We’re all trolls now: why the patent ‘rat’s nest’ is worse than you think

Veteran tech reporter Walt Mossberg confronted Nathan Myhrvold this week about the former Microsoft CTO’s role heading up the world’s largest patent troll.

A Troll’s Tale

In an interview at an All Things D conference, Myhrvold appeared untroubled by his complicity in what Mossberg called a “rat’s nest” of patent lawsuits ensnaring the technology sector. The rat’s nest is most associated with the smartphone industry, but is growing rapidly thanks in large part to the arrival of troll companies like Myhrvold’s Intellectual Ventures (IV).

For the uninitiated, trolls (more politely called non-practicing entities) are shell companies whose business is to amass patents and sue companies that offer actual goods and services. The trolls are especially insidious because the patents they assert are often of dubious quality (see this one where a troll says it owns emoticons) and because, unlike a normal company, they are not vulnerable to counter-suits. An academic study last year estimated that trolls have sucked $500 billion out of the economy in the last two decades.

IV took this to a whole new level by assembling tens of thousands of patents and, despite earlier assurances that it wouldn’t, launching a spate of lawsuits. The company is also suspected of backing the infamous Lodsys, a troll that demands small app developers purchase patent protection in exchange for a percentage of their revenues.

Myhrvold and IV are using some of the money they’re extracting to fund experiments of their own, including the use of liquid nitrogen to cook a hamburger.

Everyone is a troll

While IV has been widely criticized for a business model that taxes innovation, the company has also done something that could make it impossible to stop. Namely, before it began its suing spree, IV made sure that many of its potential critics became its investors. IV’s list of investors includes Apple (s aapl), Google (s goog), and Amazon (s amzn) who all invested in Intellectual Ventures, most likely to avoid being sued.

Meanwhile, trolling is quietly becoming part of everyday business practice.

“The whole notion of patent troll is evolving to the point where many technology companies have gotten in bed with the trolls. It’s like the pot calling the kettle black,” says Eric Lobenfeld, a co-head of law firm Hogan Lovell’s intellectual property practice.

Lobenfeld says that big technology firms like 3M, Micron and HP are earning money from the fruits of patent troll suits. He adds that leading tech executies and patent lawyers also have a stake in the troll game.

“[Former Intel exec] Peter Detkin contributed to coining the phrase patent troll … but has morphed into one himself,” said Lobenfeld. What’s more, some of the country’s top patent lawyers are leaving firms at which they made $4 -$5 million a year to be part of private equity trolling operations where they “make a lot more money than that.”

As more people see their livelihood tied to the trolling game, it will become more difficult to shut the game down. And as licensing revenue from troll-related ventures contribute to company revenues, more executives who profess to hate trolls will “hold their nose and do it anyway.” Likewise, investors and even consumers are becoming indirect participants in this growing troll eco-system.

Trolls forever

Myhrvold this week portrayed his patent practices as simply another form of capital allocation. In his view, the company’s trolling is a good thing because it raises money for Intellectual Venture’s experiments which will, in turn, produce more patents.

The problem, of course, is that patents are not synonymous with value and innovation. They are instead an artificial monopoly awarded by the government as a form of industrial policy. While  such monopolies can spur creativity, the rat’s nest of patents suggests something has gone wrong — and that it’s time to evaluate why and how we award patents in the first place. Otherwise, money will continue to flow to lawyers, IV and other middle-men rather than to the people who invent things in the first place.

Unfortunately, Myhrvold’s clever strategy of making everyone else complicit means that it will be harder to revert to common sense.

(Image by DM7 via Shutterstock)