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

This case study pertains to Intellectual Property Exchange International, Inc. (IPXI), which 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 “Wi-Fi” standard. IPXI offered up to 50,000 tradable Unit License Right contracts (ULRs), each granting the holder a worldwide right to manufacture and sell 1,000 compliant devices.

Despite the backing of several significant patent holders, IPXI’s offering failed to attract sufficient interest, and IPXI ceased operations in March 2015. This paper 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 the standardized ULR, led to IPXI’s demise.