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Summary:

As the tide turns against patent trolls in the media and Washington, Intellectual Ventures is pushing back – in part by seeking another $3 billion to expand its controversial business model.

Troll
photo: DM7

Intellectual Ventures, the giant patent-holding firm, is seeking to re-arm with a new $3 billion fund that could extend a wave of lawsuit misery that has swamped the tech, retail and financial industries.

According to Bloomberg, Intellectual Ventures is in the process of raising money to expand its controversial practice of acquiring old patents in order to extract money through litigation and licensing demands. The company, which does little actual inventing on its own, is also spending millions to grow its lobbying footprint in Washington at a time of increased public outrage over so-called patent-trolling.

Intellectual Ventures did not respond to Bloomberg’s request for comment but, in the past, its founder Nathan Myhrvold has justified the firm’s activities by claiming that it provides capital for innovation. In practice, the company’s main activities have consisted of arming hundreds of shell companies with old patents so that they can threaten businesses that actually produce real goods and services.

So far, Intellectual Ventures’ business model has proved effective because shell firms are immune to counter-suits since they have no assets, and because patent litigation is so expensive that victims simply capitulate and buy a license they don’t want or need. The business model, however, has led to the trolls (more politely known as “patent assertion entities”) becoming more aggressive as investors spur them to extract returns.

Is there a justification for patent trolling?

The role of patents in spurring innovation has come under question by scholars such as Stanford’s Mark Lemley, whose paper “The Myth of the Solo Inventor” undercuts many justifications in favor of strong patent protection. At the same time, famous judge Richard Posner has labeled the current patent system “dysfunctional,” while his University of Chicago colleague, Nobel-prize winning economist Gary Becker, suggests patent terms should be cut in half.

The planned new Intellectual Ventures fund also comes at a time when Congress and the FTC are proposing measures to curb patent-trolling abuses, and states like Minnesota and Vermont have passed bills to drive the trolls out of their states. The general public, too, has come to question patent-trolling as a result of documentaries like NPR’s “When Patents Attack” and a New York Times’ feature that profiled a patent lawyer who earns $25 million a year and boasts about how he likes to “go thug” on defendants.

While the America Invents Act of 2011 was supposed to fix the patent system, it failed to do so, in large part because it was watered down by the pharmaceutical industry, a business that many, including Becker, believe does need strong patent protection.

In the meantime, companies like Google are creating patent shields to create an open source environment where developers can experiment without being attacked by trolls.

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  1. I am an individual inventor that has US patents. I sent licensing proposal to potential infringer like IBM, Intel and other US big companies. Their responses were no interest or requested more and more evidences, although they are IP professional to evaluate easily. Then an individual inventor like me need to rely on IP business companies who accept with no money.
    Those companies are usually so-called patent trolls. I think we need some system for such company who get a licensing proposal letter to answer “yes” or “no” for infringement.

  2. One small correction, the “go thug” reference to Erich Spangenberg leaves out the fact that he actually doesn’t practice patent law. Although once an attorney, they have a whole company to manage those affairs.

    Additionally Mark Lemley isn’t exactly 100% accurate in his analysis of patent “myths” and comes into his analysis with a conclusion in mind. For an alternative perspective check out Greg Aharonian’s PATNEWS newsletters.

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