Patent Assertion Entity Activity

Portfolio PAEs typically conducted business in the following manner. First, they acquired portfolios of
patents. Portfolio PAEs frequently acquired patents from manufacturing firms by making large up-front
payments to the owner. Some Portfolio PAEs acquired hundreds or thousands of patents in individual
transactions, often purchasing these patents from manufacturing firms. Other Portfolio PAEs acquired
smaller numbers of patents per transaction and aggregated them into larger portfolios. Regardless of
acquisition model, Portfolio PAEs then organized acquired patents into one or more portfolios, each
containing hundreds if not thousands of patents and offered these portfolios for licensing. 168
Portfolio PAEs generally reached licensing commitments without bringing litigation against a potential
licensee: they executed 71% of their licenses without litigation. Portfolio PAEs often sent demands to
initiate these license negotiations. 169 They employed dedicated management and licensing executives,
who frequently had prior licensing experience. When Portfolio PAEs did file suit, 76% of their cases
involved five to ten patents and 74% of their cases lasted more than a year. Portfolio PAEs typically
retained counsel paid on an hourly basis, when needed.
In lieu of litigation, licensing executives hired by Portfolio PAEs typically began negotiations by
reaching out to a large network of contacts and offering a portfolio license. Portfolio PAE licensing
executives typically contacted a specific person in their network, with whom they appeared to have had
an introduction or a preexisting relationship.
Overall, Portfolio PAE licenses generated high revenues relative to Litigation PAE licenses. Although
Portfolio PAEs accounted for 9% of all licenses in the study, these licenses generated 80% of all revenue
reported in the study. Some Portfolio PAEs also sold patents to Litigation PAEs in exchange for a share
of the revenues that the acquiring Litigation PAE might subsequently obtain through litigation and
settlement. The Portfolio PAE model may serve as a mechanism for shifting the financial risk of
assertion activity to individuals or entities more able and willing to bear such risk, which may be more
attractive to some patent owners than asserting the patents themselves. By raising capital from investors
and purchasing patents with a large up-front payment, the Portfolio PAE provides the patent seller with
168
In some instances, the Portfolio PAE created an affiliate entity to hold and assert the portfolio. Thirty Affiliates were
related to Portfolio PAEs.
169
Each Portfolio PAE reported sending demands to prospective licensees.
46