Joff Wild

In a recent article published on Law.com, Zusha Elinson writes about the "scary scenario" of Intellectual Ventures selling patents to third parties who then go on to assert them against companies that refuse to take a licence. Elinson identifies one such deal which has ended up with famed patent plaintiffs lawyer Ray Niro representing a client that claims Eastman Kodak and CDW Corp have infringed a right relating to digital image frames. The suggestion is that should Niro be successful IV stands to gain a share of the resulting financial return.

Elinson says that selling patents to third parties that then go onto monetise them through litigation marks a "new phase" for IV. Dan McCurdy and Ron Laurie, who are both quoted in the piece, state that it was always going to happen. And if you look at the frequently asked questions section of the IV website, you will find a pretty clear indication that what Elinson describes fits neatly into the firm's business model. In response to the question "are you going to make money from litigation?", you will find this: "Our focus is on the business of invention. While litigation is possible in any business, it is not a goal of IV. Litigation takes a lot of time, costs a lot of money and most importantly, takes attention away from the core business."

It is important to remember that while IV claims never to have enforced a patent through the courts, it has also never ruled out doing so. As Laurie and McCurdy state, if a potential licensee refuses to play ball, in the end the stick will be the only route left. And IV would certainly not be the first IP owner to outsource the cost and risk of litigation to a third party.

For me, the interesting question is not whether IV has started to do something that it is perfectly entitled to do, it is the extent to which it intends to do it in the future. In other words, is a central plank of the ongoing IV strategy to take legal action against reluctant licensees either directly or via third parties? To get a better idea, I asked the firm's co-founder and vice-chairman Peter Detkin some questions:

• Is it standard IV policy to sell patents to third parties when potential licensees have refused to do business?

• Under what circumstances does IV decide to sell patents?

• Does IV consult with investors/licensees before selling patents?

• Are there any entities/people to whom IV would not consider selling patents?

• How many patents has IV sold?

• Why not just assert patents yourselves instead of selling them to others to do it instead?

• Why does IV use so many shell companies? The firm has frequently called for more transparency in the patent marketplace, but these shell companies are hardly transparent. 

In response, Detkin put together this email:

At bottom, Intellectual Ventures is in the business of invention. We currently have rights to approximately 30,000 inventions. As part of our ongoing review and evaluation of our various portfolios, we regularly identify assets that are not core to our current business plans but still have stand-alone value to the market. We must determine whether an asset fits within our licensing plans or if we should find another path to monetization (or we could just write the investment off altogether, but that is not the preferred path when we are, as you know, eager to provide a return to our investors well as ourselves!).

Divesting assets has always been in our game plan. Divestiture might be an outright sale or sometimes it might be a sublicense of rights. The decision as to which asset gets sublicensed or sold to whom is weighted against what makes the most economic sense based upon the particular asset(s). Our first sale was several years ago, and over the past six months or so, we have been more active on the selling front. I don’t have an exact number for you as to how many deals we will do this year but probably on the order of a dozen or so. All decisions regarding licensing and sale of our assets are made exclusively by us – our investors and licensees have no input into this decision whatsoever.

Selling assets is a logical business step for us to take if others are better positioned than we are to monetize certain assets on a quicker or more efficient timeline. Whether the buyers choose to litigate the assets or pursue licensing negotiations depends on a myriad of circumstances, and is solely within their discretion. Intellectual Ventures does not dictate nor control the actions of the buyer but, like other aggregators out there, we will work with buyers who are most likely to make a return (though some purchasers are looking to buy for strategic reasons). It all comes down to what makes most economic sense – both for us and for the purchaser.

I’ve seen coverage that says we’re ramping up for litigation – in fact, we are ramping up for more licensing programs and are continually working to close deals. As we have stated many times before, our business model is not litigation based – it’s based on providing access to portfolios of technologies where we have deep expertise and where we can engage in long-term customer relationships. A litigation-based model runs counter to that. This is not to say that we are foreswearing the possibility of litigation altogether, but it is certainly not the intended focus point of our business plan.

As to why we use other entities, it’s primarily for accounting and legal reasons. Holding the assets in discrete stand-alone companies keeps patent acquisitions together and keeps our accounting of costs and revenue related to an acquisition simpler, and helps segregate potential liabilities. It also makes it easier to sell the entire company holding the patents/applications are a unit without the expense of added recording fees for the USPTO and with foreign countries. 

From that, I get the message that while it would be wrong to talk about a formal "new phase" to the IV business plan, we are going to see more outsourced litigation should the firm deem it necessary. That seems fair enough to me. What I do find intriguing though is the idea of a business in which the likes of Microsoft, Google, Apple and Intel are reported to be investors doing deals with people such as Ray Niro - surely the king of the trolls. At various times each one of these companies has been outspoken in its criticisms of NPEs/trolls. Even if - as Detkin says - they have no say in the matter, they could now benefit financially from troll activities. It all goes to show that when it comes to IP monetisation there really is no black and white, only shades of grey.