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Intellectual Ventures Takes Indirect Route to Court
The Recorder
September 01, 2009
Patent-hoarding giant Intellectual Ventures has long beat the drum that it doesn't file lawsuits.
But now Intellectual Ventures has started selling some of its 27,000 patents to people who aren't afraid to sue -- and in some cases IV will get a share of the prize. It's a scary scenario for tech companies that may end up in the legal crosshairs, but industry observers say it was only a matter of time.
"They have made commitments to investors and companies to monetize in some form or fashion billions of dollars of patents," said Dan McCurdy, founder of PatentFreedom, which tracks nonpracticing entities, or patent trolls. "In my view, it's inevitable: Whether they do it themselves or through a third party, they're going to have to litigate."
One such lawsuit was filed on Aug. 10 by none other than Raymond Niro, the prolific patent plaintiff lawyer with Chicago's Niro, Scavone, Haller & Niro. Niro is seeking millions from Eastman Kodak Co. and CDW Corp. for infringing a patent on digital image frames. His client is a shell company called Picture Frame Innovations LLC, which recently acquired the patent in question from an Intellectual Ventures shell company, according to the inventor and public records.
That Niro was chosen to front this fight should put a wry smile on any patent lawyer's face. The widely used insult "patent troll" was coined to describe Niro and his clients by Peter Detkin, then an Intel Corp. lawyer. Detkin is now co-founder and vice chairman of Intellectual Ventures.
Niro wouldn't comment on whether IV is getting a share of the potential winnings, although he declared on Friday that "IV is not involved in any way, shape, or form in the case." Detkin wouldn't say anything about the sale of the patent or the Kodak suit.
Over lunch at Palo Alto's Cafe Pro Bono in August, Detkin said that in the past year, IV has begun to sell more patents. He said IV has done about a dozen deals, most of which have a "back end," meaning that Detkin and IV share in any money the new owner makes through licensing or litigation. (He declined to list the buyers.) However, Detkin insisted that after sale, IV maintains no control over the patent.
"Now that our portfolio is getting bigger, we're taking a more active role in managing it," he said. "Because we're constantly analyzing our assets, we think we have a much better feel for what fits and what doesn't. As for those things that do not, it makes sense to find different ways to monetize them."
CATCH AND RELEASE
It's a new phase for Intellectual Ventures, which was founded in 2001 by Microsoft Corp.'s top tech guys, Nathan Myhrvold and Edward Jung. At first, the company took investments (about $5 billion) and bought up patents (now up to 27,000). In more recent years, IV has been cutting licensing deals with big tech companies that are apparently infringing on some of IV's intellectual property. Intuit Inc., the financial software firm, agreed to pay $120 million for a license in May. Detkin says that IV has brought in about $1 billion in revenue this way. And he and others at IV like to point out that they've never once used the cudgel of a patent infringement lawsuit to get a deal done.
With its new practice of selling off patents to third parties, litigation is much more likely. It's similar to the "catch and release" model used for some time by other patent-holding companies. That's a friendly sounding name for a threat that goes like this: Take a license because we're going to sell the patent on the open market -- and you never know what unscrupulous and lawsuit-prone troll is going to buy it.
Ronald Laurie, an IP consultant with Inflexion Point Strategy LLC, said it appears to be a tactic aimed at those unwilling to pay up, as Intuit and others have done.
"Their initial monetization model was premised on the assumption that if they can acquire a critical mass of patents relating to a particular licensing target, and they are 'reasonable' in pricing license fees, then, from a risk-mitigation perspective, most large operating companies will license rather than litigate," Laurie wrote in an e-mail. "Even if this fundamental premise is valid, IV needs a 'Plan B' vis-à-vis those companies that refuse to take a license. One way to deal with the latter group of companies is to 'outsource' the litigation to a nonpracticing entity with enforcement experience."
