FRAND Market Failure: IPXI’s Standards-Essential Patent License Exchange

Intellectual Property Exchange International, Inc. (“IPXI”) was formed in 2008 to create a market-based trading exchange for aggregated patent license rights, particularly standards-essential patents (“SEPs”). IPXI based its model on existing commodities exchanges, proposing that non-exclusive patent licenses could be standardized, commoditized, and traded on an open market, thus eliminating costly and inefficient bilateral negotiations and providing a royalty rate likely to be viewed as “reasonable.” IPXI’s most ambitious offering involved a portfolio of 194 U.S., European and other patents deemed essential to IEEE’s 802.11n “WiFi” standard. Despite the backing of several significant patent holders, IPXI’s offering failed to attract sufficient interest, and IPXI ceased operations in March 2015. This article analyzes the failure of IPXI based on the documentary record, public statements by IPXI executives and interviews with industry experts. It concludes that, despite its potential to improve the efficiency of the SEP licensing market, factors including a lack of participation by key patent holders, an untested record of enforcing patents against infringers, and constraints imposed by its standardized license offering, led to IPXI’s demise. * Harvard Law School (J.D.), Rice University (B.S.E.E., B.A.). Associate Professor, University of Utah S.J. Quinney College of Law and Senior Policy Fellow, American University Washington College of Law. This Article has benefited from presentation and feedback at the Law and Economics Workshop at Columbia University and the 9th International Conference on Standardization and Innovation in Information Technology (IEEE-SIIT). The author is also grateful to Victor Goldberg, David Kappos, Brian Michaelek, David Newman and a number of confidential interview subjects for their discussion and suggestions. Research assistance by Steven Swan is gratefully acknowledged. 5 CONTRERAS FINAL.DOCX (DO NOT DELETE) 6/17/16 9:38 AM 420 CHICAGO-KENT JOURNAL OF INTELLECTUAL PROPERTY [Vol 15:419