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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Filed Under: nathan myhrvold, patents, shell companies
Companies: intellectual ventures

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  1. identicon
    John, 26 Jan 2011 @ 6:35am

    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.

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