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Myhrvold’s Intellectual Ventures Sues Nine Companies – Who’s Next?

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Giant patent-holder Intellectual Ventures has filed its first set of lawsuits today. While the complaints are against computer security companies and memory manufacturers, it’s a safe bet that suits against internet enterprises are on the way. IV, which was founded by former Microsoft (NSDQ: MSFT) CTO Nathan Myhrvold, has said it holds more than 30,000 patents, and a large number of those are related to internet technology.

For an example of what may be to come, look no further than the IV patents being litigated by a separate patent-holding company, Webvention. That company has sent out demand letters asking for payments of at least $80,000 for patent claims that seem to encompass widely used web publishing techniques.

Now that IV is suing in its own name a few questions loom.

»  Why the change in tactic?

Not entirely clear. Litigation has always been a tool that’s available to IV, as was pointed out by the company’s in-house litigation counsel, Melissa Finocchio, in a brief interview with paidContent.

“These are companies we know are using our inventions, with whom we’d love to get a license, but we just can’t get to a fair deal,” said Finocchio.

The likely reason is that IV believes it can make more money by litigating directly, and its original investors are likely losing their patience after a 10-year wait. And it has become clear from lawsuits like the Webvention case that defendants aren’t going to just sit around and fight against shell companies that may or may not have profit-sharing arrangements with IV-they’re going to pull IV itself into the litigation, whether it wants to be there or not. So far, IV has earned nearly $2 billion from patent licensing, according to the complaints.

Another good reason to sue now-that isn’t specific to IV-is that in another year or so, it might get a lot easier to kick patents out of court. The Supreme Court has agreed to hear an appeal made by Microsoft that would lower the burden of proof needed to invalidate patents. If Microsoft wins-and that’s still a big if-it won’t shut down the patent-enforcement business, but patents will be more easily busted, and some patent-holders will probably have to settle for smaller settlements.

»  What will we learn about Intellectual Ventures?

Now that it’s litigating in open court, IV could be exposed in a way it hasn’t before. Part of the reason the classic “patent troll” business model works so well is that it involves a tiny company with a few patents suing a swath of big corporations. That puts the discovery burden overwhelmingly on the defendant. While the plaintiff’s “office” might just be a few banker boxes of documents, a defendant company will have to produce sensitive data like source code and product specs, not to mention months or years’ worth of email communications between key employees.

But IV is a big company with more than 700 employees. A determined defendant could learn a lot about the company’s negotiations, tactics, and inner workings. The majority of that won’t go on the public record, but if any lawsuits proceed even to the stage of summary judgment motions, some of it will. That information will be closely scrutinized by other companies that have been threatened with IV patents, not to mention tech journalists.

»  How might IV’s actions affect the patent debate?

The sheer scale of Intellectual Ventures could re-start the debate over “patent trolls” – the derogatory term sometimes used to describe pure patent-holding businesses. When IV litigates, the question needs to be asked again: is making royalty payments to a patent-holding company for patents it purchased, or created, good for the economy and good for innovation?

That question would be even more profound if IV files suits based on patents it created in-house, because it would raise similar questions about IV’s “patent factory” operation. But these patents are all purchased. Some originated at big companies like AMD and Cirrus Logic, while others appear to have come from individual inventors.

(As IV itself often stresses, the company does more than just deal in patents-it has research labs, for example-but 10 years after its creation, it isn’t clear that the company has any real revenue streams outside the patent business.)

It would be fascinating to see a trial where IV executives would need to get on the stand and describe their business. Don’t hold your breath on that front, though-only a tiny fraction of patent suits filed actually go to a trial, and IV would surely like to avoid one.

»  In total, IV filed three lawsuits, all in Delaware District Court. One lawsuit accuses Check Point Software Technologies, McAfee, Symantec, and Trend Micro of infringing four patents related to computer security; a second suit hits Elpida Memory and Hynix Semiconductor with accusations of infringing seven patents on DRAM and flash memory; and the third lawsuit sues Altera, Microsemi, and Lattice Semiconductor over six patents related to “programmable logic devices.”

»  A statement explaining the suits and the filed complaints are available here