The management of RPX is meeting with a number of interested parties in a process that might lead to an eventual sale of the business, IAM understands. It is believed that an investment consortium led by IP monetisation specialist Erich Spangenberg is among those eyeing the defensive aggregator. Others to have been linked with a possible deal include Vector Capital, the private equity fund that owns IPValue and arguably knows the space as well as any buyout shop. It’s not clear if former CEO John Amster is involved in the process (he, Vector and Erich Spangenberg declined to comment for this article). RPX is being advised by GCA, which bills itself as an independent investment bank focused on the growth sectors of the global economy.

So far, things are at an extremely early stage and the situation can currently be characterised as the RPX management team assessing its options as it looks to maximise shareholder value. For bidders much will depend on when and if they’re able to undertake thorough due diligence of the firm. RPX did not respond to our most recent request for comment.

The IP market has been alive with rumours of parties being interested in purchasing the defensive aggregator since Amster’s departure last February. He left after the RPX board rebuffed his efforts to take the business private as its stock continued to flounder well below its $19-a-share IPO price in 2011. In the wake of Amster’s exit, the share price climbed from under $11 to above $13, even reaching more than $14 on several occasions. Currently it is hovering between $13 and $13.50, giving the business a market capitalisation of around $650 million.

Part of the challenge for any prospective buyer is valuing an entity whose prospects are not exactly clear at the moment. The number of new litigation cases has fallen for the last two years, as have settlement values, and although NPEs remain a significant threat, changes in the US legal environment has made patent assertion far more challenging and have therefore reduced the patent risk facing many companies. In particular, the threat has diminished for many of the largest tech players and other major patent owners who contribute much of the subscription revenues to RPX’s core business.

According to several sources this has caused numerous members to closely question the return they get and, in a significant blow to the defensive aggregator, IAM understands that Microsoft has recently opted not to renew its membership (Microsoft declined to comment for this article). One client exit from more than 325 members may not set off alarm bells just yet, but anyone sitting down with the RPX team will want to know if others are likely to follow.

So as management begins a process that might lead to a sale, here are some of the questions that bidders are bound to be asking:

What do the Q4 numbers look like?

RPX is due to report its numbers for the fourth quarter of last year on 21st February. Any bidders can presumably expect to get an indication of what the final results are going to look like. RPX’s guidance for Q4 has been for total revenues to come in at between $77 million and $82 million giving it somewhere between $325 million and $330 million for the full year.

Just as crucial will be any guidance that the company offers for the first quarter of this year and the remaining nine months. RPX has never had a problem generating cash, which is always an appealing proposition for a private equity buyer looking to pay down a heavy acquisition debt load. But if the firm’s revenues continue to show signs that they’re, at best, plateauing then that will weigh heavily on just how much any bidder is prepared to pay.

As this blog reported before Christmas one offer for the business has been prepared to go as high as $16.25 a share, valuing the business at around $800 million. Privately that was met with scepticism by several informed observers and it remains to be seen whether any future bid gets anywhere close to that level.

What happens with Inventus?

If the market rumours are true, then RPX has been looking to offload Inventus, the discovery business it bought for $232 million in late 2015, for the last month or so. Prospective bidders should get some sense of whether there is anything like a firm offer in the pipeline and, if so, how much of the purchase price they might be able to recoup.

The price tag for Inventus always looked a bit steep, but then it was part of a vision that Amster had to build RPX into a far broader service offering for in-house legal teams. On an analyst call in early 2016, for instance, the former CEO sketched out a vision for the business that went way beyond its patent aggregation roots. “I think it’s important to recognise that at RPX we don’t see our core skill as patent risk management,” he said. “In a broader sense, our competency is reducing the costs associated with legal functions using data intelligence and a market oriented approach to change the way legal departments execute certain activities and generate significant cost savings.” In other words the Inventus deal only worked if RPX then followed up with similar, add-on deals. This hasn’t happened.

If RPX does offload Inventus then that will obviously change the price that the whole business might expect to go for, but it also raises question of where future growth is going to come from?

Are the members happy?

In 10 years RPX has built an impressive client base of more than 325 operating company members — a who’s who of some of the savviest IP owners in the world — for its core patent risk and insurance businesses. True, it hasn’t seen traction in some sectors, such as auto, but it has always had a very respectable base of Silicon Valley members who benefit not only from its patent risk mitigation and insurance offering but also from the intangible benefits of membership which give senior IP executives a valuable insight into the monetisation market. Microsoft’s decision not to renew its membership and rumours that other companies are reviewing theirs suggest that some senior IP executives are questioning whether they are still getting value for the money they spend.

The litigation threat has fallen in recent years both in terms of the volume of new cases being filed but also the typical amount that NPEs are prepared to settle infringement suits for. That’s in part because of the advent of inter partes reviews so that patent owners who previously used the cost of a district court litigation case ($1million to $2 million) now often use the cost of an IPR which can be as little as $100,000 pre-institution as their main reference for how much they’re prepared to settle for.

That means that RPX needs to reduce exposure to a lot more dangers than previously if members are to see a significant return on the up to $5 million (and even more for the highest rates) annual fees they pay. What’s more, RPX has been spending less on buying patents on the secondary market including on the large syndicated deals, such as its 2014 acquisition of the Rockstar portfolio, that almost no one else in the market is able to do.

Admittedly membership dues are a drop in the bucket for the world’s richest businesses, but corporate IP groups are often seen as cost centres and so are rarely rolling in spare cash – every penny has to be accounted for, so they need to see a return on their investment. In a changing patent litigation market that is harder to do.

It will be interesting to see what the reaction in the Valley is to the news that a Spangenberg-led group is among the interested parties talking to management. As someone who made his name and money by asserting against many of RPX’s clients, those companies may now be wondering how someone who has welcomed the “patent troll” moniker might manage the world’s premier defensive patent platform.