eureka1“If everybody in the industry does it, I’ll be right there,” said Nathan Myhrvold, leader of Intellectual Ventures, to the New York Times in an article yesterday titled “Turning Patents Into Invention Capital“.  Myhrvold was alluding to the public disclosure of patents and license agreements, something that has been the topic of conversation in the IP market over the last few years.  The article was actually a literary review of Intellectual Ventures, the NPE that so many love to hate, but so many others also appreciate and even envy its success.  The article does a good job putting into perspective this love/hate relationship that Intellectual Ventures has with the IP market, inventors, lawyers, operating entities and economists.  One paragraph explains this dichotomy as such:

Admirers of Mr. Myhrvold, the scientist who led Microsoft’s technology development in the 1990s, see an innovator seeking to elevate the economic role and financial rewards for inventors whose patented ideas are often used without compensation by big technology companies. His detractors see a cynical operator deploying his bulging patent trove as a powerful bargaining chip, along with the implied threat of costly litigation, to prod high-tech companies to pay him lucrative fees. They call his company “Intellectual Vultures.”

What was most intriguing to me was the recognition of the larger issues - the core discussion in funding litigation and the efficiencies of NPE business models - as the article identified: “The issues surrounding Intellectual Ventures, viewed broadly, are the ground rules and incentives for innovation.”  Does patent hoarding incentivize innovation?  Does it strangle the very usefulness of patents and the competitive advantages they create for companies?  Or does it provide otherwise lacking and deserved economic relief for those that actually create - to innovate and invent?  Despite the fact that some might say Intellectual Ventures’ business model depends on the $5 Billion it has solicited in investments, it actually depends on the very patent legal system it capitalizes on - the right to enforce is the teeth to IV’s bite.  But what if the right to enforce a patent was conditioned upon the capability to use?  Or, the actual use?  Domain name owners must actually use the domain name to enforce their ownership, and cannot squat on it, or else that domain name can be taken out from under them and transfered by an arbitration judge.  This creates efficiencies in the internet space. 

The most efficient property rights theory is that property will go to those that value those rights the most.  But what if that value was not based on the price one might pay for the property in dollars, but the work one is willing to put into the property to add value to it?  Under Locke’s Labor Theory, the ownership of property should be completely tied to the exertion of labor upon that property.  One perceptive outsider might suppose, then, that under Locke’s theory, an NPE should own nothing. 

Be that as it may, dollars talk and when dollars are combined with the right to enforce a legal right, mountains can be moved.  And Myhrvold recognizes this.  Still, Intellectual Ventures can be seen in a different light - one that could capitalize on its intelligently crafted business model while also adding transparency and efficiencies to the market by providing the supply and demand sides of intellectual property with a common place to go to find/monetize intellectual property.  I emphasize could because of the very first sentence of this post - a quote from Myhrvold - displaying the mindset which cuts off the efficiencies that could be created.

Another interesting quote from the article is as follows:

[Myhrvold] calls patents “the next software,” noting that software did not become a market on its own until the 1980s, spurred by innovators and the enforcement of intellectual property laws. “I’m trying to get inventions that kind of respect as an economic entity,” he said.

To this end, and from this perspective, the work of Intellectual Ventures has been successful, and fascinating.  It has, after all, moved intellectual property forward in the minds of business persons as an asset class or commodity to be reckoned with.  If it all wasn’t done at the expense of operating company dollars and the patent system’s true purpose, maybe this feat would be recognized with less disdain.  The use of 1,100 secret shell companies and the little Intellectual Ventures does to add transparency to the IP licensing market also doesn’t help.  Therefore, while the value-added measurement of IV’s work to the IP market and to inventors should not go unnoticed, it will continue to be questioned - partly from curiosity, and partly from frustration.  I still believe that the true realization of the value of IV’s business model to the IP market has yet to occur - and forthcoming transparency initiatives will have a lot to do with that.

For some of Myhrvold’s own words on Intellectual Venture’s business model, its importance to the inventor community, and its value to the IP market, see this article in the Harvard Business Review, titled “The Big Idea: Funding Eureka!”   (Very enlightening).

This entry was posted on Thursday, February 18th, 2010 at 2:49 pm.
Categories: Portfolio Potential ~ by Ian McClure.

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