PublishedSeptember 17, 2013

Three Myths About Intellectual Ventures

Intellectual Ventures is a company at the center of the debate about patent trolls. IV is a multi-billion dollar company founded by ex-Microsoft executive Nathan Myhrvold, and it makes its money through patents.

How does it make this money? Partly by buying and selling patents, but mainly through licensing. IV doesn’t make or sell anything. Rather, in exchange for not being sued, companies pay Intellectual Ventures money. Lots of money.

Myhrvold made the rounds on Capitol Hill last week as part of a new charm offensive by Intellectual Ventures. IV has even hired a lobbyist to try and improve its image on the Hill.

The truth about Intellectual Ventures isn’t as pretty as IV would like you to believe. Here are three of the main myths that Intellectual Ventures tells about itself:

1. Intellectual Ventures helps small inventors

It depends on what you mean by “help.” IV does pay inventors a fraction of the money it generates using their patents. Except there are thousands of other inventors who are trying to make a go of it, and they’re struggling because they’re being targeted with those patents. Colleen Chien, newly-appointed senior advisor for intellectual property and innovation at OSTPjust released a study (done when she was a professor at Santa Clara Law) showing that startups are negatively affected by patent trolls.

Chien found patent trolls like IV target startups when they’re particularly vulnerable, such as when they’re trying to raise capital or negotiate an acquisition. Patent trolls also sue key customers to put pressure on startups to settle quickly. Because of patent trolls, startups put off hiring, delay rolling out products, and lose customers and revenue.

That’s helping a few inventors at the expense of many others.

2. Intellectual Ventures doesn’t target small companies

IV frequently says that it doesn’t pursue small companies, which is literally true. But IV often sells patents to smaller patent trolls who do then target small businesses on their behalf.

IV’s response is that it can’t control what the new owner does once it buys a patent. Except that we know that in some cases (the patent troll Oasis Research, for example), IV sold patents for little cash but received 90% of the revenue generated by the patent.

Obviously, IV expected there to be revenue. Where did it think the money would come from?

While IV may not directly sue small businesses, it certainly reaps the benefits when its buyers do.

3. Intellectual Ventures defends inventors’ rights

This is the biggest myth of all. IV claims that it is just helping inventors with few resources enforce their patent rights against big companies. That’s a very appealing story, invoking David against Goliath.

Too bad it isn’t true.

What you need to know is that the patent system is strongly biased in favor of patent owners. It’s extremely difficult and expensive to prove that a patent is invalid.

Basically, once you’ve been sued for patent infringement, you’ve already lost. It’s just about how much money you’re going to pay and to whom. You might pay the patent troll, your lawyers, or both, but you’re going to pay a lot no matter what.

And that high cost is why so many companies settle, even though they don’t believe that they infringe the patent they’re being threatened with.

Most of the time the companies who are being sued by patent trolls like IV haven’t stolen anyone’s technology. They didn’t know anything about the patents they’re accused of infringing. And the inventors of the patents didn’t invent the thing that’s being accused.

For example, IV recently sued a number of banks based on the ATMs they use, which scan checks for deposit. Except that neither IV nor the original inventors invented scanning or contributed to the development of ATM technology.

IV is just a big patent troll

Intellectual Ventures is a big, well-financed company to be sure. But IV still makes its money the same way as every other patent troll: by taking it from businesses who decide that it’s cheaper to settle a patent infringement case than to fight.

Matt Levy

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

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