PublishedSeptember 11, 2013

Dear Intellectual Ventures: You Oppose Transparency to Hide Your Ordinariness

This post is the latest in the Dear Intellectual Ventures series.

Intellectual Ventures, unsurprisingly, isn’t much in favor of patent reform. (It’s even hired its first lobbyist in part to try to stop patent reform.) But interestingly, the reform it seems most concerned about is requiring transparency of ownership.

I think I’ve figured out why.

Recently, Peter Detkin, one of the founders of IV, argued that attempts to learn the “real party in interest” behind a patent troll are pointless:

But here is the bigger question – which I also posed in my earlier blog post on the red herring of transparency: What difference does it make who the plaintiff is?

If someone accuses you of patent infringement, the most important question – and the question that seems to be lost in the debate – is: “Am I infringing a valid patent?” If you are and you don’t want to pay, then you may want to ask whether you are engaging in free rider behavior. Everything else – whether to settle, whether to fight – flows from that.

The “troll” problem that President Obama and others should be talking about isn’t really about transparency or shell companies. It should be about companies that try to game the system by filing frivolous lawsuits that shouldn’t and probably wouldn’t hold up in court. These players are hoping the cases will settle before their claims undergo any serious examination.

What bothers me is that critics seem to be using this issue as a way to imply a larger kind of villainy that isn’t there. It’s as though they are trying to distract people with a one-size fits all definition without taking the time to consider the root of the issue. If we want to crack down on abusive litigation factories, we need to focus on the real incentives behind their bad behavior. But that’s for another day and another blog post.

First of all, if it makes no difference, why is Intellectual Ventures fighting so hard against us learning the real party in interest?

Regardless, that question got me wondering about just why IV cares so much. It’s not as if the company has any sense of shame. Why care who knows when you’re trolling?

And then it struck me: true transparency would strip away the image that IV is working to create and reveal it as another patent troll, albeit one with much better funding. It would show that IV is nothing special; anyone with money and a crippled conscience could do the exact same thing. That would create competition for IV, which would reduce its profits.

Allow me to explain my reasoning.

This is how IV describes itself on its website:

IV has always been ahead of the intellectual property curve—in fact we set the trajectory for the market. We made the business choice to focus on invention, and invention only. That allowed us the freedom to build our expertise and knowledge and be pointed in our pursuits. But we’re no one trick pony. We know the IP market, from patent applications to portfolio licensing, inside and out.

This is the way that IV portrays itself: experts and innovators. Except that if you look at IV’s history, you realize that IV doesn’t know anything special about patents or about any particular technology area.

We know, for example, that IV sold patents to a patent troll that called itself Oasis Research. Ninety percent of the revenue from those patents, which amounted to millions, went back to IV. (IV claims that only one-third of its sales include a similar back-end arrangement, but we have no idea whether that’s true or how many deals that is.) Oh, and it turned out that the supposed inventor of the Oasis patent stole the invention from his business partners, so IV made those millions based on someone else’s fraud.

Aside: Even though Nathan Myhrvold “takes responsibility” for this, IV never gave back any of the money that it made from Oasis. It seems the price of responsibility is fairly low.

And this was a patent that IV identified as one of its successes! I’ve commented previously on the “high quality” of IV’s patents.

Here’s the official reason IV gave for why it doesn’t want transparency, from another blog entry by Peter Detkin:

[W]ere we to publish the entirety of our holdings we, or any other company for that matter, could find ourselves mired down in a series of tactical declaratory judgments and reexaminations. Unprecedented disclosure requirements would only exacerbate this issue. By using holding companies to house our investments we can effectively manage our own risk and more efficiently maintain and occasionally sell portions of our portfolio.

This explanation falls apart quickly. You can only file a declaratory judgment action with respect to patents that are being used to threaten someone. If IV only asserts patents under its own name, as it claims, having to reveal its portfolio changes nothing.

But there’s a big clue to the real reason IV opposes transparency in the same post by Peter Detkin:

Let me be clear: IV has never sued anyone anonymously. Not ever. We have filed nine litigations in our 12-year history, all against large multinationals, and most after many years of failed negotiations. Every suit has been filed openly and in our own name, and there is public record to prove it.

This is a talking point that IV repeats constantly, and it’s a big part of the corporate identity IV wants to have.

But there’s a problem with the approach Detkin describes. There aren’t that many multinationals you can target, and multinationals don’t always pay up, at least not quickly. Plus, you can’t keep going back to the same big companies over and over again.

If you’re going to find other sources of steady revenue, you’ll have to target smaller companies. Except that IV’s public image requires that it not sink to that level. And if you’re just suing every company you can, that’s a business model anyone can replicate.

What to do?

Well, you could quietly sell patents to smaller trolls for peanuts, in exchange for, say, 90% of the revenue. Your hands are clean, because you’re not doing the suing, even though you know perfectly well what’s going to happen. That’s why you were willing to take 90% of the revenue instead of cash!

Sound familiar?

The truth is that IV’s business strategy isn’t about innovation or secret insights. It’s just about being willing to be a large-scale patent troll.

And that’s what IV is trying to hide by opposing transparency reforms. It doesn’t want the competition, which would raise the prices for patents that IV buys.

It’s not about trade secrets or protection. It’s just about IV trying to keep the playground all for itself.

Matt Levy

Previously, Matt was patent counsel at the Computer & Communications Industry Association

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