Why tech vendors fund patent 'trolls'

Experts say it's about protection from lawsuits and access to a large pool of patents

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An aggregator's response

Like fellow PAEs, which include Round Rock and Acacia Research Group LLC, IV says it provides a service for individual and small inventors -- helping these innovators secure their intellectual property by getting access to patents they can use to protect their work.

Patent licensing is huge business. Acacia, a public company, is not secretive about its activities, and it returns a profit to its vendors. Firms such as Allied Security Trust are self-described patent defense firms that buy up and resell valuable collections of patents and give members including Oracle, IBM, Hewlett-Packard, Intel and Philips access to their broad portfolios.

IV's Myhrvold declined to comment for this story. But in a March 2010 Harvard Business Review article that Myhrvold wrote, he said, "My company, Intellectual Ventures, is misunderstood. We have been reviled as a patent troll, a renegade outfit that buys up patents and then uses them to hold up innocent companies.

"What we're really trying to do is to create a capital market that supports startups and the private equity market that revitalizes inefficient companies. Our goal is to make applied research a profitable activity that attracts vastly more private investment than it does today so that the number of inventions soars."

Further, some might not consider IV a 'pure-play' PAE; it has invented at least one product it's disclosed publicly: a laser-based bug zapper created with the Bill & Melinda Gates Foundation to help fight malaria.

Google: In, then out

Google, also, refused to comment about multiple sources and public documents showing that it invested money (PDF) in one of the companies related to the fund known as the Invention Investment Fund I.

A highly placed source close to Google confirmed that Google did originally invest in IV as a member, but only once. There has since been a bitter parting of ways, that source says. "As soon as they started suing people," Google "wanted out," the source says.

Google initially joined because it wanted to have access to a broad number of patents, but it later decided not to associate with a company that turned out to be mostly about lawsuits, he says. Two other sources close to or inside Google have corroborated this account.

In this TEDTalk, Drew Curtis, the founder of fark.com, tells the story of how he fought a lawsuit from a company that had a patent "...for the creation and distribution of news releases via email." Along the way he shares some statistics about the growing legal problem of frivolous patents.

The bottom line: The search giant made an investment of well into the tens of millions of dollars in 2008 in the IV entity known as IV IP I, the source said, and refused to go for a second round. Google and Adobe are the only technology companies among the current IV backers that didn't invest at least twice.

It's important to keep in mind, however, that none of these practices is illegal. It is endemic to the patent system in the U.S.

There are more than 2 million active patents in the U.S. alone, Ewing says, but only "a tiny fraction" of them are used commercially, either through licensing or through litigation, he explains.

"The aggregation model stands to increase the number of patents in play by one to two orders of magnitude," Ewing says. "I suspect the truth is that no one really knows what the net commercial impacts will be."

Based in San Francisco, Gina Smith is a New York Times best-selling author and a veteran tech and science journalist specializing in news, news analysis and investigative work. She's also the editorial director of the geek site aNewDomain.net. You can email her at Gina@aNewDomain.net.

Copyright © 2012 IDG Communications, Inc.

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