Is ex-Microsoftie Nathan Myrhvold's company getting shell companies like Lodsys to demand payment for software patents? And is there any evidence those patents help innovation in software?
When it comes to software patents, one company has recently become more and more noticeable for its position defending them: Intellectual Ventures, a company run by Nathan Myhrvold, who founded it in 2000 after leaving Microsoft, where he was chief technology officer.
It's a company which has received $300m of funding from venture capitalists Charles River since 2006: "Nathan helped open my eyes to the notion that IP [intellectual property] is a very important market – it's actually a very big market in tech," Izhar Armony, a partner at Charles River Ventures, says in the linked interview from April. He thinks there's a $6bn litigation market based on legal fees, and a $50bn market in IP rights and licensing.
Here's the odd thing: Intellectual Ventures doesn't seem to be very good at exploiting patents it owns. In two cases it appears to have bought software patents that have value in the courts and then transferred them to little one-man bands who have abruptly realised their value and begun suing people for infringing them.
The two companies: Oasis Research and Lodsys. You may have heard of the latter: it is suing a number of app developers on the Android and Apple iOS platforms, claiming that they infringe patents that it owns, particularly covering in-app purchases. Despite attempts by Apple to intervene – because it says that it has licensed those patents – the cases seem to be going ahead. And its determination to prevail has, as we've written, led to some European app developers deciding that the US game isn't worth the candle.
In other words, software patents are doing the same to the US's standing as a centre for innovation and competition as the debt ceiling issue is doing to its financial standing: destroying it hour by hour. (The NPR program This American Life had an hour-long episode about "invention peddlers" which looks at this in detail.)
You don't have to look far to find venture capitalists who decry what Myhrvold represents. Paul Kedrosky wrote on 19 July that Myhrvold's arguments "veer from hysterical, to unsupportable, and back again", pointing to a Myhrvold column at Bloomberg.
One key sentence from Kedrosky's denunciation: "There is no inconsistency in promoting innovation while attacking the software patent system. Most software companies, large and small, think the patent system is an obstacle to innovation given the prevalence of nonsensical blocking patents and patent trolls. I would hope that they attack it ... This is far, far from a disinterested observer of a fundamentally broken US software patent system. Let's end the deference."
Fred Wilson, principal of Union Square Ventures, who has backed a number of companies, including Twitter, said as long ago as 2009 that patent trolls are a tax on innovation, after one of his funded companies spent $500,000 defending itself against baseless patent claims.
But Intellectual Ventures stands – apparently – aloof from all this. It isn't, as far as I know, involved in any lawsuits where it is asserting any of the patents that it owns. For a company that has $300m of venture capital funding, that seems odd – as does the seeming lack of nous about the value of the patents that it held but then transferred (it's not clear whether "sold" is the right phrase here) to those companies.
There's more, though. A research firm last year released a report claiming that Intellectual Ventures has as many as 1,100 shell companies which it uses to carry out patent "shakedowns": the front companies do the suing, and the parent reaps the benefits.
I contacted Intellectual Ventures on Tuesday evening, and spoke to a person to put a number of detail questions about its relationship with Oasis Research and Lodsys.
Here are the questions that I subsequently put via email (in time for them to be answered during the Seattle business day):
• Does Intellectual Ventures have any royalty or licensing agreement with Lodsys over the patents that it transferred to it? And when did it sell/transfer them?
• What form did the transfer of patents to Lodsys take: simple sale and complete title, or some other arrangement?
• Does Intellectual Ventures have any royalty or licensing agreement with Oasis Research over the patents that Intellectual Ventures transferred to it? And when did it sell/transfer them?
• What form did the transfer of patents to Oasis Research take?
• Has Intellectual Ventures made any investment in Lodsys?
• Are any of the staff or owners of Lodsys present or former staff or owners of Intellectual Ventures?
• Why would Intellectual Ventures, a considerably funded company with large resources, sell patents with clear value to apparently low-funded companies – Lodsys and Oasis Research?
• Is Intellectual Ventures providing any funding or legal assistance for the legal actions being pursued by Lodsys and/or Oasis Research?
These seem fairly narrow questions – that is, they aren't asking for a long thoughtful post on the nature of patents. They're factual.
On Wednesday morning, five hours after I sent those questions, I received a response from Intellectual Ventures. It pointed to a blog post that the company had put up overnight – which is dealt with below – and had this response to my questions:
"Specific to your questions on divesting patents, as has been reported, when it makes sense for our business we sell patents – either to companies who can use them for defensive purposes or to buyers who monetise them. Sometimes based on the structure of the sale we have a financial interest in the outcome of those efforts, but we never have control over, or are involved in, the path to monetisation that these companies pursue once we sell the patent."
Note that this doesn't answer a single one of the specific questions about IV's involvement with Oasis Research or Lodsys (particularly about staff, investment, legal fees or form of transfer). It doesn't say whether it was a sale or other form of transfer – though it does talk about "structure" which could mean payback. It doesn't mention involvement. Simply, it's a non-answer. I've emailed back reiterating the specifics of the questions and asking for detailed responses.
Meanwhile, there is the blogpost which appeared on IV's site. This says, in part:
"By definition, a disruptive innovation is a product or technology that, when introduced, either radically changes existing markets or creates wholly new ones, thereby disrupting companies and networks reliant on the status quo. In simpler terms, it signifies rapid and unexpected progress … a change in context. Intellectual Ventures is a disruptive organisation, and like any other product or service which disrupts established markets, we've invited our share of controversy... We appreciate that patents are an emotionally charged issue that generates a lot of conversation and varying points of view, but we want to take a moment to provide our perspective on a recent characterisation.
"IV believes that inventors who invest all the time, money, and emotional resources that are required to protect their ideas with patents earn a right to recognise a return on their investments.
"IV is challenging the status quo by focusing its business solely on invention and investment in patents. But we think this disruption is an important and necessary step in the development of a fully functioning marketplace for ideas. Our ultimate value proposition is simple: we provide an efficient way for patent holders to get paid for the inventions they own, and in turn, for technology companies to gain easy access to the invention rights they need now or may need as they enter new markets."
None of this however answers the wider question: is the exercise of these patents actually stimulating innovation? Is it to the benefit of real inventors, if the patents are traded on? (The original inventor who was awarded the patents now owned by Lodsys is bemused by the attention paid to them. He has also had to suffer a fair deal of unwarranted abuse, since he's nothing to do with IV or Lodsys.)
We've seen nothing from Myhrvold indicating how it might. There is his quote in an interview with Forbes that "we want to build a portfolio just like those companies have, with licensing approaches broadly like they have ... I want to achieve what IBM has achieved [getting $1bn per year from licensing patents]. That's my financial model. This is a play where I take portfolio theory and apply it to something illiquid to deliver a return for my investors. I don't see that as evil. I don't see that as particularly threatening."
The unanswered question remains, though: do software patents really spur innovation, or hold it back?
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Source: http://www.guardian.co.uk/technology/2011/jul/27/intellectual-ventures-myrhvold-patent-lodsys
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