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Was Google really as naive as it claims about its IV investment?

A Reuter’s report published on Friday claims that Intellectual Ventures has put its patent purchasing programme on hold as it seeks to close a new fund. “The company is currently attempting to raise $3 billion more, according to an investor presentation reviewed by Reuters. Its last major investment fund closed in 2008, and it can no longer use that capital to buy new patents, say three sources with direct knowledge of that fund's terms,” the piece states. This is the fund that we reported on back at the end of August, when we stated that IV may find it harder than it had previously to raise money on Wall Street, as potential investors worry about returns and the fund’s timeframe. The Reuters piece discusses these issues and throws in potential uncertainty about patent litigation reform in the US as another reason why some may stay away this time (IV does have an issue with transparency and many believe that recent legislative proposals on this front are designed with the firm in mind).

The article also looks at the involvement of operating companies with IV and carries a quote from a Microsoft representative that it has yet to decide whether to get involved with the new fund and another one from a Google representative who states: “We joined Intellectual Ventures' first fund as a way to defend ourselves against unjustified patent claims … Once we came to understand IV's operating model, we didn't join its later funds." That’s a fascinating assertion, is it not? What Google is stating in essence is that either it did not know what it was getting into when it first invested in IV, or that IV pulled the wool over its eyes.

Having spoken to a few other operating company investors in IV, I’d say that the latter explanation is highly unlikely. As far as I can tell, IV never made a secret of the fact that for operating companies it was essentially offering a defensive scheme. They had a choice of two types of investment: the first, at higher price, equated to blanket coverage and gave the investor a licence to every patent that IV acquired; the second was lower price, but more selective – companies were able to opt in and out of defined technological areas. If you opted out of one, you were in the same position as anyone else should you be thought to be infringing – you’d be approached, you’d be asked to pay a licensing fee and if you refused you’d run the risk of legal action. The alternative was that you would be getting a free ride, something that would, of course, disincentivise anyone from taking up the full package and would cause considerable annoyance to those who had.

What’s more, as far as I can tell it was no great secret that IV was also looking to bring in non-patent owning investors. It would not exactly have been tricky to work out the implications of that, even if these were not explicitly spelled out. To have any chance of generating the returns such investors were and are looking for, IV has to monetise its portfolio – and that inevitably means approaching companies to inform them of potential infringements and, if it comes to it, taking legal action to force them into a licence. Is it really the case that Google did not understand this? If it is, then what does it say about the company’s general IP awareness at the time it made its investment? Perhaps an alternative scenario is that, actually, Google probably knew exactly what it was getting into, but things changed at the company, it became more actively anti-patent and so, retrospectively, it became more convenient to imply it had been naïve about or had been duped by an evil “troll”. After all, the first IV fund closed a good number of years ago, but it is only relatively recently that Google has spoken up.


Joff Wild
IAM Magazine
06 October 2013

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IP management, Licensing, IP litigation, Patents, IP business, IP finance

Comments

RE: Was Google really as naive as it claims about its IV investment?

I believe Google's statement is true. In the early days of IV, IV did make it clear that litigation is not on the table. It all changed later.

yy pmsz, na on 08 Oct 2013 @ 16:00

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