Is Intellectual Ventures the patent maffia?

The radio show This American Life has done some great investigating journalism by digging into the patent practices of Intellectual Ventures (IV). I wrote earlier about IV, but mainly focused on their labs. Their labs, responsible for creating and patenting ideas, is just a small part of IV (some 1,000 patents). The bigger part of their business is the management of a grand patent portfolio of more than 30,000 patents. Managing a patent portfolio mainly means licensing and litigation. Litigation means endless visits to the court room. It’s expensive and is a great burden on innovation. Especially in the US, where the patent laws are quite lax compared to Europe. This makes the patent systems very expensive and inefficient.

While IV has great PR in the person of Nathan Myhrvold, their corporate patent practices are dark. Journalists Alex Blumberg and Laura Sydell from This American Life tried to discover how patents are monetized at IV. It includes shell companies operating from the small town of Marshall, Texas. Nobody works there but they are connected to IV. Smoke and mirrors were encountered. IV seems to behave more and more like a patent troll. Chris Sacca, influential investor in Silicon Valley (and former patent lawyer) says the following:

There is a lot of fear about Intellectual Ventures. You don’t want to make yourself a target. I tried to put you in touch with other people in this community to talk to you about this and they almost uniformly said they couldn’t talk to you. IV has the power to literally obliterate startups.

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Technology companies pay Intellectual Ventures fees ranging from tens of thousands to the millions and millions of dollars to buy themselves insurance that protects them from being sued by any harmful, malevolent outsiders. There’s an implication in IV’s pitch. If you don’t join us, who knows what’ll happen? It reminds me of a mafia-style shakedown, where someone comes in the front door of your building and says: ‘It would be a shame if this place burnt down. I know the neighborhood really well and I can make sure that doesn’t happen.’

The case of Intellectual Ventures shows us what can happen when companies amass great amounts of patents and push the limits of the patent law. It becomes ugly. But ugly doesn’t mean illegal. Unfortunately. It very bad when entrepreneurs work in fear of law suits.

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One more interesting article that you have to look at is who is exactly behind Intellectual Ventures. The blog Patently-O has the full list. It includes companies (Sony, Apple, Yahoo, Google, etc), universities (Stanford, Cornell, etc), individuals and organisations (McKinsey, Rockefeller Foundation, Charles River Ventures, etc). Taking this step back to see the whole thing scares me even more. Alliances of companies buying patent portfolios, hedging and defending. I don’t like this part of business…