Intellectual Ventures (IV), an ‘Invention Capital’ company headquartered in Washington, has reportedly entered into an MoU with IIT-B to assist the latter in commercializing its inventions in the market place. As per a press release in regards the MoU, Intellectual Ventures “will both license IIT-B inventions accepted under this program and work on a number of possible commercialization strategies for them. Intellectual Ventures will pay IIT-B fees for such licensing and will also bear the patenting costs associated with these inventions.” Since the patents for the various inventions are licenced and not assigned to IV, IIT-B and its innovators stand a better chance at being recognized for their contribution in the fields of science and technology.
As a business model, Intellectual Ventures although radical in a sense, it is also a natural evolution of the patent market place in the knowledge economy. IV describes itself as an ‘Invention Capital’ company vaguely similar to Venture Capitalists and Private Equity companies but different in the sense that unlike VCs and PEs who invest in existing ideas and companies , IV invests not only in existing inventions but also invests in creating its own inventions with an aim to monetize these patented inventions as stand alone assets through various licensing deals, joint ventures, spin-outs etc. So far it claims to have generated $1 Billion Dollars in revenues. In a sense IV can be described as a ‘patent dealer’ which fulfills multiple roles, while increasing liquidity of patents, by hedging the risk involved in commercializing an invention and ultimately connecting the inventor to the market place. The potential contribution of IV in increasing the market efficiency of patents could be immense. For example there are several inventors out there with great ideas and great inventions who are unable to meet the costs of patenting as also the associated costs and skills involved in monetizing their patents. In such a situation a company like Intellectual Ventures would not only hedge the risks of these inventors but also provide them with all the requisite technological and business inputs to map out an effective market strategy. Coming to think of it the business model followed by Intellectual Ventures is very similar to the business model followed by the National Innovation Foundation (NIF) which focuses exclusively on grassroot innovation. In fact even CSIR is mooting a similar business model which I have discussed later in this post. Although the NIF for its part has won itself laurels around the country, Intellectual Ventures has been condemned by some for following the very same business model.
For example the BS published Latha Jishnu’s views on the MoU between Intellectual Ventures and IIT-B under the title Hope is a patent troll for IIT-Bombay. Although she does gives a fair account of the entire deal there are some objectionable passages in her column such as the following:
IV enjoys a fearsome reputation globally of being a patent troll, that is, a company which specialises in buying up patents and licensing it to others. As a result, it engages in a vast amount of litigation to pursue other companies that it believes might have incorporated any part of the IP in the patents that it owns without due permission. The patent troll’s main activity is seen as litigation and thus the reason for its unsavoury reputation.
For starters there is no denying the delicious irony in the decision to term IV as a ‘patent troll’, since the man – Peter Denkin – who coined the term patent troll, to replace the term ‘patent extortionists’ (after almost being sued for libel), is one of the co-founders of Intellectual Ventures! A patent troll is basically an entity which sues despite not working the patent in the market. Usually a patent troll does not even invent but instead sources the invention from the inventor. Some of the most famous cases of patent trolls are the Blackberry case where an IP holding company almost shut down RIM’s Blackberry service because it violated a patent that the ‘troll’ held. Other biggies which were sued by ‘trolls’ were Microsoft. In each instance the troll extracted hefty compensation running into hundreds of millions of dollars.
My primary reasons for disagreeing with Ms. Jishnu passage are as follows:
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IV has not been involved in any litigation so far and therefore there is no question of it enjoying a ‘fearsome reputation globally of being a patent troll’. An internet search revealed no cases where IV was involved in any patent litigation. We even contacted IV to ascertain whether they had been involved in any litigation so far. They replied to us assuring us that as of now they are not involved in any patent-related litigation. Our contact person at IV however was honest enough to state that in case any of their patents were violated they would not hesitate to sue the party involved in the infringement if in case attempts at negotiating a licence failed. That’s a fair enough proposition. Thus except for your standard anti-patents brigade nobody else is convinced that IV enjoys a ‘fearsome reputation globally as a patent troll’.
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Secondly, I would like to challenge this entire presumption that the activities of patent trolls, or as I like to call them ‘sleeping inventors’, are damaging, unethical, unnecessary and irresponsible. In his paper titled “The Myth of Patent Troll” James F. McDonough the Third argues, and very convincingly so, that patent trolls in fact increase the efficiency of the market place and in fact they’re emergence is nothing but a natural evolution of the patent marketplace. The reason for his supporting ‘patent trolls’ is simple: not all inventors can afford to commercialize their inventions and in such a case they are entitled to sell it to a patent dealer who is better positioned to handle the associated risks. This dealer is then entitled to do as he pleases with the patent. There are several entities which may hold patents but do not practice them. There is nothing unethical about such a practice. For example CSIR owns about 3,000 patents but has a terrible record at actually monetizing these patents. The Mint infact recently reported that CSIR will create a company which will now be the sole owner of all the IP generated by CSIR. This company is then expected to expedite the process of monetizing these patents through licensing deals. There is no doubt that when push comes to shove this company will be required to sue any potential infringers although it does not actually work these patents. This company will fall within the definition of a patent troll but there is no denying that it is actually carrying out a very useful function in increasing the efficiency of CSIR’s patents. Therefore the presumption that a patent must be worked by the patentee is wrong. Once this presumption is proved wrong it can be argued that there is no reason for this hostile approach towards patents.
In conclusion I disagree with some of the points made by Ms. Jishnu. One point on which I do agree with Ms. Jishnu is in regards the ‘transparency’ aspect. So far I have been unable to access a copy of the MoU between IIT-B and IV. Since IIT-B is a public institution and a recipient of hundreds of crores in subsidies, it can be presumed that it falls within the purview of the Right to Information Act and it would be extremely easy for one of us to procure a copy of the MoU. Given that it would be easy to source a copy under the RTI Act it would have probably boded well for IV to have publicized the terms of the MoU so that they could be publicly debated. This non-disclosure is most dis-appointing when viewed in the context of this paper, co-authored by genius Stanford Professor – Mark Lemely & Nathan Myhrvold, founder of IV, where it is argued that it must be made mandatory to publish the terms of patent licences so as to enable rationalizing the rates of royalties and transactions. The paper argues that such a move would enable both buyers and sellers to make decisions made on complete information, which is one of the pre-requisites for the success of the free-markets. It is unfortunate that Nathan Myhrvold has not implemented this policy in all transactions regarding his organization.
Nevertheless I’m sure we all wish Intellectual Ventures the best of luck in its Indian ventures and hopefully IV will help in unleashing the true potential of the Indian innovator who until now has had trouble going beyond the stage of patenting his invention.
You make a good point that “patent trolls” are not bad in itself. The only problem is that there are so many trivial patents issued on software that many developers violate them without having any knowledge of the patent.
And when such patents are held by people not that interested in suing, it works fine. However, if such patents are sold to patent trolls then they make sure all their patents are enforced.
The problem actually lies with granting the patent itself and not with patent trolls. There is an efficiency in enforcement but god knows whether such efficiency is desirable when it is based on “undesirable patents”. Kind of similar argument for little law enforcement for bad laws.
The author seems to comment like an immature child who gets excited at an American company coming and putting us on the path of innovation just like America with the magic wand of patents.
Nick named as the “Patent Extortion fund” IV’s move should be staunchly opposed as Ms Jishnu does!Having been a regular follower of her write ups on patents, I am well aware of her experienced research and here are a few facts.
May be not a paten troll but a patent hoarder for sure!
What Mr Nathan Myhrvold ‘s venture is all about and his companies activities are well known.Taking advantage of the broken American Patent system, over the last nine year since its formation his company,he has returned $1 billion in licensing fee to his investors.
He did what large companies with vast patent portfolios such as IBM and Microsoft do on a daily basis: use the threat of patent infringement litigation to strike lucrative patent licensing deals. Except Myhrvold, who used to be Bill Gates’ right-hand man at Microsoft during the 1990s, does it through his patent-gobbling fund.
From an article which appeared in the Washington Street Journal from september2008.
Here is an excerpt
Mr. Myhrvold’s venture represents a sizable expansion of a controversial business that has emerged in recent years, in which companies acquire patents with the sole purpose of licensing them to others, without ever actually manufacturing any products. Most of these companies, which critics refer to as “patent trolls,” hold a small number of patents and generally extract license fees ranging from $50,000 to a few million dollars. Mr. Myhrvold, however, can demand much bigger settlements because he owns such a vast pool of patents.
The tech industry has sought to reform the patent system to make it harder for licensing firms like these to operate. Its preferred legislation stalled in Congress this year, but the effort still has momentum. Both Sens. John McCain and Barack Obama say they want to reform the patent system to reduce lawsuits, although neither side has any specific plans to deal with the so-called trolls.
In many cases, companies that make these license payments also become investors in Mr. Myhrvold’s firm. . . . Intellectual Ventures, which has about $5 billion under management, bears some similarities to a private-equity firm that operates investment funds for the benefit of investors. However, its largest fund has an unusual structure in which fund investors are also responsible for the lion’s share of the fund’s returns.
It works like this: Technology companies agree to pay patent-licensing fees to inoculate themselves against potential lawsuits by Intellectual Ventures. These fees are how the fund generates its returns. As part of the deal, though, these same companies also put up the cash Mr. Myhrvold uses to buy more patents, receiving an equity stake in the fund in return. (Some companies don’t obtain long-term patent licenses, but instead get shorter “guillotine” licenses that must be renewed periodically.)
Mr. Myhrvold, who has a staff of 400 (including an army of patent lawyers), collects an annual 2% management fee from investors, according to several people familiar with the fee structure. Intellectual Ventures also keeps a percentage of any gains.
That is a good point. The main culprit is the quality of patents. On paper atleast India has one of the most rigorous screening procedures for patents.
I
The author seems to have started on a wrong premise, that of the definition of a “Patent Troll”. He is right that it was Peter Dekin, an assistant general counsel at Intel, who first popularized the phrase “patent troll” to describe firms, which acquired patents only to extract settlements from companies on dubious infringement claims: “A patent troll is somebody who tries to make a lot of money off a patent that they are not practicing and have no intention of practicing and in most cases never practiced.”
He might have coined the term during a litigation between Intel and Techsearch but to fall under the definition of a “Patent Troll”, a company does not have to be involved into any litigation as the author seems to suggest. They use various aggressive methods to extract licensing fee out of others, which might as well be just a “threat of litigation” which American practitioners would tell you are a night mare in terms of costs and other paraphernalia attached with litigation.
Although the term is controversial currently but mostly has been used to describe an entity that a makes a lot of money off a patent that they are not practicing and have no intention of practicing and in most cases never practiced. A few features of “Patent Trolls” can include but are not merely restricted to
Purchasing a patent, and then aggressively enforcing or threating to enforce it against another company by claiming that one of its products infringes on the purchased patent;
Patents against purported infringers without itself intending to manufacture the patented product or supply the patented service;
Enforcement of patents is the sole business with no but has no manufacturing or research base;
Intellectual Ventures (IV) is run by former Microsoft Chief Technology Officer Nathan Myhrvold and is an entity whose sole business model is focused on collecting patents for the purpose of extracting license fees from product manufacturers. The founder has often alleged that use of the expression “patent troll” is primarily a public relations tactic in a lame effort trying to distinguish IV from other “Patent Trolls”.
Over the past few years, he has quietly amassed a trove of 20,000-plus patents and patent applications related to everything from lasers to computer chips. He now ranks among the world’s largest patent-holders — and is using that clout to press tech giants to sign some of the costliest patent-licensing deals ever negotiated. He commands the ability to muster much bigger settlements because he owns such a vast pool of patents. His methods usually have been secretive and patent buying activities are always disguised behind one shell company or the other. He obtains his patents from sources including universities, bankrupt companies and individual inventors.
Agreed that IV, unlike most other pure licensing companies, Intellectual Ventures hasn’t filed patent-infringement lawsuits to help force settlements. But its only a matter of when they do so. As of now, their business model is generating enough revenue without any expensive litigation and thus they work well. Also,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.”
Further, on its website, the company does not deny litigation as a possibility for its business.
Verizon, American Broadband and Telecommunications company, for instance, disclosed in a July 2008 filing with the Securities and Exchange Commission that it plans to pay as much as $350 million for patent licenses and an equity stake in a patent-holding investment fund. The company operating that investment fund is Intellectual Ventures, according to a person familiar with the terms of the deal.
Please see My Myhrvold’s statement in a Washington Street Journal 2008 interview where he pointed out:
“ Mr. Myhrvold acknowledged facing resistance from companies he targets for licenses. But his patent inventory gives him leverage to extract settlements without litigation. “I say, ‘I can’t afford to sue you on all of these, and you can’t afford to defend on all these,'” Mr. Myhrvold said”
IV has shown no intention whatsoever to manufacture or market the patented invention and uses the patent portfolio to threaten and extract money . If this conduct does not make it a Troll then what describes its business model? A patent hoarder? Probably the readers have a better suggestion.
II
What CSIR has done is not the same thing as IV, as the created company will be owning only CSIR’s IP rights and enforcing them against infringers like any normal company does and will license out its patents to others, thus CSIR will be the one doing the research and development and the company will only monetize it unlike IV which only collects patents from different companies and licenses out to them without having any R&D or product development or any other business. Please don’t go by the fancy words used by the website to describe the company’s functioning.
As per the effect of innovation:
I don’t understand why should an individual be able to restrict a product from moving into commerce when he does not have any intent or ability to put that product into commerce himself?
Further, if its of any interest to the readers,
UNIVERSITY RESEARCH, IV AND THE RESULT
There have been discussions and some action to enact a law (Union Cabinet approval of “The Protection and Utilization of Public Funded Intellectual Property Bill 2008″).on the model of the infamous Bayh-Dole Act, which in the United States tried to push universities to patent more of their research, with the idea that it would make research more commercial. Of course, it has its own controversies.
What actually happened is worth mentioning here, the unintended consequences of this act significantly harmed university research. Universities quickly set up “technology transfer” offices, with the idea of selling off patents for tons of money, but the vast majority of universities discovered that such technology transfer offices cost a lot more than they made, and so they were a drain on university resources Secondly, the new focus on patenting everything caused researchers to be much more afraid to share ideas and concepts with colleagues, greatly diminishing the value of research or the ability of researchers to explore other areas where colleagues might have already applied for patents, for fear of “infringing.”
But IV has the perfect solution for this problem, in the United States, IV went to such universities and their technology transfer offices, and gave them some money upfront, allowing IV to effectively add each university’s patent pool to its own portfolio that it uses to go around demanding millions of dollars from companies to “protect” them against any future lawsuits. Effectively, the end result is less actual research being done at universities, while some guys who don’t actually build anything get rich.
Its a pity that an institute like IIT Bombay has become a partner to an anti innovation deal and that too with a company closely related to giant monopoly. With its vast hoard of patents, IV could turn out to be the world’s most dangerous patent troll. It could have the power, at least in theory, to sue a vast swath of corporations, thereby stifling any innovation.
Of course, the fact that MOU is a secret, is not surprising considering the methodology followed by IV in the rest of the world.
I totally agree with prashant on this one!
The categorization of IV as a patent troll would be incorrect.
IV is a Non Practicing Entity (NPE). An NPE is basically a person/company which has patents but does not practice them (w. And infact, if you go by law, there is no legal requirement for practicing an Invention which has been patented.
An NPE can be called a Patent Troll only if it meets the following criteria:
1.) If they Abuse the patent system
2.) They sit and Wait for broad deployment of a particular technology, and once a particular company has captured a big market share, then assert their patent rights
3.) They Do not drive Innovation themselves
4.) They Lack good business ethics, as they try to extort more money (which is grossly unjustified, in lieu fo the contribution made to the alleged infringer’s product or service) by threatening an injunction
The best example for a patent troll would be “Jerome Lemelson”, who is credited for over 600 patents, majority of which he never practiced. And he aggresively indulged in “Submarine patenting” to abuse patent system
@QuestionIPR: You’re free to call me an immature child or a delusional idiot but atleast have the courtesy to reveal your true name and identity while doing so. Also for the love of god please atleast attempt to find a fault with my reasoning and logic. There is no fault with the business model. The points you make are in regard the quality of patents, while my post is in regards the business model. You’re totally off the mark in your analysis old chap. AND its WALL STREET JOURNAL not WASHINGTON STREET JOURNAL. Also please refrain from copying entire articles in the comments section – its copyright infringement unless you have the permission of the copyright owner. Also we like to have some original comments. So come back and post when you can come back with something original.
@ Mishi – Thank you for that exhaustive comment – its a pleasure to read some ‘mature’ comments. I would like to answer a couple of questions after which we can continue our discussions:
(i) Do all inventors have the means to commercialize their inventions? If not then what do they do while trying to maintain the least amount of exposure to any financial liabilities?
(ii) How are the activities of IV any different from that of the NIF?
Prashant
Well, choosing to reveal my identity is my prerogative, for the purposes of this article my name says it all.I thought we had some freedom of speech in commenting.
Its only debating issues, I did not mean to demean you and would apologize if my comments seemed personal/derogatory/insulting.
I really appreciate blog entries by people like you who bring real issues in front and thus give us a chance to debate the merits.
Also, Please read the post by this other person Mishi Choudhary who also referred to the same article and probably read my post first as he also calls it the “WASHINGTON STREET JOURNAL” hahahaha!
I know what is copyright infringements-I am attributing it to the source and secondly I am using it only to comment upon something so is it not fair use?
Its not important what the names are or terms are, as you were intelligent enough to point it out yourself:’its important to debate issues I believe.as of now, i am worried more about innovation and threat to the same disguised as marketing / Invention capital companies.
Yes, you are right and I think this guy choudhary presents a better analysis of the situation than I did but bottom line still stay the same. How productive are these companies in terms of motivating others to innovate and then introducing such products in the market for the benefit of all.
Dear all
All of us seem to miss here an important point which is well taken care of by the law on Patent itself.
If the owner of the patent fails to work the invention in the territory where the patent is granted, one can go for a compulsory license from the competent authority.
So, why the fuss??
Regards
Bhaiyon aur Behnon
Shaayad hum Compulsory Licensing bhool gaye.
Just to remind, If the Patent owner fails to work the Patent (lets call it patent and not invention) in the stipulated time (usually 3 years) and a party wishes to exercise it, one is always allowed to seek a Compulsory License from the competent Authority.
Koi farak nahi padtaa, if someone is collecting patents and not using them…
Go ahead, seek Compulsory License.
Thanks.
@Anons: Ladies and gentlemen, you’re right. Although the American Patent Act does not allow for CLs the Indian Act does allow for it but even that can kick in only after 3 years as one of you correctly noted. After a CL is applied for it is also possible to apply for revocation after 2 years. So yes we have several safeguards.
@QuestionIPR: I agree with you that there is a possibility for abuse. But until it happens lets give them the benefit of the doubt. In the meanwhile what do you think about NIF in the context of the IV business model?
Prashant
I happen to bump into this discussion while digging in to find more trails of IV’s activities in India.
I have seen many debates round IV’s categorization into a “troll” , “NPE” “aggregator” but all said and done, does someone wonder why IV has a twist in their business model unlike what they do in teh other western countries.
Well i have wondered (sigh!). In the patent developed nations like US, Europe, Israel and perhaps Australia IV still focuses on purchasing patents which are atleast US assets or equivalent international assets. but only in the APAC region (i.e) namely India, singapore, China, Korea and Japan they are operating out a new fund called IDF (Invention Development Fund) where instead of purchasing patents upright, they are interested in the non-patented Inventions with the caveat that these inventions should have a strong patentable potential.
Now, one would say they are doing a great deed to inventors who usually do not have much success in commercializing their inventions but why aint they replicating the same business model in APAC like in the US or Europe. We have a good number of Indian inventor companies who hold US patents for that matter.
and Prashant on your point nf the similarity between NIF and IV, i would have a difference in opinion.
If you run through the roots of NIF, they are more of an Innovation Catalyst whose mandate is not to only commercialize grass root innovations but to create a platform for such innovators to become enterprising with their inventions. while doing so, they end up monetizing their inventions whiel creating and commercial leverage for the innovators.
I think there is a staunch difference in how IV and NIF operate.