Among the patent trolls

This American Life makes the case that Intellectual Ventures are patent trolls cum extortionists. Thanks to a reader for sending me the link. See also this earlier post which examines Malcolm Gladwell's New Yorker article on Nathan Myhrvold and IV. (Gladwell, as usual, gets it all wrong.)

Transcript: ... Alex: We told Intellectual Ventures that Chris Sacca compared their business to a mafia shakedown and in an e-mail, Peter Detkin called that ridiculous and offensive. He then reiterated some of the arguments you’ve heard about how IV protects inventors and went on to say, “We’re a disruptive company that’s providing a way for patent-holders to recognize value.” (By “recognize value,” he means “make money.”) “That wasn’t available before we came on the scene, and we are making a big impact on the market. That obviously makes people uncomfortable. But no amount of name-calling changes the fact that ideas have value.”

Laura: True enough, but lately it seems like a lot of butcher shops have been burning. As we were reporting this story, more and more Intellectual Ventures patents started showing up in the hands of companies like Oasis, companies without employees or operations, who were formed for the purpose of filing lawsuits. They’re known as nonpracticing entities or NPE’s.


... that’s based just on the math of IV’s business model. In order to purchase its 35,000 patents, Intellectual Ventures got money from investors. A lot of money. More than $5 billion dollars.

Laura: And a lot of these investors are venture capitalists who expect very high returns. These are people who are looking for the next Google, the next Apple. People who want to get back many times what they put in. Since its founding in 2000, Intellectual Ventures has generated $2 billion dollars in revenue. But to keep its investors happy, over the next 10 years, says Tom Ewing, they’re going to have to do a lot better than that.

Ewing: So if you calculate this out, that means that over say a 10-year period they’re going to need to collect about $35 billion dollars in licensing revenue, in order for them to be successful among the people who they’re trying to compare themselves with. IV seems to have signed a number of deals. If the stream of deals they’re signing doesn’t increase significantly, then I would imagine they will be forced to file more litigations in order to achieve their revenue targets.

Laura: Tom’s prediction already seems to be coming true. Earlier this month, Intellectual Ventures itself filed a patent infringement suit in federal court against several companies it claimed were infringing some patents it owns.

Laura: In early July, the bankrupt tech company Nortel put its 6,000 patents up for auction as part of a liquidation. A bidding war broke out between the Silicon Valley powerhouses. Google said in press accounts that it wanted the patents purely to defend itself against lawsuits and it was willing to spend over $3 billion dollars to get them. But that wasn’t enough. The portfolio eventually sold to Apple and a strange consortium of other tech companies, including Apple competitor Microsoft.* The price tag? 4.5 billion dollars. Five times the opening bid. More than double what most people were expecting. The largest patent auction in history.

Alex: Think of that — 4.5 billion dollars on patents that these companies almost certainly don’t want for their technical secrets. That 4.5 billion dollars won’t build anything new, won’t bring new products to the shelves, won’t open up new factories that can hire people who need jobs. That’s 4.5 billion dollars that adds to the price of every product these companies sell you — 4.5 billion dollars essentially wasted, buying arms for an ongoing patent war. The big companies, Google, Apple, Microsoft, will probably survive this war. The likely casualties, the companies out there now that no one’s ever heard of that could one day take their place.