University Patents and Intellectual Ventures Investment

by Melba Kurman

University Patents and Intellectual Ventures InvestmentLast week Intellectual Ventures revealed its list of major investors. On it were several major U.S. research universities and research organizations.

  • Brown University
  • Cornell University
  • Grinnell College
  • Mayo Clinic
  • Northwestern University
  • Stanford University
  • University of Minnesota
  • University of Pennsylvania
  • University of Southern California
  • University of Texas

You may be asking yourself, so what’s the big deal about a university investing its endowment in Intellectual Ventures?

After all, according to conventional dictates of what constitutes as “good investment,” Intellectual Ventures is a real and legitimate company led by a famous and well-established executive team. In fact, over the past decade, it has raised $5 billion from investors and has grown to employ 650 employees and at last count, has accumulated a patent portfolio roughly the size of IBM’s – 30,000 active patents. Sure, the company is the target of controversy and criticism due to its business model, but that hasn’t stopped universities from investing their endowments before (remember the public controversies over university investments in Nike, and South African mines, Big Tobacco, Big Pharma, etc.?).

Setting aside the legitimate and important debate about university investment ethics, to me, the revelation that U.S. research universities are major investors in Intellectual Ventures brings up another interesting issue to ponder. U.S. research universities and Intellectual Ventures have something unexpected in common: both own large patent portfolios. Both license their patents to external organizations in exchange for fees, a practice that lawyers call being a “non-practicing entity,” or NPE. But wait, there’s more! Dozens of universities worldwide have licensed their patents to Intellectual Ventures. In exchange, universities receive an upfront payment and Intellectual Ventures pays for any remaining patent costs and in some cases, gets a share of any resulting revenues from product sales.

Now we know the names of the ten U.S. universities that are major investors in Intellectual Ventures. It would be interesting to also learn the names of the universities that have entrusted their patents to Intellectual Ventures. Unfortunately, perhaps because of the controversy surrounding Intellectual Ventures, most universities appear to be reluctant to reveal any patent licensing deals with the company. As a result, patent deals between universities and Intellectual Ventures have been driven underground, where they can’t be intelligently discussed or learned from.

Intellectual Ventures and the emerging IP marketplace

Who is Intellectual Ventures and why is the company controversial?

Intellectual Ventures was founded ten years ago by former Microsoft CTO, Nathan Myhrvold. In a nutshell, Intellectual Ventures buys or licenses patents from universities, individual investors and companies that have gone bankrupt. As an NPE, it does not develop the patents it owns into a commercial product. Instead, the company licenses its patent pool to external companies. It makes its money by charging fees to companies that want the right to use a patent without the fear of getting sued by Intellectual Ventures for patent infringement. Recently the company set up its own in-house research lab that employs about 50 employees and has applied for over 500 patents. However, Intellectual Ventures generates about 90 percent of its revenue from licensing its enormous patent portfolio to external companies, not from developing its in-house patents into commercial products.

While it could be described as a conventional patent broker, Intellectual Ventures does a few things differently. One, companies buy a license to get rights to Intellectual Venture’s entire patent portfolio (sort of like a membership fee), instead of licensing rights to a selected few patents. This way, subscribing companies reduce their risk of infringing one of Intellectual Venture’s tens of thousands of patents. Intellectual Venture markets this service as one of helping companies close their “invention gap,” or the high-risk gap between the invention rights a company owns vs. the IP assets it’s actually using. Unfortunately, the fact that Intellectual Ventures is charging companies money to guarantee they won’t get sued for by Intellectual Ventures sounds to many like a shake-down for “protection” money. Maybe not surprisingly, critics of the “invention gap” service describe Intellectual Ventures as the world’s biggest patent troll.

A second unique and controversial aspect of Intellectual Venture’s business strategy is that it offers its member companies IP protection against other companies. Once a company signs a license with Intellectual Ventures, that company is not only protected against the legal threat imposed by Intellectual Ventures, but is also protected in case one of its rivals infringes key patents that belong to Intellectual Ventures’ patent pool. In other words, if a company builds its products on patents licensed from Intellectual Ventures and a competitor infringes those patents, Intellectual Ventures will defend its patent rights. Having Intellectual Ventures’ legal team and deep pockets on one’s side can be a powerful negotiating tool for companies that get involved in a patent dispute.

Given the core role of potential and real litigation in Intellectual Ventures’ business strategy, it’s tempting to fall into quick and easy condemnation of Intellectual Venture’s approach, which has already been soundly and publicly condemned for its activities. And it gets worse. According to research firm Avancept, Intellectual Ventures has created over 1000 shell companies that critics believe are a PR cloak to disguise patent infringement lawsuits against technology companies. Last December, Intellectual Ventures confirmed the fears of technology-based business people and finally publicly kicked off its first direct patent lawsuits, suing several tech companies for alleged patent infringement.

Yet, in the spirit of stretching to understand someone’s unpopular actions, is there anything good that could result from what Intellectual Ventures is doing? Interestingly, Myhrvold sees himself as the invention “good guy,” an advocate of the value of the intangible hard labor of inventing. In an interview with the New York Times, Myhrvold believes his business model rubs people the wrong way since it places monetary value on what companies are used to getting for free; in Myhrvold’s mind, the big technology companies are free riders whose corporate culture is used to ”intentionally infringing patents or turning a blind eye to potential infringement.” He claims to be on the side of the inventor.

Intellectual Ventures and university patent portfolios

It’s difficult to figure out which universities in the United States have made licensing deals with Intellectual Ventures. To find the names of U.S. universities that publicly admit to doing deals with Intellectual Ventures, I dug through a lot of old news articles and press releases — kudos to these universities for admitting their relationship. However, the list below is way too short. Consider the fact that over the years, at least 80 universities worldwide have made patent licensing deals with Intellectual Ventures, yet finding out about them is like digging for a needle in a haystack.

According to Intellectual Venture’s web site, the company has collaborated “with over 3,000 inventors at more than 300 universities, research institutions, and companies in seven countries worldwide.” Why don’t more universities want to publicly admit to doing licensing deals with Intellectual Ventures? Do they fear public condemnation?

Here’s how the relationship between universities and Intellectual Ventures works, as described by an Intellectual Ventures staff member.

“The arrangement is for the university…to send us invention disclosures from time to time as well as allow us to directly work with professors we have identified to partner on brand new inventions…The arrangement is not exclusive and the university is free to pick and choose which inventions it gives to us and which it doesn’t. [Intellectual Ventures] pays a fee once we decide to actually accept the invention from the university and we pay all associated patenting fees. It is important to note that we are not purchasing these inventions, we are exclusively licensing them.”

We’re past due for a thoughtful and public discussion of whether university-owned patents should become part of Intellectual Venture’s patent arsenal. It took years of speculation and a lawsuit to find out that several U.S. universities are investing in Intellectual Ventures. What would it take to learn more about which universities have licensed their patents to Intellectual Ventures? University administrators for the most part, don’t trumpet their deals with Intellectual Ventures. The staff at Intellectual Ventures aren’t talking either. Intellectual Ventures never responded to a direct email request for a list of publicly available university licensees.

Conclusion

Like many people, I have my doubts about a business whose revenue is based on threatened or actual patent litigation, not to mention Intellectual Venture’s strange tactic of creating over a 1000 shell companies to cloak its corporate activity. However, I’m also an advocate for exploring alternative licensing models for university patents. Again, in the spirit of looking at both sides of the issue, consider the stated benefits that universities get when licensing their patents to Intellectual Ventures:

Intellectual Ventures has bigger and better funded marketing channels than does the university technology transfer unit
Intellectual Ventures can aggregate patents across several universities
The company can breathe new life into university patents that have not yet been licensed and have been sitting around for years without finding a company interested in developing them
University inventors get additional exposure to core industry technology needs
Are there any university technology patent managers or university inventors who’d like to share their experiences, both productive and not-so-productive, with Intellectual Ventures?

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Melba KurmanMelba Kurman writes and speaks about innovative tech transfer from university research labs to the commercial marketplace. Melba is the president of Triple Helix Innovation, a consulting firm dedicated to improving innovation partnerships between companies and universities.

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