E&T meets Nathan Myhrvold, former Microsoft chief technology officer and founder of patent acquisition company Intellectual Ventures, to find out why he is known as the world's biggest patent troll.
The relationship between the nuts and bolts of invention and the legalese of intellectual property is stormy. For a lone inventor, filing a patent can be a wallet-emptying shot at the big time. For a struggling start-up, intellectual property can be a weapon wielded by more established companies to stifle competition.
And for one billionaire American scientist, stockpiling over 30,000 high-tech patents is his way to kick-start a market in ideas themselves. 'It's clear that patents are really valuable – you can point to lots of new inventions that are demonstrably valuable,' says Nathan Myhrvold, former chief technology officer at Microsoft and now founder and CEO of Seattle-based Intellectual Ventures. 'But it's pretty hard to find ways to buy and sell inventions, or to attract capital and expertise.'
'People simply don't treat invention like it's a valuable thing,' he says. 'Imagine a pipeline through which you are running ideas to eventually become companies. The venture capital part of the pipeline used to be small 30 years ago and has now become enormous. But if you go to the stage before that, there's still just a garden hose of inventions trickling in.'
Myhrvold wants Intellectual Ventures to turn that trickle into a torrent. The basic concept is simple: Intellectual Ventures acquires technology patents from a variety of sources; gathers them into a critical mass; and then sells or licenses the intellectual property to other companies. The bigger Intellectual Ventures gets and the more activity there is in the market, the more money flows back to inventors for the next generation of innovation.
'Instead of investing in hedge funds, let's invest in making new ideas,' says Myhrvold. 'If we can get a dynamic going like occurred in venture capital or private equality, billions of dollars a year will flow into invention that never would have otherwise. In a nutshell, once the funding of new ideas is treated like a business, it will mean a lot more money and a lot more inventions.'
By most measures, Myhrvold would not seem to be short of either. Myhrvold personally holds hundreds of patents, while Intellectual Ventures has already attracted over $5bn in investment from the likes of Intel, Sony, Apple, Nokia, Microsoft, Samsung and HTC. Much of that money has been recycled into the acquisition of thousands more patents in computer hardware and software, networking, communications and semiconductors.
Since it launched in 2000, Intellectual Ventures has earned nearly $2bn in licensing revenues and paid out over $350m to individual inventors. It has partnerships with over 100 universities worldwide and continues to buy patents wherever it can: private R&D departments; government labs; or failing firms (Enron was an early supplier).
The key to Intellectual Ventures' success, says Myhrvold, is working at scale: 'Any individual investment in intellectual property is very risky. But make 30,000 investments and, while you're definitely going to have some losers, you're also much likely to have some real winners.'
It is precisely this scale that has many in the technology industry worried. Myhrvold has been called the world's biggest patent troll. This derogatory term for a company that exists only to file aggressive patent lawsuits was, ironically enough, popularised by one of Intellectual Venture's own executives. Being a patent troll can be extremely lucrative. PricewaterhouseCoopers says the average damages award at US patent trials is $5.2m, with a dozen cases over the last five years earning patent holders $100m or more.
In 2006, Research in Motion paid out over $600m and was nearly forced to shut down its BlackBerry mobile phone service after losing a dispute with a small patent holding company. Awards also seem to be creeping up: three of the top ten largest awards of the last 15 years have occurred within the last two. Apple is currently fighting a $625m pay-out to a Yale professor for infringing several patents concerning graphical interfaces and data backup.
'A lot of companies in the Internet and software industries view anyone having patents as being threatening, mostly because they know they infringe,' says Myhrvold. 'In fact, I would argue that if you're a large technology company, you should love what I do. We actually pay people that come up with good ideas, that generates even more good ideas in the future.'
The problem is that many patents do not represent good ideas but are merely opportunistic and overly broad legal documents that have little to do with real innovation. For the past 17 years, IBM has churned out more patents than any other company in the world – nearly 5000 in 2009 alone. And yet is IBM really more innovative than, say, Google?
Some have suggested that Intellectual Ventures is gathering legal ammunition instead of really supporting invention. According to Avancept LLC, a strategic consulting group, Intellectual Ventures has quietly surrounded itself with a network of over 1000 shell companies that keep many of the company's transactions and legal negotiations at arm's length.
Myhrvold admits, 'With intellectual property, you have respect it and that can ultimately lead to litigation. However, from a business perspective that's not the most effective way to make money. We have completely de-emphasised that approach.'
Well, not completely. In December, Intellectual Ventures sued nine companies for infringing patents on software security, DRAM and Flash memory, and field-programmable gate array (FPGA) technologies – see 'The journey to court' box.
There is also concern that Intellectual Ventures is planning to corner the very invention capital market it's creating. Where large manufacturing companies typically cross-license patents with rivals to cover potentially infringing technologies, Intellectual Ventures' massive portfolio and lack of manufacturing comes with no legal downside. This means those big investors, the Intels, Nokias and Sonys, either have to get inside the Intellectual Ventures tent (a move that can cost hundreds of millions of dollars) or risk legal cases raining down on them outside.
Myhrvold is quick to point out that the current system is rife with inequalities. 'Cross-licensing is virtuous in the same way that justice in Somalia is virtuous,' he says. 'Somalia is run by a bunch of warlords with big stashes of ammunition: they don't make that much trouble because of the possibility of retaliation. A large company with the same perspective can tell little companies that it can steal their ideas because it has more patents on their products than vice versa.'
The solution to most problems in Myhrvold's world, in case you hadn't already guessed, is to acquire more patents. Although Intellectual Ventures has purchased most of its portfolio, Myhrvold also has a laboratory that files 450 patents of its own each year, in areas from advanced batteries to vaccine research – see 'Intellectual Ventures' inventions' box.
'Inventing is very much a patience game,' says Myhrvold, who studied quantum physics with Stephen Hawking at Cambridge University. 'We started inventing in 2003 and have filed well over 2000 patent applications – from which we have 279 patents so far. Over the next few years, we'll get nearly all the rest.'
The company's range is nothing if not eclectic. Intellectual Ventures has already spun out TerraPower, a start-up developing a nuclear reactor to turn today's nuclear waste safely into electricity. Other research into optical switches for next-generation computers uncovered a material with an extremely high index of refraction. 'We now also have a jewellery patent for artificial gemstones that are more sparkly than any diamond that ever existed,' says Myhrvold with a grin. Myhrvold also recently co-wrote and published a 2,500-page, £400 book on modernist cooking.
What really frustrates Myhrvold is that few other high-tech firms seem to share his sheer joy in discovery. 'The problem today is that almost no young company funds invention like Bell Labs or Xerox PARC did,' he complains. 'Probably the biggest, most important research lab that has been started in living memory is Microsoft Research, which by God I started myself! If we can create a situation where inventors are given money to go and make new things, all it takes is for one to work and that really could change the world in a positive way.'
Or at the very least, make a lot of lawyers very happy.
- www.intellectualventures.com â€“ Intellectual Ventures
- intellectualventureslab.com â€“ Intellectual Ventures Lab blog
- www.terrapower.com â€“ Spin-off company designing miniature nuclear reactors
- modernistcuisine.com - Myhrvoldâ€™s six volume magnum opus on the art and science of cooking
- www.opencongress.org/bill/112-s23/show - Latest US Patent Reform Bill