Intellectual Ventures Getting Antsy; Expect Lawsuits Soon

from the patent-saber-rattling dept

By this point, it should be rather clear what we think of Nathan Myhrvold's Intellectual Ventures project. It's perhaps the biggest threat to innovation around, as Myhrvold is collecting a ton of patents (now up to 20,000 apparently) and pressuring companies to pay hundreds of millions of dollars to get blanket licenses to avoid getting sued. It's a scam to shift money away from actual innovators and into the pockets of lawyers and speculators. For some reason, though, Myhrvold has a knack for getting press. His latest is a profile in the Wall Street Journal that covers much the same ground as previous profiles in places like Business Week and Fortune.

So what is new in this one? Well, less than a year after raising a $1 billion patent hoarding fund, he's out raising a new $2.5 billion fund. So it seems like he's good at getting press and raising money -- but not so much actually making money at this point (well, Myhrvold personally is doing fine, since the piece notes that he gets a 2% management fee, just like a VC). And that's where the saber rattling comes in. The article notes that Cisco and Verizon have paid up between $200 and $400 million as licensees -- though, to make it more confusing some of that is invested back into the fund for equity. Thus, it's not really clear as to how much is being used specifically to license patents. The article also highlights that some of Myhrvold's earlier investors are going to start wondering when the fund is actually going to bring in some real revenue.

Another oddity is the vast amount of secrecy surrounding Intellectual Ventures. Anyone who sells a patent to the company or who licenses patents from the company are required to sign extensive non-disclosure agreements. When asked why, Myhrvold skirts the question by claiming many companies don't want to reveal what they're doing with IV. If that's true, though, why do they need NDAs in the first place? The company also uses an array of secret shell companies to go around buying patents, again raising questions about what it's doing. If the company is really so proud of its business model and doesn't think it's shameful, why is it hiding behind shell companies like garden variety patent hoarders. But, as we've learned, patent hoarders very much rely on secrecy to convince others to pay up.

And, then, of course, there are the myths that Myhrvold loves to repeat, but no reporters ever push him on. He insists that those who disagree with his business model are merely "infringers." Yet, as we've all seen, so many patent infringement lawsuits these days are hardly about actual infringement, and much more about a company that didn't succeed in the marketplace suing one that did. He also repeats the myth that patent lawsuits are decreasing, claiming that the number of lawsuits peaked in 2004 and has been declining. That's misleading because it ignores the fact that patent hoarders are now suing larger and larger groups of companies in a single lawsuit meaning that the number of companies being sued has been increasing rapidly.

Either way, Myhrvold may want to close that new fund as quickly as possible. The Bilski ruling that could put an end to software and business method patents is expected sometime in October, and it could put a big dent in his patent portfolio.

Filed Under: nathan myhrvold, patent hoarding, patents
Companies: intellectual ventures

Is Cost Accounting To Blame For Patent Hoarding?

from the one-possibility dept

Michael F. Martin is a lawyer/investor who is always good for some interesting debates in the comments here on the question of patents. He's a supporter of the patent system, with some fixes. Suffice it to say that he and I disagree on an awful lot, though I appreciate his willingness to try to really dig into the questions being discussed and to dig through all sorts of ideas and research. It's just that we usually come to almost the exactly opposite conclusions.

I'm not sure where I come down on his latest thought piece, suggesting that part of the reason why companies have been hoarding so many patents is because of cost accounting. His assertion is that cost accounting treats patents as an asset, rather than as equity. That causes companies to overvalue the patent itself, rather than the investment and effort that need to go into making a useful, marketable product. His feeling is that as companies move away from static cost accounting, the problems related to patent hoarding will hopefully decrease.

It's an interesting theory that I have not heard of before. I agree that cost accounting creates all sorts of problems with accurately valuing company assets. I also agree that companies overvalue patents compared to the effort of actually bringing a product to market. However, it's not clear that it's cost accounting that's leading to the problem. He presents no evidence to show that the two things are connected. It seems that there's a much more straightforward explanation: numerous high publicity patent lawsuits with extreme awards combined with loosening of the restrictions on what can be patented has created a mad rush for patents. And, to make matters worse, companies feel they need to build up a stockpile of their own patents to fend off others with their own patent portfolios. The cost accounting angle is an interesting one, but it seems like a stretch to think the impact is that big compared to those other factors.

Filed Under: cost accounting, patent hoarding, patents, stockpiling

Big Tech Companies Team Up To Share Info And Fight Patent Hoarders

from the information-asymmetry dept

While the Patent Troll Tracker remains darkened, the world at large is definitely missing out on some of the more useful information he provided on his blog, shedding all sorts of light on some of the sneakier practices of various patent hoarding companies, who were often shell companies to hide the real identity of who was behind the lawsuits. Without much information to fight back against these shell companies demanding millions and millions of dollars, various large tech companies seem to have seen an opportunity to team up to fight back. Joe Mullin points out a new organization called PatentFreedom that is basically an association of large tech companies to share information privately on some of the patent hoarding firms that pop up and sue all too often. Mullin has some fascinating background on the organization, which is actually spinning out of another firm that (of all things) was co-founded by Nathan Myhrvold (the guy some folks now accuse of creating a huge patent trolling organization on his own). That existing firm helps companies both big and small in their patent litigation strategies -- but this spinout organization will focus on larger companies facing shell companies that don't produce any products.

While I think it's a good thing that the companies who are often on the receiving end of questionable patent lawsuits are trying to combat the information asymmetry concerning these lawsuits, it's a bit worrisome that this perpetuates the stereotype that this is really a battle between "big companies" and "small inventors." That's a false dichotomy that opponents to patent reform like to set up, because no politician wants to be seen as going against the "small inventor." The truth is that there are all sorts of problems with the patent system, and big companies are some of the worst abusers of the system. Focusing merely on the non-practicing entities, rather than the overall problems with the patent system, may be a necessity these days, but it's merely dealing with a symptom, rather than treating the actual problem.

Filed Under: big companies, information asymmetry, patent hoarding, patents
Companies: patentfreedom

Patent Hoarders Hiding Behind Shell Companies In Lawsuits

from the can't-admit-anything dept

While it used to be that patent hoarding companies like Acacia would file their lawsuits under their own names, more recently the trend has been to hide behind a series of shell companies. The latest is Altitude Capital Partners, a company we've discussed in the past. It's raised hundreds of millions of dollars solely to invest in patents. While officially a private equity firm, it's clear that the company is clearly just a patent hoarder. While it appears to have changed its website somewhat, it used to list "Number and Quality of Potential Infringers" as an investment criteria. It's clearly taken that to heart in its latest series of lawsuits against companies like Google, Yahoo, AOL, RIM, Palm and many others. The interesting thing, though, is that Altitude is doing its best to hide its involvement in these lawsuits, just like it tried to hide an earlier investment in Visto. Instead, it's been using a series of shell companies that are clearly formed solely for the purpose of filing these lawsuits. In the case of Altitude, it appears to be quite difficult to even track down that they're involved at all. Acacia has been doing the same thing as well. There could be a few reasons for the use of such shell companies -- but a big one might be to pretend that these really are cases of "little inventors" vs "big companies" instead of the truth, which appears to be big time investors with hundreds of millions of dollars looking to use questionable patents to squeeze money out of successful companies. Just how Jefferson and Madison envisaged things when they set out to create the patent system.

Filed Under: patent hoarding, patent trolls, patents, private equity
Companies: altitude capital

Nathan Myhrvold Ups The Ante; Raising $1 Billion To Hoard More Patents

from the just-can't-stop dept

Former Microsoft CTO, Nathan Myhrvold has been working for years on his plan to buy up as many patents as possible in order to force companies to pay him license fees. It's been mighty successful. He kicked it off with a $350 million fund, which he raised from tech companies using a bait-and-switch tactic. The original business plan he pitched was that he would license up all the leftover patents from failing dot coms and then build a pool that all the big Silicon Valley firms could use as a sort of "patent defense" shield against patent lawsuits from patent hoarding companies. Except, somewhere along the line, he seemed to realize that being on the side of patent hoarders was a lot more profitable -- so he used the big tech company's money to buy up a bunch of patents, and then started referring to his own investors as "the patent infringers lobby." Nice guy.

Of course, when people complain about what he's doing, he's quick to note that the company, Intellectual Ventures, has yet to sue anyone for patent infringement. That may be true, but as someone says in a new profile of the company in the Wall Street Journal, when you have a company that can "send letters to big companies saying, 'We have 800 patents that cover your business'... nobody can risk going to court, and they're just going to write you a check." The big news in the WSJ piece is that the $350 million to buy patents wasn't enough. Myhrvold is now out raising a $1 billion fund to buy up patents -- with a big target on sucking up patents from universities throughout Asia. This takes the concept of patent hoarding to entirely new levels. Traditionally, such firms are somewhat secretive and try to get a big win or two to fund a warchest for buying up more patents. In this case, Myhrvold seems to want to do the same thing, but in a much more professional looking manner. It's a total disgrace of the patent system, of course. About the only good news in the entire article is that Stanford and MIT refuse to work with Intellectual Ventures, stating: "We want to work with companies that are really going to develop the technology." Don't we all?

Filed Under: nathan myhrvold, patent hoarding, patents
Companies: intellectual ventures