Economist Article on IV

by Andrew Watson on 24 February 2010

I see that the Economist online are running an article titled Brilliant Inventor or Patent Troll about Nathan and IV at http://www.economist.com/business-finance/displaystory.cfm?story_id=15570585

A view. To try to make this simple to understand.

To call Nathan or IV a troll is incredibly simplistic.

IV has built one of the Worlds most sophisticated businesses and it has the potential to have substantial direct and indirect returns for its shareholders. IVs people are amongst the brightest IP and business minds you could wish to find anywhere. And what they have done is combine lots of the smartest and newest ways of creating value from IP into the same entity in a patent and IP play on an absolutely massive scale.

 They are an invention house, and have adopted and reinvented leading edge patent strategies to create a portfolio of their own IP which, in its own, would be of high high worth.

 In combination they have acquired patents, hard to say how many as they are very private, but lots of patents on an unprecedented scale. Some say they have 30,000 patent families, but it is impossible to know exactly how many. What is believed though is that this number puts them in the Premier league (up there with IBM, Nokia, Qualcomm and others) in terms of IP influence. The buying has not come cheap but they’ve worked hard on starting with buying anything to moving to buying quality.

 And along the way they’ve worked hard on their IP reputation. Ask people who know anything and they’d say that if IV breathes in your direction, take a license. Perfect in the US world of IP where licenses are cheaper than litigation so companies like Acacia Research, a genuine troll, can prosper. But they don’t want to see seen to be litigators…that’s bad for reputation so they outsource that part to others who aren’t so bothered about what the outside world thinks of them.

 This is IP genius on a scale never seen before and which would be hard to come close to replicating again in a generation given what IV has successfully done. If you imagine or remember one of those days when the idea you had could change the world. Amazingly though almost nobody outside of the IP community and largely outside of the US has a clue that this is going on. Which it has been for 10 years.

The full impact of this is to be seen. What Nathan though appears to realise in his public statements is that all things intangible make up a large and unexplained part of shareholder value. The accountants don’t explain it, shareholders don’t ask about it, most business leaders don’t understand it. It still amazes me that people don’t even ask! IV is playing an arbitrage game; it knows what is valuable and it knows the value to it of what its buying. The sellers do not.

 This is grand and to be complimented. It will be hugely successful.

 Andrew

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Beware the King of the Patent Trolls | JetLib News
03.25.10 at 9:13 pm

{ 24 comments… read them below or add one }

allenj 03.25.10 at 6:30 pm

I love how your point is they will make truckloads of money for the companies shareholders so it’s okay that they are societal parasites abusing the patent system and create nothing besides paper value for wealthy elites. That sort of B-Ark thinking is what created the high risk derivatives that brought the country to the brink of financial ruin. You must be an investor and thus potential recipient of the ill gotten booty otherwise I don’t see why else you would be so jazzed about a uber patent troll. I hope you lose your ass and get what you deserve (but you probably won’t)

Just me 03.25.10 at 6:33 pm

So, they are good because they make lots of money? They don’t invent a single thing, they are parasites on the inventions of others. Successful parasites, but parasites still.

Maybe ‘shareholder’s value is the only ‘value’ you understand, but what value do you think this ‘company’ is for society? None at all, even negative, as they hold back innovation. They were, are, and will be nothing put parasites.

Christopher 03.25.10 at 6:39 pm

A company that files or buys up all kinds of patents for the sole purpose of holding valuable patents, and threatening other companies with patent infringement lawsuits, without engaging in any kind of useful or innovative business with said patents on its own is a PATENT TROLL.

Patent trolls are horrible companies and are the prime example of how BROKEN the patent system in America has become.

The fact that licenses are cheaper than litigation is another prime example of how BROKEN the patent system has become! No disputes will ever be rightfully resolved when PATENT TROLLS can bully companies into wrongfully paying them PROTECTION MONEY. They will then use this money to lobby the government to legislate strict patent protection laws so that they can continue to extort society!

Disgusting!

Anonymous~ 03.25.10 at 7:36 pm

“it knows what is valuable and it knows the value to it of what its buying. The sellers do not.”
So… in other words it’s a troll? An internet troll aims get reactions out of people (the value), the person giving the reaction doesn’t understand this value. Now replace the words “internet” with “IP” and “reaction out of people” with “IPs from people”.

I’m pretty sure it fits the definition quite well.

Van Nguyen 03.25.10 at 7:46 pm

Behold the King of the Patent Trolls. What’s worse is the fan of the King of Patent Trolls.

Bob 03.25.10 at 8:10 pm

Certainly IV adds value to it’s shareholders. Patent trolls also add value to their shareholders.

IV is not an invention house. They simply acquire IP. They do not build inventions.

You also note that IV enjoys litigation, but doesn’t like to appear litigious. So they let other companies do it. I can’t even believe that you think having someone else do your dirty work is a positive thing?

IV is a perfect example of a company using litigation to drain value from companies who are actually invention houses. The threat of an IV lawsuit raises the price of nearly every innovative product sold. It is simply taxing the many to make a few rich. This is a net loss on the economy as a whole.

Dave O 03.25.10 at 9:25 pm

Odd. You start out “To call Nathan or IV a troll is incredibly simplistic” — and then go on to explain what they do… which is, basically, that they are patent trolls. In particular: “But they don’t want to see seen to be litigators…that’s bad for reputation so they outsource that part to others who aren’t so bothered about what the outside world thinks of them.

OK, so they hire thugs to do the dirty work, so their reputation won’t be tarnished? And therefore “this is grand and to be complimented”?

rooben 03.25.10 at 11:06 pm

Successful at making money?

Yes.

Successful at furthering technology, the betterment of mankind, actual progress of anything?

Absolutely not. There was a statement “If you imagine or remember one of those days when the idea you had could change the world.”

Yeah, but only if you get a license.

Golias Bauknecht 03.25.10 at 11:26 pm

I don’t think this is to be complimented at all. The intangibleness of the value of what IV does is analogous to the value created by investment banks and trading houses―sectors which in recent years showed huge profits but didn’t make a single thing, didn’t produce a single thing except something on paper. And their house of paper blew down in a strong breeze.

To call IV an “invention house” is to denigrate good inventors. If the word “troll” is too inflammatory then it can be left behind. But the strategies of companies such as IV and others is to make money by wringing unjust government monopolies on other people’s ideas and selling to businesses which actually want to produce something tangible the privilege of doing so. It’s disgusting.

Cotterpin 03.26.10 at 6:00 am

“To call Nathan or IV a troll is incredibly simplistic.”
Possibly simplistic, but accurate.

JS Hatcher 03.26.10 at 11:16 am

Wow. Lots of comments on this one, overwhelmingly negative. Andrew is away at the moment but I’m sure will respond when he’s back.

Just to give a bit of context, readers may be interested to know we did a report a few years back (before I was at ipVA) with Avancept essentially trying to reverse engineer exactly what IV is doing — all the shell companies and other activities they use to hide their own patent filings as well as some of their acquisitions. The report is now available on Avancept’s site, and I believe they’ve created an updated edition.

We did this report because IV is a threat to many companies — several that we have worked with — and represents the very edge of what players in the marketplace are doing with IP. By many accounts, IV do not make it easy to find out everything they do, and so the great work by people like Tom at Avancept I think is very much needed to frame the debate.

For me, I take a legal realist approach to this kind of thing (read Holmes, The Path of the Law). Love them or hate them, IV has been very innovative with IP and business models around IP and I think that’s quite hard to dispute. Now you can say that you don’t like the game they play, but the rules allow them to play that game.

If you don’t want them to play that game, change the rules. Whether IV should be able to play the game they play is a policy question definitely worthy of debate, and one that I think touches on some of the comments above around what role they play within the system of intellectual property and whether it is “good” or “bad”.

To everyone that thinks of IV as not ever inventing in their own right, I’d question that as I know that they’ve hired people like Sci-Fi author Neal Stephenson to do what seems like some very forward looking stuff. To me, any line that used to be between IV and more research focussed organisations is these days pretty blurry.

One of the problems with using a term like “troll” is that it if you include every non-practicing entity, then you can easily catch people like small inventors who don’t have the resources to commercial develop their inventions and so must engage in licensing. Are they as “bad” as IV? What is it about IV that makes it “worse”? What about universities? They more often than not don’t engage in practicing their inventions. Are they a troll?

The answers to these and many other questions are needed in order to form the basis of any policy discussion about whether the type of behaviour IV engages in is one to be encouraged or discouraged by law and policy.

Dave O 03.26.10 at 3:47 pm

I’m a great fan of Neal Stephenson. But responding to the criticism that they are not inventors by saying that they have a science fiction writer on staff??

I mean, there are indeed some science fiction writers that are inventors, too– Wil McCarthy, Charles Sheffield, Geoffrey Landis, to name a few. But, as a general rule, “we have a science-fiction writer working for us” is not the same as “we make inventions.”

JS Hatcher 03.26.10 at 5:14 pm

@Dave O If you read both the article I referenced and my comment above carefully, you’d see that I was clearly not making the argument “SciFi writer equals IV does independent inventions”. Instead I’m saying that if you look into what IV is actually doing you’d see that they are doing more than simply buying up other people’s patents and licensing them (or farming them out for litigation). Instead they seem to also have people on staff — Neal Stephenson is but one example — that are coming up with new innovations. That is something that sets them apart from other NPEs/Trolls who solely engage in buying patents and licensing/litigating them.

Dran 03.26.10 at 5:37 pm

The patent laws as they stand cause it to be profitable to build IP portfolios, and this does cause more research to be done. Of course, I can’t tell whether IV engages in “real” research, that is, paying smart people to create innovative patents. But it happens, and IV is helping to create economic incentive for researchers regardless of if it employs them itself.

The question then becomes, are these patents really desirable? When a company like IV exerts economic pressure on researchers, it is giving them incentive to write patents which aren’t really innovative. Another thing our patent system has always done is exert pressure on people to patent every single way of doing something. If you patent a way to record music onto solid media and play it back later, the economic benefit from that patent lasts until someone comes up with a different way of doing the same thing (even though you thought of doing it in the first place). But if you patent every possible way of doing it that you can come up with, like Edison did, then you’re all set until someone really smart comes up with a totally different method.

Thus, the patent system encourages companies to come up with every way of doing something, which then allows companies to choose the best of those ways. So there is SOME benefit there.

But lots of work gets put into inventions which will never be used. And it all slows down innovation if and when the patents are for obvious things.

If patents are never used, it’s not even clear whether they are effective ways of doing the things they do, so a lot of the benefit of them being publicly published, which was one of the original purposes of patents, disappears.

If IV is getting its patents at a bargain because sellers don’t realise their value, they’re not really creating the economic incentive for research that I earlier wrote about.

If IV gets people to license regardless of the validity of their patents, they really are incentivising creation of bad patents.

On the other hand, if their patents are really quite good, companies who license them might end up creating a better product than if our patent system were different.

Christopher 03.26.10 at 6:17 pm

Universities are houses of learning that train people to actually contribute useful innovation to society.

Andrew Watson 03.26.10 at 6:20 pm

That has been a surprising few hours. It is four years since we first started talking online about IV. Where were you all then?
As close to nobody listened then we have gone quiet on the subject until the recent post. I’m on holiday this week so will watch the comments as they come in and then post something more substantive, but thought it was worth posting a short reply.
Thanks for all of the comments, even the ones that disagree with my own views on IV. Thanks also to Jordan for his post replying to some of the earlier comments.
One or two of the comments suggest that we are associated with IV. To make it clear, we don’t have any association. We have though been trying to draw attention to its business since 2006, after we were first asked in relation to an investor diligence on one of our SME clients whether IV had any patents in our clients’ technical field, and just could not answer the question as no searching of the patent databases would reveal what they had bought.
Our main business purpose is to explain IP and IP related issues to those outside of the IP world. We do this for our clients who are all SME’s and their executives and investors, helping them to explain all of their intangibles to the outside world. The post was primarily aimed to do just that. To explain that calling IV a troll is over-simplifying and using the wrong comparable. You cannot compare IV and the sheer scale (and risk) they have taken with a lone inventor or one of the myriad of small trolls that operate in the US. The scale of (and risk taken by) IV is unprecedented. That was my point.
I do believe though that they are a troll in that they will use licensing and the threat of litigation to earn revenues. But on a whole different scale from what we have seen of these models previously.
And you know I do admire IV in the way that they have taken and rewritten and perfected the IP rulebook. As Jordan says, it is the rules that are broken here. Man has had the habit since time began of bending the rules or using them to his advantage. Quite why anybody out there is surprised by this in the arbitrage world of IP is a little naive. On a personal level I don’t much like it either, but I do admire it.
It would help if the debate could be kept on a constructive level. I’m up for a fight with anyone that does not believe that IP and the protections the system gives is not an essential part of creating value in today’s business and social world.

Christopher 03.26.10 at 6:21 pm

You got linked on Slashdot :-P

Christopher 03.26.10 at 6:30 pm

Also, the fact that they are the biggest troll out there doesn’t change the fact that they are a troll. It doesn’t matter how you dress up a troll, it’s still a big ugly unproductive brute.

Jonnan 03.26.10 at 10:43 pm

You kinda deserved the comments you got. Because they’re only “Working with the rules as written” in the same way a millionaire that used loopholes to receive welfare benefits would be doing so – and frankly, they deserve the same caliber of ‘respect’.

These aren’t people that invented anything. They didn’t implement an invention from someone else. They didn’t act as a clearinghouse for people to find a tool to fix a problem.

They acquire IP from people that can’t afford to bring it to market – and they bury deeply in red tape landmines so that anyone else getting *near* the same concept passes close to a bureaucratic landmine.

And then they extort money. Not because they had a workable idea, or an implementation, or something useful, but because they gamed the system in such a way that they can bury someone that *is* bringing an idea to market in so much legal pain that it’s easier to pay the danegeld than to put everything on hold until you can prove that they actually have no case.

And you express admiration for this ‘business plan’.

Gee, don’t know why you’ve had so many negative comments.

Jonnan

hwertz 04.04.10 at 9:52 pm

“One of the problems with using a term like “troll” is that it if you include every non-practicing entity, then you can easily catch people like small inventors who don’t have the resources to commercial develop their inventions and so must engage in licensing. Are they as “bad” as IV? What is it about IV that makes it “worse”? What about universities? They more often than not don’t engage in practicing their inventions. Are they a troll?”

To answer your questions point by point…
No, small inventors *invented* something, they patent it and if they don’t have the manufacturing capacity to produce a product from those patents, they license them out to someone who can. University? They spend big money on research, and when the research bears fruit they can make back some of the money they invested via patent licenses. What about IV makes it worse? They have 0 creativity, they produce nothing, and they advance the state of the art absolutely 0 — they just buy patents and then figure out how to sue people/make money off those patents. They are a troll, while inventors and universities are not.

Andrew Watson 04.06.10 at 11:50 am

By that definition, IV is part troll and part not a troll is it not? Although it has been buying, IV is also inventing and filing its own IP on its own creations. As I understand it, IV is engaging with some of the Worlds leading creative minds to build a patent portfolio that will cover future solutions to tomorrow’s problems. Where is the difference in this scenario of creating its own inventions from a lone inventor or a University?

Arguing against myself though, IVs motivation (apparently) with these, ie its own inventions, is to license them out. At a technology or a patent level.

I take a more strict definition of a troll. My definition is someone who is prepared to use litigation or the threat of litigation to require third parties to take a license. That makes IV a troll in my book. It also makes a lone inventor a troll, but I’m not so disparaging in my use of the term. Universities rarely sue, or create great IP portfolios either, so I’ll exclude them from the definition.

There is a very interesting distinction isn’t there between IV and a University is there not? IV invents, and patents, specifically with the aim of creating license revenues. Universities create in most cases for the purposes of research but most universities make little or no money from their inventions, mainly as they cannot or do not want to be seen to sue. Would IV be viewed more favourably if it sat alongside Universities and helped them to build and license out their IP portfolios? I wonder?

David Jones 04.12.10 at 4:37 pm

When considering IV, I think it always pays to remember the “property” part of “intellectual property”, because whilst we can argue all day long about the shades of grey between the lone-inventor NPE at one end of the scale and the fangs of the vampiric litigator NPE at the other, and every NPE in between, what all discussions of this type eventually drill down to is the nature of property itself and how it is connected, if indeed it is, to morals, ethics and honour. In simple terms, IV are seeking to fully exploit the rights that have been given to them by the law in tandem with property they have legitimately acquired, just as IBM (but one example from many) do. Once again, we can argue all day long about whether IBM have better “standing” to exploit those rights than IV does, but the fact is that IV have, in great part, merely reproduced IBM’s business model; they’ve just done it in 10 years rather than 100 by virtue of beginning with a fund of billions of dollars, allowing them to grow a corpus of commercially-exploitable IP without going through the various trials and tribulations that IBM have. Now it’s fair to say that there is a scent of something faintly and almost indefinably arriviste about this, certainly to those who champion invention, but it does not alone make IV the evil empire. And it does not make them amoral, unethical or dishonourable. It just makes them extremely fast at building a successful licensing business from a standing start.

Thus, if IBM have a huge corpus of commercially-exploitable IP accrued 100% by invention and IV have the same thing accrued 100% by acquisition, what difference does that actually make to how they each choose, or should be allowed, to commercially exploit the IP? Would it make a difference if the percentages were not 100%, but were split, invention/acquisition, 99/1 and 1/99, for IBM and IV, respectively? What if it was demonstrably true that IV’s current business model showed that its 1/99 would one day become 50/50, or, indeed, 99/1? The question is worth considering, for IV are definitely inventing, they are just doing so quietly, and by standing on the shoulders of their own (now) successful licensing business.

I champion invention, but I can also personally attest to the fact that I have seen IV pay inventors and small companies the kind of significant funds that have allowed them to either keep on inventing or keep on trading, or both, and this for IP that the sellers could no longer use or no longer had a use for. So whilst I can see why IV has the reputation it does, in some quarters, they certainly do not deserve to be lumped in with the trolls, sharks and other wild animals of the IP world.

Andrew Watson 04.12.10 at 5:26 pm

David. A very good and well balanced comment. I do like the fact that you’ve actually dealt with IV and can talk from experience. Its easy to over-compliment them or do them down based on an outsiders view. Wonder if we could get anyone from IV on to defend themselves? Where did I put Stephen Potter’s business card?

Mike Stoddart 12.10.10 at 3:38 pm

A blog from a company that builds its business around IPs is highly unlikely to post a negative post about another IP company. I disagree with software patents and I absolutely disagree with companies whose sole business is to buy IPs and profit from them. Patents do nothing but shackle software development and make money for companies rich enough to buy or create patents.

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