Intellectual Ventures: Independence Day Take II

News of Nathan Myhrvold’s Intellectual Ventures bringing a series of lawsuits should have displaced the above the fold headlines regarding the vague financial turmoil currently afflicting the U.S. and World Economy. Whereas one will pass, like kidney stones, with much watery eyed pain and gnashing of teeth, the other is far more insidious and potentially fatal to our collective future as a leading economy. Here’s why:

Just like in the story-line of Independence Day, where the alien death ships slowly but surely positioned themselves over each major city, with the eventual outcome well understood, so too is Intellectual Ventures (I.V.) slowly positioning itself as the patent overlord over many major industry segments. Just like in the movie, the eventual outcome is well understood. To wit: Complete usurpation of the U.S. Patent system. The outcome is a, gigantic tax/toll collector controlling the pulse of innovation in the U.S. or, like the movie, extermination of innovation.

The 30,000 patents, and growing, in the I.V. portfolio have each withstood an average of but 14 hours of scrutiny by the U.S. Patent Office. That’s it; less than 2 business days of total review to issue a property right that, when amassed as I.V. has done, can inflict great pain ($ 1 Billion per) upon an entire industry. But here’s why the Emperor has no clothes: In any collection of patents, bar none, about 95% of the patents reflect the worth of their 14 hours of individual scrutiny. In addition, the Supreme Court, recently, re-wrote the standard of review (KSR V. TeleFlex). In short, these patents are not worth the paper they are printed on. But, owing to the excessive cost and uncertainty to have a second look at these patents either during the course of litigation, or through the Patent Office Reexamination procedures, most victims of this licensing extortion racket meekly pay-up. What Myhrvold has wrought is an obscene abuse of the patent system. It should be stopped, either by industry groups banding together to file reexaminations, or by Congress, or both.

The Patent system has 2 reasons to exist:1) incentive to disclose inventions; and, 2) dissemination of those ideas. In short, great ideas are brought forward and rewarded, and those who follow can build upon them. So, which of these principles does Intellectual Ventures completely undermine? Both. What is the incentive to come forward with a great idea when your only buyer is Intellectual Ventures? What is the possibility of building on those ideas when you’ve got to pay the bill for the other 20,000 (19,500 of which are likely worthless) patent properties at the same time? The answers: Zero and zero.

All of this matters because a patent represents encapsulated ambition. It can be of an individual or a company. But, in either case, it represents everything they have to offer the world expressed as an exclusive right. These efforts and resulting rights should not be corralled and concentrated by a single entity for no purpose other than creating a tax on innovation. No one benefits, except the tax collector. In the I.V. overlord model: Is that tax re-invested like a University would do with their licensing income? Is that tax used to expand markets and create growth as it would for a practicing company? Does it go to an individual to incentivize further innovation? The answers: No. No. And, no.

Congress needs to act; fast. Any politician, including every candidate on every ballot in Novembers to come, believes at least one edge the U.S. has over anyplace else, is our capacity to innovate. Couple of problems there: we’ve put a cork in the Patent Office (over 1 million patent applications are backed up awaiting review); endless and costly litigation procedures without finality (blame both the Court of Appeals for the Federal Circuit and the Supreme Court) kill any market advantage obtained through patenting; and, I.V. and other Trolls are vacuuming away investment into their collective war chests. Innovation is being actively mugged, and all we’re doing is talking, and talking, and talking, and talking. Kinda like what we’ve done with our financial system. The speed and depth of debate with respect to Patent Reform is laughable given the consequences. The debate is factional and shallow and useless. We must return to first principles.

It is well past time to act. The Patent Office needs to be the single arbiter of patent validity and claim meaning. Courts should determine damages and injunctions only. Before any patent is litigated or licensed, it must withstand scrutiny that relates to its worth. It is time to reinvigorate the Patent System. The future of innovation in the U.S. rides on the outcome of these efforts.

EDITORS NOTE: John White, patent attorney and sooth sayer, wrote this article on September 17, 2008, and it was originally published on PatentFools.com.  The only edits are to the first sentence, which then referenced a Wall Street Journal story about Nathan Myrvold that appeared below the fold on the 17th of September 2008, and the number of patents owned by IV, which was changed from 20,000 to 30,000.