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Summary:

Thermostat-maker Nest Labs is licensing patents from a notorious patent troll. The deal may help Nest in the short term, but could hurt the innovation economy overall.

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Nest Labs, a startup that makes energy efficient thermostats, will license patents from the portfolio of Intellectual Ventures in a move that may help stave off a lawsuit from thermostat giant Honeywell.

In a deal announced on Wednesday, Intellectual Ventures said it is giving Nest non-exclusive access to its patents, including those related to the “automatic registration of devices.” Nest’s general counsel explained the deal as follows:

“To date, we’ve filed almost 200 U.S. and international patent applications and we have hand-picked and acquired more in key areas, including the patents acquired from Intellectual Ventures.  Our patents allow us to defend our innovative products in the market.”

The statement did not explain if Nest is paying money or is instead giving Intellectual Ventures equity in exchange for the patent license. Update: It also did not say if the deal includes provisions that allow Nest or Intellectual Ventures to assert the patents (h/t to keninca in the comments).

The deal may improve Nest’s position in the ongoing litigation with Honeywell, and could lead to a truce, or some sort of licensing deal between the two companies. Nest CEO Tony Fadell will again be appearing at our RoadMap conference in November, where we might be able to ask him more about the deal.

In the bigger picture, the deal could be bad news for startups and the innovation economy because it confers resources and, possibly, more legitimacy, to Intellectual Ventures. The Seattle company, run by former Microsoft executive Nathan Myhrvold, does little actual inventing, but instead amasses old patents in order to file lawsuits and demand licensing fees from thousands of productive companies — a practice known as patent trolling. Intellectual Ventures is in the midst of raising another $3 billion to expand its trolling activities.

The Nest and Intellectual Ventures arrangement is the second deal between a startup and a patent troll to make the news this week. Earlier, Wired reported how a glasses startup had turned to the notorious troll lawyer Eric Spangenberg, who makes $25 million a year and likes to “go thug,” to protect itself from a questionable lawsuit.

The overall result of the deals between trolls and startups is that money that could flow to research or hiring instead gets channelled into dead weight costs of litigation and administration.

  1. How does this deal help protect Nest against lawsuits from Honeywell? Usually licensing patents from one firm doesn’t give you the right to use them as a weapon or legal countermeasure against another company suing you, unless that is part of IV’s agreement – to countersue any company suing one of their licensees.

    This news release is typical of what Microsoft did with its patent lawsuits – announce an agreement, so that other companies get frightened into signing licensing deals, even though announcements of the first deals never mentioned terms. MS did this with several smartphone vendors, and the media made all kinds of assumptions about how much the defendants ending up paying. This could be a similar tactic, to make other companies believe they will lose and might aw well sign a deal with IV.

    The US needs to follow New Zealand’s lead and eliminate software patents. I know, I’m dreaming.

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    1. You put your finger on it keninca.. The bigger issue here is too many bad patents — especially for software — that are choking the innovation eco-system.

      And you’re right that a license doesn’t mean a right to assert those patents. The terms of the deal weren’t disclosed though, meaning that it could involve IV suing Honeywell (probably through one of the hundreds of shell companies it hatches).

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  2. Based on the language of the quote from the General Counsel at Nest, it appears that the transaction with IV may be both an acquisition of patents and a general license (“…including the patents acquired from Intellectual Ventures.”

    One likely structure is that Nest has acquired a small number of patents with a license to a broader number that remain with IV. This would give Nest patents to assert against Honeywell at some point in the future.

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