Nathan Myhrvold's Intellectual Ventures Using Over 1,000 Shell Companies To Hide Patent Shakedown

from the incredibly-lame dept

It’s no secret that we think Nathan Myhrvold’s Intellectual Ventures is a dangerous, innovation harming monstrosity. The company used a bait and switch scheme to get a bunch of big tech companies to fund it, not realizing that they were then going to be targets of his shakedown system. Basically, IV buys up (or in some cases, applies for) tons of patents, and then demands huge cash outlays from those same companies (often hundreds of millions of dollars) for a combined promise not to sue over those patents and (here’s the sneaky bit) a bit of a pyramid scheme, where those in early supposedly get a cut of later deals. Of course, to just talk to IV requires strict NDAs, so the details of these deals are kept under wraps and only leaked out anonymously. But the hundreds of millions of dollars going towards this sort of trolling behavior, rather than any actual innovation in the marketplace can be seen on various financial filings (you can’t hide hundreds of millions of dollars in payments that easily).

Now, for years, Myhrvold tried to avoid the term “patent troll,” by claiming that IV had never actually sued anyone. Two years ago, though, it seemed clear that the company was on the verge of breaking out the lawsuits. However, the company still hasn’t been directly linked to a lawsuit. Late last year, though, some eagle-eyed reporters noticed that IV patents were showing up in lawsuits, but those lawsuits were from different companies. Reading between the lines, it became clear that IV had decided to protect its brand name by getting other companies or creating those companies itself, giving the patent to those other companies that no one had ever heard of, and having them sue. This is a very common practice among patent hoarders. They set up shell companies for their lawsuits, that often make it difficult to track back who actually owns what patents. It’s all a shell game to extort more money.

The NY Times is now running yet another profile (they do this every two years or so) of Myhrvold and Intellectual Ventures that covers the usual bogus claims by Myhrvold about how he’s creating “invention capital,” with very little skepticism. However, it does reveal one interesting tidbit that we had missed. Last year, a research firm released a report highlighting that Intellectual Ventures has up to 1,110 shell companies, with which it can hide its activities. No wonder IV can pretend it doesn’t sue anyone. It can simply hide behind its shell companies.

It’s hard to find anything in Myhrvold’s activities that actually contribute to any innovation, but you can see billions of dollars being siphoned away from actual innovation — the kind that brings real products to market — and see it being fed into what appears to be a giant shakedown scheme that is trying to pull as much money out of the system as possible before Congress wakes up and realizes it needs to fix an incredibly broken patent system.

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Comments on “Nathan Myhrvold's Intellectual Ventures Using Over 1,000 Shell Companies To Hide Patent Shakedown”

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Ima Fish (profile) says:

Think about people and businesses that make tons of quick money without actually doing anything beneficial. E.g., Malware, spammers, Wall Streeters shuffling money around…

In such circumstances the activities the businesses are doing might not be illegal. But it’s a very strong clue to me that it probably should be illegal.

The fact that patent trolls can make ridiculous amounts of money without contributing anything of value to society is very strong evidence to me that the system is broken.

Anonymous Coward says:

This looks ripe for abuse. I say, in about 15 years time, it will be revealed to the “patent insurance purchasers” that the company that they paid not to sue them, has in return created thousands of shell companies to sue them with.

Of coures, it would be all legal. Intellectual Ventures isn’t sueing anyone, these “other” companies are. Im sure Mr. Myhrvold worded the contracts in such a way that he had this kind of leeway.

N. Sinuation says:

Re: Re:

“This looks ripe for abuse[…]”

Do you really think IV (or, in fact, any company) would sue any of it’s own clients through shell companies and get away with it? That would be a terminal case of “bad faith”, and a sure way to get taken down hard.

The point of this article is to insinuate that IV sues non-clients through these shell companies to “convince” them to become clients. Which is, of course, just that right now: an insinuation. Nowhere in this article or the links does it say if even one of these 1100 shell companies is actually suing somebody. Now *that* would have been interesting.

Steve R. (profile) says:

Got to Stop Those Evil Free Riders

There is companion piece in the New York Times: The Patent Litigation Dilemma: Free Riders. Steve Lohr who also wrote “Turning Patents Into ‘Invention Capital’” goes on to say that: “The dilemma for such firms is the “free rider” problem. Companies like Microsoft and Intel have paid Intellectual Ventures many millions of dollars for the insurance that the patents the firm holds will not be used against them in patent-infringement suits. But rival technology companies benefit as well, without paying license fees to Intellectual Ventures, unless there is a mechanism to sometimes sue the companies that hold out.”

Mr. Lohr has created a false bogeyman “Free Rider” so that he can avoid discussing how the patent system is being abused by the likes of Intellectual Ventures.

Unlike the main article, you can leave comments on: The Patent Litigation Dilemma: Free Riders.

Anonymous Coward says:

Re: Got to Stop Those Evil Free Riders

I just don’t get it, how does investing in patents help promote the progress? All it does is divert investment away from progress and create a non innovative corporation that restricts those who do innovate and takes money away from those who do innovate which takes money away from innovation. It’s a scam orchestrated by our broken government and the mainstream media.

Dave (profile) says:

And I thought he was doing something useful

For a long time I thought the attacks on IV were missing the point – I thought what IV was really doing was a GOOD thing – a partial “opt-out” from the patent system: Join my club (for a small fee) and you cross-license all your patents with all the other members, and therefore don’t have to worry about MANY patent issues.

Obviously I was wrong; they’re just blood-sucking patent trolls.

Or, I suppose, they could be deliberately trying to destroy the patent system by illustrating its unfairness, deception, and innovation-suppressing effects.

Or, I could be an incurable optimist.

odysseus says:

Myhrvold himself is a sham

This guy is almost the dictionary definition of a dilettante — photos of him always show him dabbling in what he considers to be haute cuisine (yet his award, according to the NYTimes article, is for barbecue!), which for him mainly involves using high-tech gadgets. Did he do anything durably meaningful as Microsoft’s chief scientist in the 90s?

Shawn Dehkhodaei says:

Re: Myhrvold himself is a sham

Yes he is; he’s a total sham. He was brought in from IBM research labs, to start up Microsoft Research, which up until now, has had ZERO innovation. Even while Myhrvold was the head of Microsoft Research, nothing came out of it.

Microsoft has been milking Win32 and Visual Basic, since it started in the early 80’s, and pretty much all their successes can be attributed back to Visual Basic and sleazy, dishonest, business tactics (including black mail, abuse, FUD, etc.).

Nathan Myhvold is no different; he fits in the Microsoft culture perfectly, which is why he partnered up with ex-Microsoft people and sticks around northern Washington. He’s a real loser.

Richardhg (profile) says:

So we are going to get better?

Remember the old phrase, “What doesn’t kill you can only make you stronger”?

Well, we lived through George W. Bush, and technical innovation has never been greater, growth has never been higher, applications of new technology have never been as enormous in huge new projects like high speed rail, nuclear energy technology, silicon ingot manufacture, super-magnets, and superconductivity, just to mention a few ….

Oh …… that’s all in China.

Hey, look on the bright side! We lived through George W. Bush!

Vic Kley says:

IV Should be Judged on action not potential - a 1000 LLC does not a bad actor make

IV has tried to buy inventions from me. By the way these are all inventions in which real products are involved. Unlike the silly limited analysis frequently found on this blog and from the mouths of behemoths like Microsoft, Apple, Google and Oracle where an invention is either the source of great new companies or the evil scheme of imaginary devils, many of my inventions are much, much broader then its possible for my limited resources to exploit.

So Mike, if you make the product you invent but you have opened new doors to much larger markets your entity is clearly not an NPE. On the other hand not being much of a marketer or lacking the capital you are also not able to grow the markets to encompass all of the potential of your invention, what then? You are really only in position to one ignore the big markets, or two sell via license or outright sale of the IP to those who can or at least feel they can make the big market (and its profits) happen.

One way to help the economy and the inventor/hero of our little story is to provide means to fund new companies, efficiently make appropriate licenses, create a market to efficiently sell the IP outright. The first of the latter list is the VC, the second does not really exist yet but a company IPX is trying, and the third are groups like IV, RPX and auction houses like ICAP Ocean Tomo where IP is bought and sold every day.

IV in the sense that they have helped to establish an IP market is helping the latter trends and they and Nathan deserve Kudos. The many LLC’s they create (they created one for the stuff they wanted to buy from me) are ways to protect themselves from and limit certain liabilities (which of course is exactly why we have companies and corporations). This is not to say that everything IV does is sweetness and light or not open to abuse.

I know of no abuse by IV, do you?

I am impressed that Nathan has given work and presumably substantial money to a real physicist (by that I mean exactly what one means when one talks about writers or inventors for that matter- have you written something others buy and use or invented something others buy and use?) of deservedly high reputation Dr. Pendry.

There are some things about IV that raise questions but then you don’t pay me to talk about those. That’s the job of Lohr, and the NYT-they can quote me.

whocares says:

just because patent law is not well understood does not make what iv is doing “ok”.
few of madoff’s clients understood what he was doing. as long as they got paid everything seemed “ok”.
suffice it to say, iv’s business model is driven by fear of litigation. it’s not necessarily illegal, but it relies on threats of litigation while producing nothing other than income for iv and its clients.
this is a mafia-style business model operating in a relatively obscure area: patents.
all the talk of innovation is meaningless when one realises iv is not producing a single product, it is only forcing companies to “pay up” through the use of fear. they are at best a middleman. their “bait” to inventors is money; money they will force others, who *are* producing products, to pay out of fear.

iv is not in any way needed for innovation to occur. please wake up.

John says:

Really a shakedown??

I’ve been asked within my company to get smarter about IP so I am researching this issue.

Some initial thoughts based on what I read here:

Is this really a ?shakedown system? that doesn?t move forward any innovation, or are larger companies really getting a ?free ride? on the backs of many innovators?? I think this is a fundamental question and there probably is not a black and white answer. In any market, there are going to be inefficiencies. If it could be proven that an efficient capital market for invention was beneficial to the competitiveness of a country, and benefited society in general, then it could move forward.

It is interesting that many large companies play the idea off as a ?shakedown system?, but that there are also some large companies (e.g. Pharma) that are against these companies and support a free patent system . A company or industry moving toward ?monopolistic? behavior will want to ?control? the movements of profits.

Is it reasonable to assume that the larger companies that control the vast majority of product markets, inside their R&D functions, are efficiently creating the best and most innovative ideas? Does competition in the market place drive the best innovation? An efficient market theory economist would probably say yes.

Yet, why do so many large companies (my former employer Motorola is a great example) end up being surpassed in market innovation by more nimble rivals. One would think that the profits of a market leader would be poured back into innovation so that the company could extend its profitable lead well into the future.

The cultures of some companies may in fact strive toward this, but the cultures of some companies (again, Motorola) focus instead on short-term profit maximization at the expense of innovation, or get caught in the trap of falling in love with their short-term/mid-term products and strategies, and do not have the courage to kill them (especially if they are profitable) by innovating better products/approaches. If this weren?t the case, why do smaller nimbler companies get swallowed up by larger companies all the time? If what the smaller companies were creating were not valuable to the big companies, this wouldn?t happen, right?

Would there really be sufficient innovation if the larger companies, like mine, were the ones doing, and profiting from, all the innovation?

My gut tells me no, but I don’t know if the IV approach is the best way to support the optimal production of innovative IP.

David Martin says:

Intellectual Ventures Uses Prior Art from Chicago in the 20?s

Intellectual Ventures’ Nathan Myhrvold told Business Week in July 2006 that he didn?t think suing people was a good idea. Apparently, his investors ? including universities receiving government funding, private equity funds, and corporations ? decided that his returns were not coming fast enough. Or maybe, he was just marketing one story on his way to his real business plan. Back in 2006, his position was summarized in the following manner.
“Myhrvold adamantly rejects the idea that suing people will become a mainstay of his business operation. “Litigation is a huge failure,” he says. It’s “a disastrous way of monetizing patents.”
Times have changed. However, M?CAM?s commitment to patent quality is as clear today as it was when he and his investors first started Intellectual Ventures. And, given Intellectual Ventures? recent cases, we thought the public may want to know a bit more about what?s ?under the hood?.
Today M?CAM, Inc. released its Patently Obvious? report today on the patent infringement lawsuits filed by Intellectual Ventures in December, 2010.
The M?CAM Patently Obvious? report on Intellectual Ventures’ infringement lawsuits can be found HERE.

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