Watch out, tech world: Patent troll Intellectual Ventures takes stake in wearable and video startups

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It’s normally good news when a big company pledges its money and throws its experience behind up-and-coming tech firms. It’s a different story when the company is Intellectual Ventures, the notorious patent troll whose unique brand of legal extortion has bled billions from companies large and small.

In recent weeks, Intellectual Ventures has been putting its hooks into obscure startups in key tech fields like wearable computing and ad tech. Optimists might take this as a sign that IV is ready to trade in patent trolling for something productive, but realists have cause to fear the worst.

IV’s expanding tentacles

Intellectual Ventures last week announced a partnership with a small Seattle brand called Reflx Labs, which makes a shoe sensor called Boogio Bionic that can detect a variety of foot movements. According to CEO Jose Torres, Reflx gave IV equity in the company in exchange for help developing and selling software development licenses.

In an interview, Torres said he aspires to make his software sensors the equivalent of “Intel Inside,” the chips of choice for the wearable computing world. For its part, IV described the deal as part of an expanding series of ties to startups.

“Our work with REFLX Labs is another in a growing series of partnerships we have developed with entrepreneurial startup companies to expand their base of inventions, protect those innovations, and market the resulting products around the world,” said an IV executive in a statement.

Other deals announced by IV include one from September with Vivent, a startup that makes smart home and energy conservation technology. And last week, IV declared a “long term intellectual property partnership” with a company called Fuisz Media, which offers advertisers a way to impose messages in video clips.

All of these fields (wearable computing, ad tech, video and sensors) are considered hot areas in the tech world. As such, IV’s pending involvement suggests the company could exert considerable influence — and damage — in these emerging areas of the economy.

A second act for the “most-hated company in tech”

In its early years, Intellectual Ventures and its founder Nathan Myrhvold received adulatory press accounts by promising a new frontier of crowd-sourced genius, powered by IV’s thousands and thousands of patents. The adulation did not last.

It turned out IV’s patents, which are the bread-and-butter of its operations, did not come from homespun invention. Instead, IV bought them en masse, a task that was not hard since the U.S. is awash in secondary market patents thanks to the Patent Office’s practice of granting them for just about anything (like this one that describes a method of filming a yoga class.)

Myhrvold’s firm, and other patent trolls like it, soon went to work. IV hatched thousands of shell companies that used these old patents, many of them related to basic software features, in order to demand royalty payments from large retailers, small app companies and everyone in between.

As it turned out, Myhrvold’s genius was not in inventing useful products, but recognizing an economic imbalance that makes patent trolling so lucrative: under U.S. patent law, it’s much more expensive to defend a patent claim (no matter how ridiculous) than it is to settle it. The result is that many gritted their teeth and paid IV’s troll tax — to the tune of a reported $3 billion.

As IV put the screws to honest entrepreneurs, even during the depths of the financial crisis, its antics gave rise to deep contempt from Silicon Valley, and earned IV headlines as “the most-hated company in tech.”  All of this, in turn, produced a bipartisan bill to reform patent law, which nearly passed this spring but was smothered by Senate Democrats.

This near-miss appears to have jolted IV, which launched a Political Action Committee last spring, into taking steps to improve its image. In a lengthy feature with Bloomberg BusinessWeek, IV executives suggested the company had changed its ways and was becoming a legitimate player in the tech community — which is why its forays into wearables and other important markets are so important to watch.

A troll in sheep’s clothing?

If you follow Intellectual Ventures’ prodigious PR output, or visit its website, you will discover a bustling world of “inventors,” “engineers” and lots of paeans to science and innovation. But if you look carefully, the whole affair feels more like an online Potemkin Village than a laboratory.

Despite Myhrvold’s grandiose promises, the company has produced little in the form of real world technology. While it has spent more than five years touting a method of shooting mosquitoes with lasers to fight malaria, no health organizations are using the method in the field. Likewise, “inventions” to improve nuclear waste have received little attention outside of IV’s own propaganda efforts.

Meanwhile, as the world waits for it to make good on its technology claims, IV keeps spending money on more and more lawsuits: on September 27 alone, for instance, its lawyers filed six new cases against a host of phone companies (even though, of course, IV doesn’t make or sell any phone products).

IV’s paltry output is especially striking in comparison to real tech companies, many of which are staunch advocates for patent reform.

Google, for instance, keeps cranking out everything from driverless cars to glucose-monitoring contact lenses to a replacement for email — even as it champions measures to fight patent trolls. And then there’s Elon Musk, who creates rockets and stylish electric cars, but whose company Tesla recently gave up its patents as a hindrance to innovation.

That’s why IV’s foray into startups should be taken with more than a grain of salt. If it really believed in the promise of those startups, why not simply invest in them rather than conjure up “long term intellectual property partnerships?”

According to Torres, who runs the foot sensor startup, he entered the deal with IV in the belief that the troll will not take an “aggressive” approach to patents. It’s a nice idea, and maybe he believes it, but it would be far more reassuring if IV itself swore off patent muggings.

I asked IV for details about headlines that it would “stop suing,” but the company said it had no comment.

For now, then, the smart money would say IV’s forays into start-ups are no more than new frontiers for its legal mischief. As respected venture capitalist and entrepreneur Peter Thiel told BusinessWeek, IV has a “dark soul” and is unlikely to change.

Myhrvold, meanwhile, is unlikely to be troubled by Thiel’s comments any more than he has by earlier contempt dumped upon IV. His company has always stayed just one step ahead of patent reform and, in the absence of criminal prosecution, the recent headlines about IV and start-ups are likely to help it do so again.

2 Comments

Jeff John Roberts

Shanti, that’s not a bad description.. This start-up gambit feels a bit like when the mob branches into construction and garbage collection ;)

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