On behalf of Petitioner
`By: Richard F. Giunta
`Elisabeth H. Hunt
`Randy J. Pritzker
`WOLF, GREENFIELD & SACKS, P.C.
`600 Atlantic Avenue
`Boston, MA 02210
`Tel: (617) 646-8000
`Fax: (617) 646-8646
`RGiunta-PTAB@wolfgreenfield.com
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`_____________
`
`
`
`RPX Corporation
`
`Petitioner
`
`v.
`
`Applications in Internet Time, LLC
`
`Patent Owner
`_____________
`
`Case IPR2015-01750
`Patent 8,484,111 B2
`
`Case IPR2015-01751
`Case IPR2015-01752
`Patent 7,356,482 B21
`
`_____________
`DECLARATION OF WILLIAM W. CHUANG
`
`
`1 The word-for-word identical paper is served in each proceeding identified in the
`heading.
`RPX Exhibit 1019
`RPX v. AIT
`IPR2015-01751
`
`
`PROTECTIVE ORDER MATERIAL
`
`RPX000099
`
`

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`
`
`
`
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`I, William W. Chuang, declare:
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`1.
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`I am Vice President of Client Relations at RPX Corporation (“RPX”).
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`My responsibilities include overseeing interactions with clients and ensuring strong
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`continuing relationships with clients.
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`
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`2.
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`In addition to my Client Relations responsibilities, I am also involved
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`in RPX initiatives, including RPX’s patent quality initiative, because of my long
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`history with RPX and extensive legal experience. I have worked at RPX since
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`December of 2010 and am generally involved in senior level discussions.
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`3.
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`I am an attorney with over fifteen years of experience specializing in
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`intellectual property law.
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`4.
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`Prior to joining RPX, I was a partner at O’Melveny & Myers, an
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`international law firm with hundreds of lawyers, where I specialized in intellectual
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`property law.
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`5.
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`I am familiar with the reasons why RPX files petitions for inter partes
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`review (IPR) in general, and was personally involved in RPX’s decision to file the
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`petitions for inter partes review numbered 2015-01750, 2015-01751, and 2015-
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`01752 (“the AIT IPRs”) concerning U.S. Patents Nos. 7,356,482 and 8,484,111
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`(“the AIT Patents”) owned on their face by Applications in Internet Time, LLC
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`(“AIT”).
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`
`PROTECTIVE ORDER MATERIAL
`
`1
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`RPX000100
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`

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`
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`I.
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`RPX’S REASONS FOR FILING IPRS IN GENERAL
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`RPX has many reasons for filing IPR petitions.
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`6.
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`7.
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` RPX provides insurance against NPE patent
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`infringement lawsuits to clients who purchase insurance policies. (See Attachment
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`A: RPX 10-K, p. 2.)
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`
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`
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` Filing after companies are sued in low quality, cost-of-
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`litigation lawsuits often has a minimal impact as defendants find that it is more cost
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`efficient to settle than to bear the costs of litigation during the time it takes to draft
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`and prosecute a successful IPR challenge.
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`PROTECTIVE ORDER MATERIAL
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`2
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`RPX000101
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`8.
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` RPX’s core business is
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`acquiring valuable patent rights and obtaining licenses for its client base. (See
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`Attachment B: RPX website, Services tab.)
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`9.
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`PROTECTIVE ORDER MATERIAL
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`RPX000102
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`10.
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`11. RPX has a history of success in preventing future lawsuits by filing
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`IPRs against invalid patents. The first IPR petition that RPX ever filed was RPX
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`Corporation v. Macrosolve, Inc., IPR2014-00140. That IPR petition resulted in the
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`owner of a facially invalid patent abandoning the patent and changing from an NPE
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`business model to focus instead on drone technology. The IPR thus prevented the
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`patent owner from pursuing additional lawsuits.
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`12. Another IPR petition RPX filed before deciding to file against AIT was
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`in RPX Corporation v. Cedatech Holdings, LLC, IPR2015-00736. At the time RPX
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`filed the IPR petition against Cedatech, the remaining defendants in the copending
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`litigation had already indicated to the court that they were settling. Nevertheless,
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`PROTECTIVE ORDER MATERIAL
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`4
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`RPX000103
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`RPX filed the IPR petition because of the threat of additional suits. The patent
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`owner disclaimed all of the patent’s claims to avoid defending the IPR and
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`informed the Board of this rather than filing a preliminary patent owner response.
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`This is another example of RPX serving its business interests by filing an IPR
`
`petition against a facially invalid patent and successfully preventing additional
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`lawsuits on that patent.
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`13. RPX has also demonstrated that its interests in filing IPRs go beyond
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`challenging patents asserted against RPX clients. For example, RPX filed four IPR
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`petitions against patent owner ParkerVision despite RPX not having any clients in
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`the copending lawsuit. Dr. Michael Farmwald and RPX Corporation v.
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`ParkerVision, Inc., IPR2014-00946, IPR2014-00948, IPR2014-00947, and
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`IPR2014-01107. The patent owner’s recent request for adverse judgment resulted
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`in cancellation of all instituted claims.
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`II. RPX’S GENERAL PROCESS FOR DECIDING TO FILE AN IPR
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`14. RPX has adopted a systematic process for identifying potential IPR
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`candidates and preparing IPRs.
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`5
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`PROTECTIVE ORDER MATERIAL
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`RPX000104
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`15.
`>—- P‘
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`16.
`>—- .0‘
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`17.
`D—K .\‘
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`PROTECTIVE ORDER MATERIAL
`PROTECTIVE ORDER MATERIAL
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`6
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`RPX000105
`RPX000105
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`18.
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`19.
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`when RPX files an IPR petition with involvement of any other party, RPX files the
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`IPR petition with the other party named as an RPI. See IPR 2014-00946, IPR 2015-
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`01823 and IPR 2016-00003.
`
`III. RESPONSE TO DISCOVERY REQUEST NO. 3 REGARDING
`COMMUNICATIONS WITH SALESFORCE
`
`20. RPX had no communication with Salesforce whatsoever regarding the
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`filing of IPR petitions against the AIT Patents before the AIT IPRs were filed.
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`Salesforce did not request that RPX file the AIT IPRs, was not consulted about the
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`decision by RPX to file the IPRs, and did not communicate with RPX about the
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`searching for or selection of prior art asserted in the AIT IPRs, the selection of
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`counsel for the IPRs, the selection of an expert for the IPRs, or any other aspect of
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`the IPRs. RPX had no obligation (contractual or otherwise) to Salesforce to file the
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`AIT IPRs and Salesforce did not fund the AIT IPRs.
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`21.
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`PROTECTIVE ORDER MATERIAL
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`7
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`RPX000106
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`RPX000107
`RPX000107
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`22.
`E9
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`PROTECTIVE ORDER MATERIAL
`PROTECTIVE ORDER MATERIAL
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`8
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`RPX000108
`RPX000108
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`23.
`S”
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`24.
`[Q
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`9
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`PROTECTIVE ORDER MATERIAL
`PROTECTIVE ORDER MATERIAL
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`RPX000109
`RPX000109
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`25.
`N P‘
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`26.
`to S3‘
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`\‘
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`27.
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`PROTECTIVE ORDER MATERIAL
`PROTECTIVE ORDER MATERIAL
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`10
`>— C
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`30. RPX, in the normal course of its business, produces a daily alert e-mail
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`that informs a broad list of subscribers of new lawsuits that have been filed in
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`district courts. The Daily Litigation Alert sent November 11, 2013 (Bates Range
`
`RPX000038-RPX000046) includes an entry for the AIT-Salesforce Litigation. It is
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`possible that Salesforce subscribers could have received this Daily Litigation Alert;
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`however, RPX is not currently aware of whether any Salesforce employees were
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`subscribers to the Daily Litigation Alert as of November 11, 2013.
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`
`
`PROTECTIVE ORDER MATERIAL
`
`11
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`RPX000110
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`

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`
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`IV. RPX’S COMMUNICATIONS WITH SALESFORCE UNRELATED
`TO THE AIT-SALESFORCE LITIGATION, AIT PATENTS OR AIT
`IPRS
`
`31. RPX, like many other companies, uses Salesforce software, as well as
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`software applications from other vendors, in the course of RPX’s business.
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`32. AIT’s discovery Request No. 4 calls for documents sufficient to show
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`information relating to meetings or communications between Salesforce and RPX
`
`that are not limited to communications about the AIT-Salesforce Litigation, the AIT
`
`Patents or the AIT IPRs. The document provided as Bates Range RPX000077-
`
`RPX000090 is responsive to that request. The vast majority of email
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`communications were in connection with setting up meetings and did not include
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`any substantive content. The listing of participants in meetings and phone calls is
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`based on best recollection and errs on the side of being over-inclusive; it is
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`therefore possible that some of the listed individuals may not actually have
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`attended.
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`33.
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`PROTECTIVE ORDER MATERIAL
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`12
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`RPX000111
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` At no time has RPX provided the prior art in the AIT
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`IPRs to Salesforce or discussed that prior art with Salesforce.
`
`V. RPX’S REASONS FOR FILING THE AIT IPRS
`
`34.
`
`I was personally involved in the decision by RPX to file the AIT IPRs
`
`and have first-hand knowledge of the process that RPX follows in general in
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`reaching decisions on filing IPR petitions, as well as the underlying facts and
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`reasons for filing the particular petitions against the AIT Patents.
`
`35.
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`36. RPX determined that AIT meets RPX’s view of an NPE. This
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`determination was based on two factors. First, RPX could not identify a single
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`product sold by AIT that practices the claimed invention. Second, AIT appears to
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`have relocated from Half Moon Bay in Northern California to Nevada before filing
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`the AIT-Salesforce Litigation in Nevada district court. Relocation is a forum-
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`shopping tactic that RPX has seen NPEs use often in advance of filing in a
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`jurisdiction the NPE may perceive as plaintiff friendly.
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`PROTECTIVE ORDER MATERIAL
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`13
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`RPX000112
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`37.
`up .\‘
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`38.
`up 9°
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`39.
`up 50
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`PROTECTIVE ORDER MATERIAL
`PROTECTIVE ORDER MATERIAL
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`14
`>— -B
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`RPX000113
`RPX000113
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`RPX000114
`RPX000114
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`40.
`-l>.9
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`41.
`.”‘
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`PROTECTIVE ORDER MATERIAL
`PROTECTIVE ORDER MATERIAL
`
`15
`15
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`

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`N
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`42.
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`43.
`P’
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`RPX000115
`RPX000115
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`PROTECTIVE ORDER MATERIAL
`PROTECTIVE ORDER MATERIAL
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`16
`>— O‘\
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`44.
`:5
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`P‘I
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`17
`>— \]
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`PROTECTIVE ORDER MATERIAL
`PROTECTIVE ORDER MATERIAL
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`RPX000116
`RPX000116
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`

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`4~.|4:..\‘.0‘
`GT0
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`PROTECTIVE ORDER MATERIAL
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`RPX000117
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`RPX000118
`RPX000118
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`48.
`9°
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`49.
`5°
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`PROTECTIVE ORDER MATERIAL
`PROTECTIVE ORDER MATERIAL
`
`19
`19
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`VI. RPX BOARD MEMBER SANDY ROBERTSON HAD NO
`INVOLVEMENT IN THE DECISION TO FILE THE AIT IPRS
`
`50. Sandy Robertson is one of seven board members for RPX and had no
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`involvement whatsoever in, and had no impact on, RPX’s decision to file the AIT
`
`IPRs.
`
`51.
`
`I personally attended meetings with
`
`
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`
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` where the decision was made to recommend
`
`
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` the filing of the AIT IPRs, and no mention was ever made of Mr.
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`Robertson, the fact that he serves on the Board of Salesforce, or that any member of
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`RPX had received any suggestion from Mr. Robertson that RPX should consider
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`filing the AIT IPRs.
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`52.
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`I regularly attend RPX’s Board meetings and, given my position as
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`Vice President of Client Relations, I participate in discussions relating to client
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`relations. The filing of particular IPR petitions is not discussed at Board meetings.
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` this is a decision that is not
`
`
`PROTECTIVE ORDER MATERIAL
`
`20
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`RPX000119
`
`

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`considered or approved by the Board of Directors. The highest levels in RPX to
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`which the decision to file the AIT IPRS rose was approval by the GC and CFO.
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`53.
`
`Based on my experience in participating in Board meetings and
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`understanding the types of issues that Board members focus on and address, it was
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`and is my expectation that Sandy Robertson would not have even been aware of the
`
`AIT—Salesforce Litigation or the AIT IPRs in his capacity as a Board member of
`
`Salesforce and RPX. On October 22, 2015, RPX had a regularly scheduled Board
`
`meeting and I spoke to Mr. Robertson, who confirmed my expectation and
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`indicated that prior to my bringing them to his attention during that meeting, he was
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`unaware of the AIT-Salesforce Litigation or the AIT IPRS.
`
`I declare that all statements made in this declaration of my own personal
`
`knowledge are true and that all statements made on infonnation and belief are
`
`believed to be true; and further that these statements are made with the knowledge
`
`that willful false statements and the like are punishable by fine, imprisonment, or
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`both, under Section 1001 of Title 18 of the U.S. Code.
`
`é/»‘/c'/t/ A or
`
`William w. Chuang
`
`/”
`
`21
`
`PROTECTIVE ORDER MATERIAL
`
`Rpxogmzo
`
`

`
`
`
`CERTIFICATE OF SERVICE UNDER 37 C.F.R. § 42.6 (E)(4)
`
`It is hereby certified that on this 3rd day of November, 2015, a copy of the
`
`foregoing document was served via electronic mail, as previously consented to by
`
`Patent Owner, upon the following counsel of record:
`
`Steven C. Sereboff (Reg. No. 37,035)
`SoCal IP Law Group LLP
`310 N. Westlake Boulevard, Suite 120
`Westlake Village, CA 91362
`uspto@socalip.com
`
`
`
`
`
`Date: November 3, 2015
`
`/Richard F. Giunta/
`Richard F. Giunta
`
`
`PROTECTIVE ORDER MATERIAL
`
`22
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`RPX000121
`
`

`
`ATTACHMENT A
`
`ATTACHMENT A
`
`PROTECTIVE ORDER MATERIAL
`
`RPX000122
`
`

`
`RPX - 12.3 1 .20 14- 10K
`
`https://www.sec.gov/Archivcs/cdgar./data/l509432/00015094321500002...
`
`l0-K 1 rpx-1231201411101: htm10—K
`Table ofContents
`
`UNITED STATES
`
`SECURITIES AND EXCHANGE COMNHSSION
`Washington, D.C. 20549
`
`FORM 10-K
`
`x ANNUAL REPORT PURSUANT‘ TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF 1934
`FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014
`
`OR
`
`" TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF 1934
`FOR THE TRANSITION PERIOD FROM
`TO
`Commission File Number: 001-35146
`
`RPX Corporation
`(Exact Name of Registrant as Specified in Its Charter)
`
`Delaware
`(State or Other Jurisdiction of
`Incorporation or Organization)
`
`26-2990113
`(LR.S. Employer
`Identification No.)
`
`ONE IVIARKET PLAZA, SUITE 800
`SAN FRANCISCO. CALH'ORNIA 94105
`(Address of Principal Executive Others and Zip Code)
`Registranfs Telephone Number, Including Area Code: (866) 779-7641
`
`Securities Registered Pursuant to Section l2(b) of the Act:
`
`Name of Each Exchange on Which Registered
`Title of Each Class
`The NASDAQ Stock Market LLC
`Common Stock, $0.000l Par Value
`Securities Registered Pursuant to Section l2(g) of the Act:
`None
`
`Indicatebycheckmarkiftheregisuantisawell-knownseasonedissuer,asdefinedinRn|e405ofrheSec\nitiesAct YES 9 NO '
`hdicatebydrckmarkifflnmgkuunisnorreqrnredtofikmpmtsprnstnmmsedion13orSectionl5(d)oftheAct YES ‘ N09
`hmkmebydrckmrkwhemaflxmgisumt(l)hasfiJedanmpmureq|medmbefledbySecfim l3or15(d)oftheSecuritiesEnchangeActofl934drningthe
`precedingl2months(orforsud1shona'periodthattheregisu:ntwasreqniredtofilesuchrq)ons),and(2)hasbeeusubjecttosuchtilingrequirexnentsforthepast90
`days YESy' NO '
`Indicatebycheckmarkwhefliertlrrcgistranthassuhmittedelectronicallyandpostedonitscorporatewebsite,ifany,everylnteraaiveDatafilerequiredrobesubnritted
`andpostedpursuanttoRn.le405ofRegnlationS-T(§232405ofthischapta)d1ningthepreoeding l2mont15(orforsuchshorterpaiodth:ttheregistnntwasrequiredto
`submitandpostsnchfiles) YES}? NO '
`IndicatebydrckmarkifdisdostneofdelinquunfilerspmsuanttoItun405ofRegula1ionS—K(§229405ofthischapter)isnotconnimdher'ein,andwillnotbe
`contained, to thebtstofregistnnfs knowledge, indefinitive proxy or information statements incorporated byrefm-.nceinPart lllofthis Form l0—Kor anyamendmmt to
`this!-‘ormlo-K '
`
`Indicatebycheckmaxkwhetherttnregisuantisa largeacoekratedfiler, anaooeluatedfiia, a non-acoeleratedfilu, orasmallerreponing company Seethedefinitionsof
`“large accelerated filer,“ “accelerated filer“ and “snaller reporting company" in Rule 12b-2 of the Exchange Act
`
`Large aooeleraied filer
`
`x
`
`Arreeiaated filer
`
`Non-aoodaated filer
`
`‘ (Do not check if a smaller reporting company)
`
`Smallerreporting company
`
`"
`
`"
`
`PROTECTIVE ORDER MATERIAL
`
`11/3/2015 11:17 AM
`RPX000123
`
`

`
`RPX - 12.31.2014- 10K
`
`https://www.sec.gov/Archives/edgar/data/1509432/00015094321500002...
`
`Table of Contents
`
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) YES ¨ NO ý
`The aggregate market value of the common stock held by non-affiliates of the registrant was $906 3 million as of June 30, 2014, which is the last business day of the
`registrant’s most recently completed second fiscal quarter, based upon the closing sale price on The NASDAQ Global Select Market reported for such date Shares of
`common stock held by each officer and director and by each person that owned 5 percent or more of the Registrant’s outstanding Common Stock were excluded due to the
`fact that such persons may be deemed to be affiliates This determination of affiliate status is not necessarily a conclusive determination for other purposes
`There were 54,277,822 shares of the registrant’s common stock issued and outstanding as of February 20, 2015
`
`Documents Incorporated by Reference:
`Portions of the Definitive Proxy Statement for registrant’s 2015 Annual Meeting of Stockholders (the “2015 Proxy Statement”), are incorporated by reference in Part III of
`this Form 10-K to the extent stated herein The 2015 Proxy Statement will be filed within 120 days of the registrant’s fiscal year ended December 31, 2014
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`PROTECTIVE ORDER MATERIAL
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`RPX - 12.31.2014- 10K
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`https://www.sec.gov/Archives/edgar/data/1509432/00015094321500002...
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`Table of Contents
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`TABLE OF CONTENTS
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`PART I
`
`Item 1.
`Item 1A.
`Item 1B.
`Item 2.
`Item 3.
`Item 4.
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`PART II
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`Item 5.
`Item 6.
`Item 7.
`Item 7A.
`Item 8.
`Item 9.
`Item 9A.
`Item 9B.
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`PART III
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`Item 10.
`Item 11.
`Item 12.
`Item 13.
`Item 14.
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`PART IV
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`Item 15.
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`Business
`Risk Factors
`Unresolved Staff Comments
`Properties
`Legal Proceedings
`Mine Safety Disclosures
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`Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
`Selected Consolidated Financial Data
`Management’s Discussion and Analysis of Financial Condition and Results of Operations
`Quantitative and Qualitative Disclosures about Market Risk
`Consolidated Financial Statements and Supplementary Data
`Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
`Controls and Procedures
`Other Information
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`Directors, Executive Officers and Corporate Governance
`Executive Compensation
`Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
`Certain Relationships and Related Transactions, and Director Independence
`Principal Accounting Fees and Services
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`Exhibits and Consolidated Financial Statement Schedules
`SIGNATURES
`EXHIBITS
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`FORWARD-LOOKING INFORMATION
`This Annual Report on Form 10-K contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions which, if they
`never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The
`statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A
`of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. Forward-looking statements are often identified by
`the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,”
`“project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. Forward-
`looking statements include statements regarding our business strategies and business model, products, benefits to our clients and competitive position.
`These statements are based on the beliefs and assumptions of our management based on information currently available. Such forward-looking statements
`are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from
`future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not
`limited to, those identified below, and those discussed in the section titled “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K.
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`Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to
`update any forward-looking statements to reflect events or circumstances after the date of such statements.
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`Item 1.
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`Business.
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`PART I.
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`Overview
`RPX Corporation (together with its subsidiaries, “RPX”, “the Company”, “our”, “we” or “us”) was incorporated on July 15, 2008 in the state of
`Delaware. We help companies reduce patent-related risk and expense. Products and services in today’s economy increasingly incorporate innovative and
`complex technologies that are subject to a growing number of issued patents. As a result of this technology and patent proliferation, companies of all sizes
`can face significant challenges managing the risks and expenses arising from claims that their products and services infringe on patents owned by others.
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`We believe the process by which value is transferred from users to owners of patents lacks key attributes of more developed markets, such as an
`open exchange to execute transactions, transparent pricing information and broadly accepted standard contract terms. Because an orderly and efficient
`market for the exchange of patent value has yet to develop, this transfer of value is currently driven by litigation or the threat of litigation. Patent litigation
`today is a multi-billion dollar industry.
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`Our patent risk management solution facilitates more efficient exchanges of value between owners and users of patents compared to transactions
`driven by actual or threatened litigation. The core of our solution is defensive patent aggregation, in which we acquire patents and licenses to patents that
`are being or may be asserted against our current and prospective clients. We then license these patent assets to our clients to protect them from potential
`patent infringement assertions. We believe our solution allows clients to mitigate patent risk at a lower cost than they would be able to achieve through
`other approaches. We also provide our clients with access to our proprietary patent market intelligence and data. We refer to patents, licenses to patents,
`patent rights and acquired covenants not to sue specific companies collectively as “patent assets.”
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`Our solution offers the following benefits to our clients:
`Reduced Risk of Patent Litigation – Clients reduce their exposure to patent litigation because we continuously assess patent assets available for
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`sale or license and acquire many that are being or may be asserted against our clients or potential clients. Our clients have no litigation risk
`related to the patents that we own.
`Cost-Effective Licenses – Our annual subscription fee is generally based on a client’s historical financial results. Accordingly, our subscription
`fee is predictable for our clients. We believe our approach to pricing is different than the pricing strategies of traditional patent licensing
`businesses, which generally negotiate license fees based on the perceived relevance of their various patent portfolios to each licensee. We
`believe our approach to pricing also provides clients with non-exclusive license rights to our large and growing portfolio of patent assets at a
`lower cost than they would have paid if these patent assets were owned by other entities.
`Reduced Patent Risk Management Costs – Clients can reduce their ongoing patent risk management costs by supplementing their internal
`resources with our database of information and extensive transaction experience relating to the patent market. We actively monitor the patent
`market to understand the availability of patent assets for sale or license, the identity of the owners and licensors of these assets, the terms by
`which they may be available and the technologies to which these assets apply. We also track relevant litigation activity and identify key
`participants and trends in the patent
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`market. As part of their subscription, our clients have access to this information through our proprietary web portal and through discussions with
`our client relations team.
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`Insuring against the cost of non-practicing entity (“NPE”) litigation expense is a natural extension of our core defensive patent aggregation service.
`In August 2012, we started to offer NPE patent infringement litigation expense insurance, which is a liability insurance policy for operating companies that
`covers certain costs associated with patent infringement lawsuits by NPEs. In May 2014, we began assuming some portion of the underwriting risk on
`insurance policies that we issue on behalf of a Lloyd's of London underwriting syndicate. The insurance product complements our core defensive patent
`acquisition service, enabling policyholders to better manage and mitigate the risk of NPE patent litigation.
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`The Market
`The United States Constitution empowers Congress “to promote the progress of science and the useful arts by securing for limited times to authors
`and inventors the exclusive right to their respective writings and discoveries” through the grant of patents. Patent rights are a key component of a
`knowledge-based economy and are assets that can be bought, sold or licensed. We refer to the market in which participants exchange value related to
`patents as the “patent market.”
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`Patent litigation risk plagues operating companies of all sizes, has the potential to significantly disrupt business activities and distract from normal
`business operations, and can have a significant adverse financial impact on industry participants. We believe the extensive use of litigation and the threat of
`litigation prevents efficient transactions between the principal participants in the market: patent owners and operating companies.
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`Monetization of Patents
`Historically, the following fundamental attributes of patents have enabled patent monetization:
`Patents Provide a Limited Monopoly – In exchange for public disclosure of an invention, a patent owner is granted a monopoly over the use of a
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`patented invention for a specified period, typically 20 years from the filing of the patent application.
`Patents Confer Negative Rights – Patent rights are negative rights, meaning that they generally enable a patent owner to exclude others from
`commercial exploitation of a patented invention, regardless of whether the patent owner has the resources to manufacture or commercialize the
`invention. As the owner of a negative right, a patent owner has recourse through litigation to prevent others from using, making, offering for
`sale or selling the patented invention. Even when the patented invention is only a component of a broader product or service, the negative right
`can be enforced against any product or service that incorporates the component.
`Patents May Be Licensed and are Infinitely Divisible – A patent owner can authorize the use of the patented invention by one or more parties,
`typically in exchange for licensing fees. There is no legal limit to the amount of licenses a patent owner can provide to market participants.
`Patents Are Assets That Can Be Transferred – A patent can be sold, in which case the negative right and monopoly associated with the patented
`invention are transferred to the buyer. When a patent is sold, the buyer’s negative rights may be constrained by licenses granted by previous
`owners.
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`More recently, several developments have increased opportunities for patent monetization and created an environment that is more favorable to
`investing in patents for the purpose of generating financial returns. These developments include:
`Improved Search Capabilities – The entire database of United States patents is searchable on the Internet, enabling patent investors to quickly
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`identify patents and their owners. The Internet also makes it much easier for patent owners to identify and research products and services that
`may relate to their patents.
`Increasing Rate of Issuance of Technology Patents – Patents issued with class code identifiers that we classify as technology-related patents
`have nearly doubled in the past 10 years.
`Overlap of Technology Patents – Because inventors can patent incremental improvements to existing inventions, multiple patents can apply to
`individual components of a product or service. Consequently, multiple patent owners may seek to extract license fees related to a single product
`or service. One example of this overlap of patents is semiconductor technology known as DRAM. Today, there are several thousand issued
`United States patents with “DRAM” specifically listed as a claim element. These DRAM patents span design, fabrication, testing and
`component technology including dies, capacitors, memory cells, transistors, integrated circuits, substrates and packaging. Each of those aspects
`may be covered by multiple patents that could be infringed by a DRAM semiconductor device or downstream product. Potential infringement of
`these patents could occur by anyone who designs, makes, uses or sells a product using this technology.
`Technology Convergence – Modern products and services incorporate numerous technology components, such as the evolution of mobile
`devices. This growth can be attributed to the expanded set of features and functionality incorporated in
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`today’s smartphones, including touchscreens, Internet access, streaming video, media playback, application store readiness and other web-based
`services, and Wi-Fi connectivity options.
`• More Companies Employing Patented Technologies – A growing number of companies, including non-technology companies, make, use and
`sell products or services that utilize patented inventions. For example, consumer banks now offer online and mobile banking and bill pay as a
`standard feature, which rely on numerous complex technologies that may be subject to many patents.
`Specialized Appellate Court for Patent Cases – The United States Court of Appeals for the Federal Circuit was created in 1982 to serve as the
`central appellate venue for patent-related cases. We believe this centralization of patent-related appeals has resulted in a more uniform
`application of patent law. In addition, various federal district courts have adopted patent-specific rules of procedure to facilitate patent litigation.
`These factors have created a more attractive environment for patent assertions.
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`All of these developments have caused significant capital to flow to companies specifically formed to acquire and monetize patent assets.
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`Emergence and Growth of NPEs
`NPEs do not create or sell products or services, but instead monetize patents through licensing and litigation. Some NPEs obtain patents through
`their own research and development efforts, while others accumulate patents through acquisitions. NPEs have become a major factor in the patent market
`and an important source of liquidity for patent owners.
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`Operating companies can incur significant costs to defend themselves against patent assertions by NPEs. At a minimum, companies faced with an
`assertion letter typically respond to the assertion letter and evaluate the patents being asserted. If the assertion proceeds to trial, costs grow substantially.
`NPEs generally do not create or sell their own products or services and therefore are not susceptible to counter assertion, a common defensive strategy in
`patent disputes between operating companies.
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`We believe that the amount of capital raised by NPEs is currently in the billions of dollars. Some of the large awards and settlements received by
`NPEs have resulted in extensive media coverage, contributing to a significant influx of capital into the patent market. As