US Justice Dept. Praises IPXI Patent Exchange, But Not Yet Resolved

The United States Department of Justice today said it has not yet settled concerns about the possible negative effect on competition of a proposed patent exchange. But it found positive things to say about the innovative model.

In a letter [pdf], the Justice Department said it was not ready to “state its enforcement intentions” regarding implementation of a proposal by Intellectual Property Exchange International (IPXI) to develop a trading exchange for unit licence rights (ULRs) to sets of patents.

The department said the proposed exchange could create efficiencies to benefit the IP marketplace and boost innovation, including through increased licensing efficiency, sublicence transferability and greater transparency.

But it also raises antitrust concerns due to inherent uncertainties and competition issues with IPXI’s novel business model, in which it would pool ULRs from multiple patent holders. This is in part because it is still unknown which patents or markets might be subject to pooling, and because the proposal would not provide for independent licensing options that could be available if the patent holder’s grant to IPXI were nonexclusive.

“IPXI proposes to create a proprietary market for patent licenses,” Justice said in a press release. “To do so, the company intends to obtain exclusive patent licenses that it will then sublicense through the sale of tradable instruments called ULRs, which are standardized licenses for defined sets of patents and uses under terms and conditions set jointly with patent holders. As part of the process, IPXI will review the patent rights at issue by examining validity, current infringement and other issues, and determine market interest to license those patents.”

“IPXI may become the exclusive licensor of patents or patent bundles that might otherwise compete,” Justice continued. “IPXI has proposed certain procedures that might mitigate the likelihood that anticompetitive effects will materialize. However, because IPXI cannot predict in advance the patents or markets that might be at issue, the department is unable to engage in the fact-intensive analysis necessary to assess the likely competitive effects of the proposal. In addition, given the novelty of IPXI’s proposal, it is possible that other potential competitive concerns may later emerge once IPXI’s platform is operational.”

[Update:] IPXI issued a press release highlighting the positive aspects of the DOJ announcement and saying the company would move ahead with plans.

IPXI President and Chief Executive Officer Gerard Pannekoek said: “We believe this letter from the Department of Justice confirms our long-standing view that IPXI is innovative and promotes efficiencies. With this review complete, we anticipate announcing very soon the official launch of the marketing period for our first offerings that will pave the way for trading on the Exchange.”

Pannekoek added: “While we recognize that our market model is new and innovative, and may be difficult to predict with precision, we are gratified that those few practices that the Department identified as potential ‘risks’ are largely practices in which IPXI will not engage. We are confident that when our Exchange is in full operation, we will meet the most stringent of any test under the competition laws.”

Marshall Phelps, an IPXI Holdings, LLC independent Board of Managers member, said: “IPXI’s members and prospective market participants can now conduct business on the Exchange with the added confidence that IPXI is a vehicle for bringing transparency and efficiency into what has always been an opaque market. The new model that IPXI offers is a major breakthrough in the way that IP will be licensed on a non-exclusive basis.” Phelps is well-known in the IP licensing field for his past work with Microsoft and IBM.