Friday, April 21, 2006

tags: control source distribution scale unknown

Patent firm Intellectual Ventures linked with prominent inventors.

The company is filing patents, but also buying patents from defunct companies, independent inventors and others. It has amassed a portfolio of over 3,000 patents, according to some sources--an extremely large number for a company with only a handful of employees.

Langer indirectly indicated that the company is trying to develop the broad type of patents that spook established companies the most.

"They are more concept type of patents. It is a very blue sky kind of thing," Langer said of the patents that Intellectual Ventures is trying to develop.

While patent suits aren't the goal, Myhrvold acknowledges that lawsuits are a chronic factor of life when it comes to the IT industry. Historically, IT companies have taken a damn-the-torpedoes approach toward patents, brushing off patent holders and requests for royalties.

As a result, licensing deals that might cost a company a few million dollars can lead to multimillion dollar verdicts. EBay, for instance, could have licensed patents for its "Buy it Now" feature from MercExchange for a few million dollars years ago, but decided to risk the lawsuits, said Myhrvold. A court eventually awarded MercExchange $25 million.

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Myhrvold's firm adds another type of high quality sources to its patent accumulation system. By definition, a patent provides its owner with the right to exclude others from using the underlying technology. A large scale portfolio of high quality patents enables its owner(s) to create a number of strategic control points in different industries. Depending on the maturity of the industry (system), patents can be used in several ways:
1) Traditional licensing/litigation in mature, yet still growing, environments, where commoditization has already started, but has not reached its peak.
2) High quality protection against competition in early markets, which allows for leveraging of the "first mover" advantage. This approach could provide defense against large companies, that would try to neutralize "disruptors". See, e.g. Microsoft's tactics wrt Borland, Netscape, RealAudio, Google, and etc.
Reduces startup risks, increases VC value.
3) A valuable insight into emerging technology trends. A large scale portfolio, properly analysed, can yield understanding of the order arising from the inventive chaos. This approach would allow to pick and direct inventive talent into promising areas way before the industry becomes aware of major paradigm shifts. It's quite possible that Myrhvold's latest recruits are a part of this strategy.
4) An Innovation Rights Management system, where rights, i.e. patents, are exchanged/traded/executed separately from the underlying content (products). This approach would signal emergence of a real IPR market and associated with it business models. The major transition would be from registration/classification (USPT) to active management and use.

Very interesting. I will use this article as a class problem in my seminar at Berkeley.

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