Tech Giants' New Way to Thwart Patent Suits

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In late January, Microsoft settled two patent disputes for an undisclosed amount with subsidiaries of a nonpracticing entity called Acacia Research (ACTG). One lawsuit involved a patent for software compilers and the other involved technology that can be used by interactive Internet maps. RPX conducted a study of the top 60 technology companies in the U.S. and Asia and discovered that 80.6% of all patent cases against them were filed by nonpracticing entities. "Today the preferred path is litigation," says John Amster, CEO of RPX. "It's a highly inefficient, friction-filled way of conducting business," he says.

ShoreTel (SHOR), which sells business phone systems, is one of the companies looking for a more efficient solution. The company signed up as an RPX member because of high—and unpredictable—patent litigation costs. "Our payments in a quarter to a patent troll can take us from being profitable to unprofitable," says Ava Hahn, vice-president and general counsel at ShoreTel. "We look at it as an insurance policy," she says.

"not a wolf in sheep's clothing"

RPX's approach is attracting venture capital backing, too. Its investors include Charles River Ventures, Kleiner Perkins Caufield & Byers, and Index Ventures. "There ought to be a market-based mechanism for inventors to be paid for their inventions without having to build products or to sue," says Izhar Armony, a general partner at Charles River Ventures. That company has invested in four companies in the intellectual property market, including Nathan Myhrvold's Intellectual Ventures. Intellectual Ventures both acquires patents from companies and comes up with its own inventions.

Still, it's unclear how much a firm like RPX can do to prevent litigation. "It's unrealistic to say you could buy up all the patents that may be asserted against you in the future," says Professor Mark Lemley, director of the Stanford Program in Law, Science, and Technology. "There's a very thin line between a patent troll and a company [that] buys up a bunch of patents and says: 'For a fee we won't sue you,'" he says.

For its part, RPX says that it doesn't sue or threaten to sue companies with the patents it has acquired, even if they're not members. That would run counter to its approach and could cost it customers. RPX has even pledged in its charter not to sue anyone. "We can buy rights to protect our members," says Amster. "Companies are getting comfortable that we're not a wolf in sheep's clothing."

King is a writer for BusinessWeek.com in San Francisco.

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