-care center in Kansas City. Additionally, I am a business consultant, a freelance corporate writer, an Assembly of God ordained minister, a Civil Air Patrol chaplain, and a blogger. I believe we are living in the most fascinating times of human history. To maximize the opportunities these times present, I have a passionate interest in leadership development and organizational success, both of which I view as inextricably linked.

Comments are closed.