Rational Patent Exchange Corporation Buy Pitch Michael Yuan Vedant Suri

Business Overview Investment Thesis Qualitative Analysis Valuation Risks & Catalysts Conclusion Agenda

IPO in May 2011 Headquarters: San Francisco 138 employees; projected 150 by year end Clients include eBay, Apple, Google, Cisco 10% of open market activity Business Overview RPX is a defensive patent aggregator, providing patent risk management for clients on a subscription basis Financial Data Price week low13.06 Market Cap776.77m Revenue (FY 2013) 237.5m (+16.8% YoY) Net Income (FY 2013) 40.78m (+4.7% YoY)

Business Overview Purchases patents on open market, then licenses to members to protect against litigation Non-Practicing Entities (NPEs): Patent trolls Members: Subscription basis. Average of 2.5 year contract +90% renewal rate 1900 avoided litigations. 575 dismissal negotiations $13b in direct costs caused by patent trolls

Business Overview Interested in creating more efficient, transparent market Unparalled data accumulated Free search for patent & litigation data. Marketplace setting rather than court (huge legal costs) $1m average patent defense. $2.5m for full defense

Business Overview Growing insurance business: Deal with Lloyds. Recently purchased PatentFreedom & insurance wholesaler Targeted to SMEs - most vulnerable to patent trolls Recently started offering to startups Addressable market of companies Policy Details $50,000 - $500,000 + retentions Up to $10m coverage $7,500-$10,000 for startups Up to $1m coverage Insurance Business

Investment Thesis 1.Strong Fundamentals $317m in cash & short term investments – 40% of market cap. Declining debt – currently none. Subscribers pay annual fee in advance – predictable flow of cash. 2.Undervalued by Market Market has reacted to slow insurance growth. High volume of insider selling Recent patent rulings Reproduction cost of patent portfolio + cash & short term investments greater than EV We believe that these have already been priced into RPX’s current share price

Investment Thesis 3. Attractive Growth Potential Out of 6300 companies sued by NPEs between , only 184 were clients of RPX Insurance business poised to grow: Deal with Lloyds and purchase of PatentFreedom build infrastructure & expertise Only have 38 clients in addressable market 4. Unparalleled Data as Significant Competitive Advantage First mover advantage. 6 years’ expertise and $830m of patent purchases Data will greatly assist in underwriting & pricing of insurance business Insights are strong value proposition to potential clients Free release of data earns trust by proving commitment to transparency 5.Network Effect Gains more value the more members it acquires Pooled data & access to patents

Internal Analysis Growth Potential 6286 potential clients in addressable market for core business 300 clients in prospect pipeline $1.3m average revenue from subscription 150 additional clients within 5 years (pace of last year’s additions) $97.5m in additional revenue over 5 years

Internal Analysis Growth Potential 5811 potential insurance clients in addressable market 2079 in prospect pipeline $200,000 average per policy Assume 10% conversion of prospect to sale => $41.6m potential revenue over 5 years

Internal Analysis Insurance Business Unique competitive advantage: Huge data on patent trolls allows it to underwrite & price effectively First to offer “A” policy for patent litigation Purchased PatentFreedom & an insurance wholesaler and struck deal with Lloyd’s Need to gain expertise & infrastructure before scaling up Insurance important to growth of company

Internal Analysis Growth Potential Sensitivity Analysis for Core Clients 10% Conversion Rate$39m potential revenue 20% Conversion Rate$78m potential revenue 30% Conversion Rate$117m potential revenue Sensitivity Analysis for Insurance Clients 5% Conversion Rate$20.8m potential revenue 10% Conversion Rate$41.6m potential revenue 20% Conversion Rate$83.2m potential revenue

Internal Analysis Client Trust Market leader in data & transparency Free reports & searchable data reduces costs, even if not member with RPX Gained trust of clients IPRs on behalf of certain companies +90% renewal rate Former client that left RPX signed on again in recent quarter Positive reputation in B2B context could lead to word-of-mouth driving future growth. Could target more of addressable market & more easily prospect potential clients

External Analysis Trends in NPE Litigation NPE activity at record high 67% of all patent litigations Patent litigation cases tend to drag on. Companies wishing to avoid this pain point would be well served with RPX’s service

External Analysis Frustrating Progress in Patent Reform Patent Reform Act in 2007 America Invents Act of 2011 Innovation Act of 2013 Recent attempt to reform in 2014 Collapsed after pressure from pharmaceutical companies Yet NPE activity has persisted. Difficulty enacting reform in government. Complicated by interest groups.

Quantitative Analysis Comparable Company Analysis CompanyPriceMarket CapEPSP/E Acacia m-$1.80- Vringo m-$0.49- Spherix m-$ RPX m CompanyMembersScopeActivity Allied Security Trust28 members25,000 patents seen by members annually Members contribute to fund Open Innovation Network 600 licensees850 patents ownedMembers commit to Linux OS RPX184 clients2000 patents purchased Members take advantage of network; subscription

Quantitative Analysis DCF

Quantitative Analysis DCF (20.7% Implied Upside)

Quantitative Analysis DCF

Quantitative Analysis – Base Case

Quantitative Analysis – Bear Case

Quantitative Analysis – Bull Case

Risks & Catalysts Risks Catalysts Future political reform decreases utility of RPX’s service Subscription fees based on client’s operating results; economic downturn could hurt RPX’s revenue Technological advance might make RPX’s patents obsolete too quick Next earnings report might show strength in growth of insurance business, impressing investors Could see another impressive deal in the near future, such as the one conducted with Lloyds. Or purchase of company like PatentFreedom Patent reform could be favourable, as with 2011 America Invents Act

Rational Patent Exchange Corporation Buy Pitch Michael Yuan Vedant Suri