[LINK] REVEALED: How Giant Patent Troll Intellectual Ventures Does Business
tomk at unwired.com.au
Fri Mar 2 17:00:34 EST 2012
Two researchers say they have uncovered a bunch of new information about
the world's largest patent "aggregator," Intellectual Ventures.
Founded by former Microsoft chief technology officer Nathan Myhrvold
about a decade ago, the company's main business is getting patents, then
using them to extract licensing fees or legal settlements from other
The impolite word for companies who use patents this way, rather than in
the course of making and selling products, is "patent troll."
Intellectual Ventures is secretive about how it works. Until a lawsuit
last year, nobody knew exactly who its investors were, or who had
licensed its patents. (Turns out that Microsoft, Apple, Sony and a ton
of other prominent tech companies have invested and/or taken licenses.
So have a number of universities.)
Robin Feldman, a law professor at U.C. Hastings, and lawyer Tom Ewing
decided to find out more.
People told them their task was impossible. They write: "'You can't find
out anything about them; don't even try,' is a chant that has been
whispered in intellectual property circles for a number of years. It
motivated us to take a hard look, and the information eventually
unravelled like the yarn from an old sweater."
In January, they published a paper in the Stanford Law Review (PDF here
http://stlr.stanford.edu/pdf/feldman-giants-among-us.pdf) with their
Here's some of what they wrote:
Intellectual Ventures has between 30,000 and 60,000 patents. That's a
rough estimate. But even the low number makes Intellectual Ventures (IV)
the 5th largest patent portfolio of any U.S. company, and 15th in the
world. Nearly all of those patents originated elsewhere. IV does very
little inventing of its own.
It uses more than 1,200 shell companies. IV's patent holdings and legal
actions are hard to track because it often assigns patents to shell
companies. The researchers say they discovered at least 1,276 of these,
and they "have little doubt that other shell companies have been
About half its patents originated outside the U.S. A lot of patents are
not valued as highly overseas as they are in the U.S. "This suggests
that Intellectual Ventures may be acting as an arbitrageur to exploit
the disparities in intellectual property valuation between the United
States and the rest of the world," write the researchers.
Big companies invest, then use its patents for defence. For instance,
Verizon paid $350 million for patent licenses an equity stake in one of
IV's funds in 2008. When TiVo sued Verizon for patent infringement,
Verizon "purchased a patent from one of Intellectual Ventures' shell
companies, which was then put to work as a counterclaim in the TiVo
suit," say the researchers.
How it gets patents from smaller companies. According to the
researchers, IV has a "turnkey" method for getting patents from smaller
companies. IV pays the company a one-time fee and a percentage of any
profits it makes from the patents. IV then "assumes the costs of
maintaining the portfolio, and gains the right to go after other
companies." In the case of a company called Digimarc, IV agreed to pay
$36 million over three years, plus 20% of the profits from all
successful licensing and litigation.
Feldman and Ewing compare IV's activities to "privateering," a
now-abolished kind of warfare from the 1800s. Countries would encourage
private sailors to attack their enemies' ships and auction off the
In IV's case, say the researchers, the company licenses some patents to
more aggressive third parties, then lets them do the dirty work of
licensing and suing. They speculate -- but do not have evidence to prove
-- that IV could use this tactic to convince new companies to license
its patents, and to make sure existing customers keep paying up.
It's an ugly business. But it's also perfectly legal.
Surprisingly, Ewing and Feldman don't think the patent system is
hopelessly broken, and they do support patents for software.
But they point out that IV (and other aggregators) have created a
massive unregulated market -- IV alone claims to have collected more
than $2 billion in licensing fees.
"Markets require regulation," Feldman told us. "You can't just let them
go -- particularly markets like this one that have characteristics of
A good start would be more transparency -- the SEC requires publicly
traded companies to disclose all kinds of information about their
businesses. But information about patent licensing deals is so closely
guarded, nobody even knows what a patent is worth.
"What kind of market is that?" asked Ewing in an interview.
Ewing also suggests that the U.S. could change how damages are
calculated, so that companies who win a patent infringement suit could
only recover profits that had been lost as a result of the infringement.
So if you don't make anything, you couldn't collect.
That would put an end to the kind of "protection racket" that Feldman
says IV is running.
Intellectual Ventures did not respond to requests for comment on this
What bugs me is that this was fairly obvious from about 1996 and I
regularly used blog about these matters not that long ago.
This confirms that ACTA and any similar trade agreement is being set-up
to ensure that the US have something to replace their depleted
manufacturing capabilities.... Errr, lawsuits.
So err, to all budding IT students in the US, please change your major
to law... It will be more appropriate to putting documents on the table.
For the rest of the USA, I guess it's back to farming and preserving
I have just one question. Who is going to bother to invent anything
anymore if their financial destruction is assured as soon as they pass
their first couple of mill ??
I guess the patent troll business model is merely yet another short
sighted, short term Kamikazi business model.
Of course without an overhaul of the Global patent system, there is no
stopping this model. After all apart form indefinite detention globally,
the US legal system doesn't have any way of going after offshore shell
companies loaded up with filing cabinets.
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