The Empire Strikes Back, Intellectual Ventures Style

By Gene Quinn
September 2, 2009

Yesterday the 271 Patent Blog published an article titled Now it Begins? Litigation Rumors Surface Over Intellectual Ventures, which discusses how we may be starting to see the beginning of what might become an epic saga between good and evil.  It seems that Intellectual Ventures, the patent absorbing company founded by former Microsoft executive Nathan Myhrvold, is starting to head where we all knew they eventually would, which is in the direction of turning to patent litigation against those who are unwilling to cave into their licensing demands.  Peter Zura, the purveyor of the 271 Patent Blog details the rumors associated with how IV handles its patent licensing efforts.  It seems that Intellectual Ventures sets a deadline to have a negotiated resolution.  If the deadline passes then they sell the patent to the party who they feel can best monetize the patent, with a pay-back to IV in the end.  As Zura explains: “IV has allegedly started to ‘outsource’ their patent litigation.” And can you guess who is associated with a current patent litigation where the patent can be traced back to IV ownership? None other than notorious patent troll litigator Ray Niro. You can just hear the Darth Vader music playing in the background, can’t you?

Just over a year ago John White (of PLI Patent Bar Review fame) wrote an article published on Patentfools.com complaining about how no one seemed to really care about the massive build-up of patents by Intellectual Ventures.  There were some who were a bit concerned, but the comforting assurances of IV and Nathan Myhrvold were that a defensive only patent portfolio was being established.  Here is what John White had to say just over 50 weeks ago:

The below the fold article September 17 in the Wall Street Journal about Nathan Myhrvold, of Intellectual Ventures, 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 move, extermination of innovation.

[Google_468_60]

The 20,000 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, last year, 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.

John’s likening of Intellectual Ventures to the aliens of the movie Independence Day is certainly starting to seem appropriate.  Myself, I would liken Intellectual Ventures to the Emperor in the Star Wars movies.  If you have seen all six of the Star Wars movies you know that in the most recent three films, which fill in the time before the original Star Wars movie, it turns out to be the Chancellor who is the Emperor, who has been plotting against the Federation all those years.  He was building an army right under the noses of the Jedi and right under the noses of the Senate.  Few really saw what was going on until it was too late.  I suppose that would make John like the Samuel L. Jackson character who finally figured out that the Chancellor was the Emperor.

In the end it didn’t work out so well for Sam’s character.  John is still doing well, at least as far as I know, but no one really seemed to listen to what he was saying then.  I also know that no one was listening to anything I was saying either as I have been writing that patent trolls obviously are not a real problem because if they were then Mega Companies would fight back in a coordinated effort using Reexamination as part of a tool to take the fight to the enemy rather than constantly being a target that reacts, complains and pays.   I just do not see the mileage in being a deer during hunting season.  The truth is that prey gets shot, and if you don’t want to get shot, and you are looked at as prey, you need to do something to fight back.  If you walk around with a bulls-eye on your chest then don’t be surprised when you do get shot, particularly if you are walking in the woods and wearing a deer costume with antlers and all, which is exactly what tech America has been doing.  Now it might be too late because if IV is in league with Niro everyone had better hope and pray for the modern day Darth Vader turned good who comes and saves the day, but the chances of that seem slim.

Who knows where this will lead, right?  I mean one would think that eventually Congress might actually get involved and rather than just talking about patent reform and then abandoning ship and walking away without anything to show for it.  But as I am typing that I am already chuckling.  Congress get involved and do something worthwhile?  That is a good one!  But something is going to have to get done at some point because given Congressional abdication of its responsibilities with respect to patent law and tech America’s abdication of common sense with respect to dealing with the patent troll problem we have one fine mess.  A lot of companies who need to be focusing on creating new technologies for the future, hiring workers and participating in whatever economic recovery we can muster will be tithing to Myhrvold and Intellectual Ventures.  That is not change you can believe in, but it is a believable and predictable change in course for IV.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 17 Comments comments.

  1. Peter Kramer September 3, 2009 8:20 am

    “It should be stopped, either by industry groups banding together to file reexaminations, or by Congress, or both.”

    Why should Congress get involved where there is a market fix: Reexamination.

    Congress cannot reexamine patents. A fix on the Hill would fix one problem and wreak considerable if not equal collateral damage.

  2. Peter Kramer September 3, 2009 8:29 am

    So the PTO only spends 14 hours examining each issued patent. This does not relieve patent practitioners from the responsibility of carrying out sufficient due diligence on behalf of their clients. The practitioner’s due diligence efforts should not merely be directed toward obtaining a patent grant. A patent should be drafted and prosecuted with the big picture in mind. There are no submarines in the patent literature: every patent is exposed to the sunlight of publication.

  3. EG September 3, 2009 9:23 am

    Gene,

    Very interesting. I’ve met a member of IV from their Bellevue, WA office.

    All I can say is that what IV is doing is “playing with fire.” This looks like a variation of a “patent pool” with all the “shell IP companies” that file suit, and brings up thoughts of the now ancient Hartford-Empire gob-feeding glass cartel. Accumulating patents isn’t the issue; it’s tthe large number of patents accumualted that makes this look like the “bad form” of a patent pool

    Admittedly, IV has the appearances of a “single enterprise” but with all these “shell IP companies”, this might eventually get DOJ’s or FTC’s attention. I would also be worried if I were a licensee of IV’s portfolio, especially if there were other licensees that were horizontal competitors. Just thinking out loud.

  4. Dale B. Halling September 3, 2009 10:44 am

    Intellectual Ventures and other so-called patent trolls are really the beginning of a secondary market in patents. Most of these companies got their start in the failed companies of the dot.com bust. These patent recycling companies paid the investors of these failed companies something for their R&D in the form of buying their patents. This reduced the cost and the risk associated with R&D. The VC’s I knew were going to let these patents expire, resulting in zero return to the investors. Patent investing companies like Intellectual Ventures should not be vilified, but appreciated for the valuable secondary market they are creating. Like all new markets, the pioneers took enormous risks but also paid very little for the assets they acquired. Their success will encourage other entrepreneurs driving up the costs of buying patents (excess R&D). This will reduce the cost and risk associated with R&D, which will result in more investment in high technology start-up companies.

    Vilifying Intellectual Ventures is like vilifying investors in the physical assets of failed enterprises. These investors recycle assets and make them part of the productive economy again. While it is sad to see a business fail, failure is part of the innovation process. Putting the assets of a failed enterprise back to work as soon as possible would be considered a humanitarian effort if performed by a non-profit. However it is really just as valuable or more valuable to the economy when do by a for-profit enterprise.

  5. Alan McDonald September 3, 2009 10:46 am

    Gene,

    Someone besides me actually believes trolls exist and are not just individual inventors seeking just compensation?

    I’m amazed!

    Alan

  6. Gene Quinn September 3, 2009 11:54 am

    Peter-

    Lets face it, Reexamination is not as good as it could be. If Congress were to do one small thing, namely choose to make all prior art available for consideration during a Reexamination proceeding that would significantly help. Reexamination is a good tool, but some of the best information, namely on sale bar violations, knowledge and public use are not available to be considered by the Patent Office. That is the height of stupidity. All of those things would be considered by an examiner during the original examination if the examiner knew about it, so why not during Reexam?

    I agree with you that we have to watch out for Congressional involvement because when they do get involved they talk and do nothing, or when they actually do something is it almost universally bad. That is why we need to focus on minor tweaks that everyone can agree to and get away from special interest patent legislation where what one special interest wants would kill the rest of innovators. Like we have any hope of that though! Collateral damage certainly is the problem!

    -Gene

  7. Gene Quinn September 3, 2009 11:55 am

    Peter-

    Patent practitioners have no responsibility of due diligence, and in fact in many areas affirmatively do not engage in any due diligence because doing so would make it difficult or impossible to obtain a patent. I know this is a head in the sand mentality, but that is what the law allows, if not encourages. Another minor tweak that could and should be addressed by Congress.

    -Gene

  8. Gene Quinn September 3, 2009 11:58 am

    Alan-

    Of course trolls exist. The problem is that tech America wants to define them as Universities and independent inventors, which is ridiculous. I personally see little trouble with most trolls though and get sick and tired of tech America complaining they are being held up. NO. THEY ARE INFRINGERS! Having said that, just like there is something terribly wrong about a company that uses its monopoly power to dominate a market and injure consumers, there is something wrong when that same thing happens at the direction of a holding company. But the intellectual dishonesty by tech America claiming that everyone that has the audacity to sue them for infringement is a troll must stop.

    -Gene

  9. Yikes September 3, 2009 12:14 pm

    Gene,

    I’ll provide a counterargument, if for no reason other than to spark some debate.

    I’m not sure IV deserves all the vitriolic scrutiny that it has received and certainly will receive in the future. IV has been operating more or less in public for almost ten years, and has been the subject of intense scrutiny for five years. Yes, IV has used shell companies, but the tech industry has been perfectly aware of IV and its operations–this information is publicly available. The tech sector has had almost ten years to formulate and execute an active response, and they have utterly and completely failed.

    IV purchased many of their patent portfolios on the open market through public auctions. These patent portfolios were equally available for purchase by the companies which are now targets–they simply declined to purchase them. Other IV patent portfolios were obtained because IV let it be known that were willing to buy patent portfolios that companies wanted to offload. IV offered a way to monetize patents that were collecting dust in a company’s portfolio. Again, the tech sector failed to provide an alternative purchaser.

    Further, there are software and services which allow companies, individually or in collectives, to monitor potentially threatening patents and patent publications. Companies can challenge these patents by reexamination, or offer to license or purchase, patents they considered to be problematic. Again, by and large, they have not done so. The Kodak saga appears to be a case in point. When a patent troll is busily suing your competitors you might want to think about taking some proactive risk management steps.

    In context, it’s hard to see the IV phenomenon as anything other than an epic failure in legal risk management. As in any other branch of law, companies pay a price when they fail to manage legal risk appropriately. (In fact, I think the real genius of IV is that Myhrvold and Detkin understood intuitively from their respective experiences at MS and Intel that broader tech sector would fail to mount a proactive response.)

    I’m not sure that Congressional intervention is warranted, or even appropriate, in this context. Nor am I confident that Congress could craft a solution that would catch IV without destroying the revenue stream of universities and other “legitimate” research institutions.

    As a final note, IV is no different in substance than the outbound licensing departments of most large tech companies. If IBM can rake in $1Billion/year from licensing, why shouldn’t IV have a shot at the prize?

    –Name withheld for obvious reasons

  10. Gene Quinn September 3, 2009 12:21 pm

    Yikes-

    I agree with you on many levels. I think the trouble IV is going to have is that they professed repeatedly that they were only building a defensive portfolio, and that obviously is not the case. Whenever you start to do business on the litigation end with Ray Niro there is no way you can claim defensive portfolio. Everyone knew it was only a matter of time before IV turned to litigation.

    As far as Congressional action, I would like to see some minor tweaks to Reexamination. I would also like to see some substantive changes to pleading rules in patent cases. The way I personally distinguish a patent troll case from a legitimate case is by the complaint. When you look at a number of the clear trolls you see very weak complaints, that are very short and do nothing more than say “you are infringing Patent No. X,XXX,XXX.” No notice, no theory, no substance, just pure litigation by ambush.

    I have been on record many times saying that focusing on “patent trolls” is wrong. We should focus on “patent tortfeasors,” namely infringers. Having said that, I do think we need to have an open and frank discussion about defining the nuisance type extortion that the law should recognize as such and stomp that out.

    I also think we need an open and frank discussion about whether we should really presume that a patent that an examiner spent 14 hours on from start to finish really deserves the presumption of validity. There is a lot that could be done here to tie the presumption to the quality of information provided by the applicant, and that would give examiners more information, lead to better examinations and better patents that issue in a quicker time. Seems like a no-brainer to me. Would love to hear your thoughts on that though.

    -Gene

  11. Mike D. September 3, 2009 12:53 pm

    Nathan Myhrvold is one of my intellectual heroes. While his vast arsenal of patents – and what he intends to do with them – may be cause for concern, I don’t believe he has filed any infringement lawsuits to date. Your alarm bells might be premature.
    More alarming, however, is your gross misunderstanding of the most basic elements of the Star Wars cannon. You write: “I suppose that would make John like the Samuel L. Jackson character who finally figured out that the Chancellor was the Emperor.”
    Any casual fan of the series knows that it was Anakin who informs Mace Windu that the chancellor is the Sith lord, not the emperor. Windu, nee Jackson, doesn’t “finally figure out” anything until he’s told. Sheesh.

  12. Gene Quinn September 3, 2009 1:01 pm

    Come on now Mike. Anakin was in denial because the Chancellor was promising to change the future for him, and the Sith Lord is obviously who becomes the emperor. You need to keep up!

    As far as whether it was Anakin who figured it out and told Mace… I wasn’t about to compare John White to Anakin (aka Darth Vader), and it was Mace who took the knowledge proffered and knew what it all meant. Additionally, Sam Jackson is a pretty cool guy, and I know us patent attorneys are charismatically challenged, but John is about as cool as you can get and still have a Reg. No.

  13. Yikes September 3, 2009 1:19 pm

    Gene,

    Yes, everyone with some gray matter between their ears knew that IV would one day have to litigate some cases as part of their business. It’s hard to be sympathetic to someone who took IV’s proclamations about building a defensive portfolio too seriously.

    Yes, Reexamination could probably be improved. But Reexamination is already a pretty effective tool. In my experience it is underutilized largely because too many in-house counsel would rather wait passively to see if they can slide by undetected. Poking one’s head in the sand is rarely a good legal strategy.

    As to the presumption of validity, I think a cursory review of the obviousness case law after KSR makes it clear that the presumption of validity is nothing more than a procedural/evidentiary hurdle, and not a particularly big one anymore. The party challenging a patent still bears the burden of production and the burden of proof to provide evidence sufficient to demonstrate that the patent is anticipated or obvious, and I don’t think this should change. I think Dennis Crouch was keeping statistics on Federal Circuit obviousness holdings after KSR. The last time I checked the ratio was something like 8 patents invalidated for every 1 which was upheld. I haven’t been following District Court statistics, but the law will eventually trickle down to the District Courts. Dispositions on Summary Judgment will skyrocket.

    If Congress is going to intervene it should intervene to reverse KSR and reestablish an objective test for obviousness which precludes the use of hindsight in obviousness determinations. As it stands now, KSR will effectively gut the patent system in a very short period of years. The last time I checked BPAI statistics the Board was affirming obviousness rejections at a rate of approximately 90%. For all practical purposes applicants are now entirely at the whim of a poorly trained examining corps, whose objections will be affirmed by the Board provided they are not completely arbitrary. The allowance rate could easily drop below 20% unless the PTO intentionally raises the allowance rate out of sheer bureaucratic self-preservation.

  14. Alan McDonald September 4, 2009 8:59 am

    Gene,

    Not only do you believe that trolls exist, now you’re questioning the presumption of validity.

    I’m finally getting somewhere!

    Alan

  15. Noise above Law September 4, 2009 10:40 am

    Alan,

    Gene has in the past questioned the presumption of validity.

    You are not getting somewhere.

    Stop throwing the baby out with the bath water.

  16. Gene Quinn September 4, 2009 10:48 am

    Alan-

    I wouldn’t say you are getting somewhere, I have been writing about that for several years. The presumption of validity should be tied to what is disclosed by the applicant. If you want to disclose nothing then you get no presumption of validity. If you disclose 10 patents then your patent is presumed valid with respect to those. It is silly to presume validity based on cursory review of an application and with respect to patent and references not even considered.

    -Gene

  17. Sam September 5, 2009 6:20 pm

    Patent trolls exist specifically because the patent system is filled with red tape. By the time an inventor/entrepreneur gets their invention patented they have already spent $100,000 or more because of the inefficient examiners that the USPTO currently has hired. It is a total mess. Examiners there just reject every response you make to their office actions without taking effort to understand the underlying technology.

    So I don’t blame an inventor to wanting to sell the patent to a patent troll immediately after it is issued.