Stop Patent Troll Armageddon

Use Defensive Aggregators

By Erik Oliver and Kent Richardson

©2017. Published in Landslide, Vol. 9, No. 4, March/April 2017, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

No company looks forward to receiving a patent infringement threat or being sued; litigation is a costly and distracting part of being a products or services company, regardless of company size. Patent troll or nonpracticing entity (NPE) litigation is a relatively new and disproportionately expensive cost. We are often asked by our clients to help them figure out how to respond to NPE threats and litigations, both anticipated and actual. At least part of that solution exists with defensive aggregators, companies whose goal is to end or reduce NPE threats. Defensive aggregators are a cost-effective strategy for dealing with NPEs and one your management will want to learn about and discuss. Below is a brief primer on the subject.

Defensive aggregators are special purpose companies focused on helping operating companies reduce NPE risk. Historically, the advantage NPEs have had is that they attacked companies individually. Defensive aggregators turn the tables on NPEs by aggregating resources. By dividing the costs of the NPE problem across their members, defensive aggregators allow companies to share the costs of a patent acquisition, license right acquisition, or patent challenge for NPE-held patents. We compare the available solutions to help companies select the options that best work for them.

In the remainder of this article, we present a framework for modeling and selecting the appropriate defensive aggregators for your company (see fig. 1). First, however, we explore the NPE problem in greater detail. Then we discuss the different defensive aggregator business models and roles. We then walk through the aggregator selection framework, and conclude by showing how the model would apply to several sample companies.


The NPE Problem

For purposes of this discussion, an NPE is any entity for which more than half of its annual revenue is derived from patent assertion. NPEs differ from operating companies in how they approach patent disputes. When an operating company has a patent dispute with another operating company, the two parties often have at least partially overlapping businesses. This enables a cross-licensing discussion where there is recognition of the value of both companies’ patent portfolios. In contrast, because NPEs are not producing goods or services, your patent portfolio has no value to them, and traditional negotiating approaches do not work.

The RPX report NPE Litigation, Patent Marketplace, and NPE Cost provides a number of insights on the state of the NPE situation through 2015.1 Despite significant reforms in the 2011 America Invents Act (AIA) and significant court rulings in recent years that are often viewed as unfavorable for patent holders, the number of NPE patent litigations has not abated. From 2010 to 2015, while the number of operating company patent litigations stayed fairly constant, NPE suits jumped from 768 to 3,621 cases per year. Changes in filing practices required by the AIA increased the number of distinct suits being filed, because each defendant generally had to be separately sued; however, the number of defendants being added in NPE litigations has remained fairly constant (~4,200 in 2010 vs. ~4,400 in 2015). Further, companies of all sizes are named as defendants by NPEs, with 63 percent of unique NPE defendants making less than $100 million a year in revenue. Thus, companies of all sizes continue to face significant patent risk from NPEs.

Overview of Aggregators and Business Models

All of the defensive aggregators share a common purpose: NPE risk reduction. There are a number of approaches: buying or licensing patents before the patents are purchased by NPEs, challenging NPE-owned patents, and buying license rights from NPEs. While all defensive aggregators focus on risk reduction, where they differ is on the type of action, the time frame in which they operate, and the costs.

Aggregator Business Models

Table 1 lists (in alphabetical order) the six main defensive patent aggregators working to provide their members with protection from NPEs. The “participation costs” column indicates the relative cost of joining and participating in the aggregator. Most membership fees scale with the annual revenue of the participant. Memberships are typically yearly, and there may be benefits for multiyear memberships.


We will briefly discuss each aggregator in more detail below and then present a model for considering which aggregators to join. It is important to realize that, for a given company, a combination of multiple defensive aggregators may be the best solution.

AST and IP3

AST is a member-based, not-for-profit cooperative that helps its member companies secure rights to patents available on the open market. Membership fees start at $25,000/year and go up from there. AST members can access the AST database of open market patent deals and provide independent funding to purchase patents. Not all members participate in every patent purchase; however, unlike some defensive aggregators that were formed later, AST itself does not make buying decisions or recommendations, and only participating members directly benefit from a given purchase. After a purchase, AST sells the patents and returns the proceeds from those sales based on the participants’ purchase amounts. When budgeting to participate in AST, you need to budget for patent purchases as well as the membership fee.

IP3 is a newer program being operated by AST. IP3 allows for participation by both AST members and nonmembers. Participation starts at $75,000 for companies making less than $5 billion/year in revenues. IP3 involves a seller-driven marketplace where sellers submit fixed-price offers to sell a patent family according to a fixed IP3-defined patent purchase agreement. The fees are used as capital toward purchases, e.g., if your company participates at the $75,000 level, you have nearly $75,000 available to bid. All of the assets bought in a given IP3 round are licensed to all of the IP3 participants, and then the assets are sold. Thus, your $75,000 buys access to several million dollars’ worth of purchases. IP3 has a tremendous potential to radically shift the way the patent market functions by removing friction between buyers and sellers and increasing transaction volume.

Bottom Line:

Cost: $$–$$$.

Action: Buys patents before they can be used against you by an NPE.

Best for: Nearer-term, ongoing risk reduction.

LOT Network

LOT Network is one of the newest defensive aggregators and is focused on reducing the flow of corporate-owned patent assets to NPEs. Members of the nonprofit LOT Network pay a small annual membership fee to cover administrative expenses. LOT Network’s primary mechanism is the membership agreement, which licenses member patents to all other members if those patents are sold to an NPE. Historically, 80 percent of patents owned by NPEs have come from corporations. Therefore, the value of LOT Network comes over time, as the number of patents covered under the LOT agreements grows and corporations sell patents to NPEs, triggering the licenses.

Bottom Line:

Cost: $.

Action: Licenses any member patents to all other members if those patents are sold to an NPE.

Best for: Long-term, broad-based risk reduction.


Open Invention Network (OIN) is a shared defensive patent pool focused on protecting Linux from patent assertions by providing an affirmative patent license to member patents on the Linux system. OIN is free to join and has over 2,000 participating companies. Notable participants licensing their Linux system-related patents include: Google, IBM, NEC, Philips, Red Hat, and Sony. OIN additionally buys patents to defend the Linux system.

Bottom Line:

Cost: Free.

Action: Cross-licenses all OIN and member Linux-related patents to members.

Best for: Companies developing and using Linux.


RPX is a publicly traded defensive aggregator that offers a number of services to members. One of its primary services is defensive acquisition, particularly of NPE patents in litigation. RPX manages all aspects of the acquisition process, including the crucial decisions about which assets to purchase; however, RPX does seek member input about levels of concern and value. Annual membership fees are based on corporate annual revenue. The membership fee covers all of the purchases and settlements being made. Other services from RPX include a public portal to search a vast amount of data about NPE litigations and licensing campaigns, as well as a patent litigation insurance product. RPX Open is another service that provides a notice provision around patent sales, which is coupled with a springing license if notice is not given. RPX has settled very large assertions, such as the Rockstar licensing campaign. AST has also settled some large patent assertions.

Bottom Line:

Cost: $–$$$$.

Action: Buys patents and settles patent disputes for its members.

Best for: Resolving current and persistent NPE litigations and assertions.

Unified Patents

Unified Patents challenges NPE-owned patents in specific technology areas or zones, disincentivizing NPEs from owning and asserting patents in those zones. Members sign up for specific zones. The membership fee is based on the zones in which a company participates and the annual revenue of the company. Within each zone, Unified works to reduce NPE activity by monitoring the market for transfers to NPEs and challenging NPE patents in those zones. These activities are designed to reduce member risk and deter NPE investment within the zone. Unified has filed nearly 50 inter partes reviews (IPRs) against NPE-held patents. One unique approach that Unified takes is that while it will settle to obtain patent licenses from NPEs, Unified will not pay the NPE.

Bottom Line:

Cost: Free–$$$.

Action: Challenges NPE-owned patents through U.S. Patent and Trademark Office proceedings.

Best for: Buyers and sellers of products and services that fit one of the zones.

How to Pick Defensive Aggregators

Returning now to the framework for selecting defensive aggregators shown in figure 1, the first step is to identify your company’s NPE risks. This involves considering how many NPE letters, litigations, and other types of assertions your company regularly receives. It is also important to think about what those numbers will look not just now, but over the course of three to five years. Especially for fast growing companies and companies entering new markets/technology areas, the risks today vs. at the three­‑ and five-year marks may be different. Further, we encourage our clients to treat different NPEs and, accordingly, different NPE risks differently. For example, Intellectual Ventures is in a different category from an NPE with a single patent. Similarly, the failed startup that was formerly in your company’s business space but which has now pivoted to become an NPE is a different risk. Therefore, giving consideration to the different categories of NPE risks that your company faces is important. Other things to consider are technology areas with greater risk (e.g., entry into wireless), as well as specific sellers, or types of sellers, of concern.

The next step is to quantify the risks identified from the prior step. For example, if you expect your company to have a steady state of approximately five NPE litigations a year, how much do you expect to spend resolving those per year? We will use $5 million as an estimate in this example. The same calculation can be repeated for other types of assertions you receive, e.g., 10 letters a year from NPEs at a spread of $0–200,000 each to resolve. We will use $100,000 as an estimate in this example. This calculation would provide a five-year spend on resolving NPE risks of $6 million/year, or $30 million over five years.

Next, consider each of the aggregator solutions and identify what portion of those risks is addressed. In this scenario, RPX may be able to help the company resolve one lawsuit a year, or $5 million of the $30 million. Those savings can then be weighed against the membership costs.

At this stage, it is also important to consider nonfinancial considerations. For example, participating in a defensive aggregator may also have the added benefit of:

  • Demonstrating commitment to community and shared goals, e.g., reducing patent supply to NPEs, as well as thought leadership on intellectual property (IP);
  • Providing specialization to handle big deals, e.g., RPX/Kodak or AST/MIPS, that would be beyond the scope of your company alone;
  • Addressing specific sources or companies of concern, e.g., if your company is particularly worried about a particular company’s patents and that company is already a LOT Network member; and
  • Providing a framework for reducing supplier-sourced NPE patent risks, e.g., joining LOT Network and encouraging your suppliers to join as well.

There are others, and these considerations should be given weight in evaluating the aggregators.

Lastly, with the NPE risk and per-aggregator benefits calculated, it should be apparent which aggregators to join. You can then contact the aggregators and negotiate membership. Due to the group nature of the aggregators, some of the contracts cannot be negotiated; however, that does not mean there is no room to negotiate.

Sample Scenarios

In table 2, we present three example scenarios to emphasize how the different aggregators can be complementary.


Notably, these solutions are focused nearly exclusively on NPE defense. Companies also buy patents and patent rights for other reasons, e.g., to prepare for defensive counter-assertion, improve cross-licensing position, or build freedom-to-operate. The defensive aggregators do not directly serve these business cases, so companies should include additional patent purchase budget in their overall IP strategy.


NPE problems are expensive, but the market has responded with a variety of defensive aggregator solutions worthy of consideration. Understanding how each defensive aggregator works, what their relative costs are, and how they would impact your NPE costs is the first step. Although no one solution works in every case, we are confident that defensive aggregators are an important part of an NPE risk reduction strategy and an overall patent strategy.


1. Available at https://www.rpxcorp.com/wp-content/uploads/sites/2/2016/07/RPX-2015-Report-072616.FinalZ.pdf.