RPXC

RPX Corporation (RPXC)

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Call Start: 10:00

Call End: 10:38

RPX Corporation (RPXC)

JPMorgan Global Technology, Media and Telecom Conference Call

May 16, 2013 10:00 ET

Executives

Ned Segal - Chief Financial Officer

John Amster - Chief Executive Officer

Analysts

Paul Coster - JPMorgan

Presentation

Ned Segal - Chief Financial Officer

Would you want to spend two minutes to have a brief overview?

John Amster - Chief Executive Officer

Ned’s going to do that. Ned’s going to interview me.

Ned Segal - Chief Financial Officer

That’s a simple answer. Give an overview.

John Amster - Chief Executive Officer

Yes, okay. Here is the – the overview is that RPX was started to be the one company in the patent space that could develop a relationship and provide a service for the thousands of companies that gets sued by what we call non-practicing entities, those are companies that buy patents generally for the purpose of licensing them usually involves litigation. So, the NPE problem has grown to be $11 billion cost annually. That’s what it was last year for all of the companies that get sued. Effectively, what RPX provides is a service that uses the subscription fees that we get from over 140 clients as of the end of last quarter to go buy as many patents as we can that would otherwise end up in the hands of these NPEs or buy rights to patents. Those rights could be – being bought out of active litigations. So, we have generally been responsible for a very meaningful percentage of the litigation dismissals of our clients. We have also avoided countless other litigations for our client network by buying patents before they end up in the hands of the NPEs.

Typically, what NPEs are going for is an arbitrage of something like 5 to 10 times what they pay for a patent will be the cost to industry from defending against litigations and settling the litigations. The NPEs generally only get half of what the companies spend, which is also part of our arbitrage that NPEs don’t have. In other words, of the $11 billion, nearly half of it was legal fees. And so it’s a tremendously inefficient market, incredibly high transaction cost, and basically RPX was started with the promise to our clients that we are not going to sue them to make this market more efficient by having the largest network, the largest information flow and transaction knowledge of what’s going in the patent market, and then being able to lower their NPE risk as a result. So, that’s the core business and that’s where the vast majority of our revenue today comes from are these annual subscriptions fees with over 140 companies paying us.

We have also developed an insurance product over the last several years. That was made possible by the trusted relationship that we have with our client network. The ability to attain actual transaction data on patent litigation is something that no one else was able to achieve. And the foundation of that is the trust that we have with our clients. So, now we announced as of last quarter, is 11 insurance policies sold, so this is a nascent business. However, we have gotten over what we certainly thought were the big hurdles, which is developing an actuarial model, collecting actual cost data to be able to put in that actuarial model and getting license to be able to start selling insurance. And so that’s the 35,000 foot overview.

Ned, would you like to ask me some questions or?

Ned Segal - Chief Financial Officer

Well, are there questions from the group there, we can continue to rest a little bit. In the back, go ahead.

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

John Amster

Sure. So, the question is with 140 clients, it would seem like it could be somewhat limited TAM, so how do we define the TAM. The easiest way for us to look at the TAM is the spend annually of the companies that get hit with NPE suits. And so again last year, we were looking at around – our estimate is its $11 billion. Some people estimate that it’s several multiples of that. We think that’s a little bit aggressive, but $11 billion spent, now who is spending this money? So, since 2010, there have been 6,200 companies sued by NPEs. 450 of those 6,200 were sued five times or more since 2010. In Q1 alone last year, you had 852 lawsuits against 807 unique companies. 747 of the 807 that were sued just last quarter alone are not yet our clients. Most of those would really be more applicable to the insurance product, because the long tail of the market are SMEs and they get sued less frequently than big companies, and there the portion of the market that really needs risk transfer. They are trying to avoid the unexpected expense that could be very devastating for them, but we look at several hundred companies that are really closer to our current average subscription on an annual basis and there are hundreds more of those left.

Paul Coster - JPMorgan

So, it’s not my proudest…?

John Amster

And let me introduce Paul Coster.

Paul Coster - JPMorgan

Alright, you’re talking about the company.

John Amster

Yes. We just started taking – we did a two-minute overview and we were asked for one question from the audience.

Paul Coster - JPMorgan

Okay, not my proudest moment, sorry folks, caught up in a phone call. John, thanks for coming, I appreciate it. First, we can started with the state of the intellectual property market and what’s happening, there is a lot of noise around regulations, there is a lot of noise around the asset prices peaking because of the strategic activities now kind of passing. What are your latest thoughts on what’s happening, because obviously you need a vibrant market out there?

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