The State of Intellectual Property
A while ago, I wrote about patent trolls and wondered about the viability of intellectual property, in the form of patents, as a liquid, tradeable, securitized asset class. I also mentioned Nathan Myhrvold’s Intellectual Ventures as one outfit that could drive patents toward an elevated asset class status. In a recent TechCrunch post about Myhrvold, it appears he’s gone a long way in pushing patents to become more liquid and tradeable. In summary, Intellectual Ventures has systematically acquired a patent portfolio of over 20,000 patents. In the eight years since inception, Myhrvold & Company has collected more than $1 billion in patent licensing fees. The fund recently closed a $1.5 billion pool and will soon raise another $2.5 billion. The central question asked by many alarmists: Is this good?
Success breeds competition. My previous post also mentioned the formation of the Allied Security Trust, a consortium of large technology companies pooling money together to buy up key intellectual property in order to preempt the threat of patent infringement lawsuits. Members of the trust include Google (GOOG), Verizon Communications (VZ), Cisco Systems (CSCO), Ericsson (ERIC), Hewlett-Packard (HPQ), and many others. Former Intellectual Ventures executives have formed a competing fund called RPX Rational Patent. RPX’s investors include premier venture firms Kleiner Perkins Caufield & Byers and Charles River Ventures. The market for intellectual property assets continues to evolve but I believe this new level of competition will introduce efficiencies and is ultimately good.
At Design Engine Lab, we are affected everyday by intellectual property. We are actively creating new intellectual property; we have dozens of patents and patents pending as a result of our product development efforts. We must carefully research prior art and avoid infringing other innovators’ existing patents. We circumvent other innovators’ patents whenever we can can by designing different or better solutions. Our ability to circumvent adds value not just to our own IP portfolio but also to our client’s products. Clients come to us with a certain design or product specification and oftentimes, we are able to bolster their idea with a stronger workaround design or implementation. Since joining Design Engine Lab, I’ve instituted an IP mining strategy. We actively search for interesting patents and improve upon them with stronger implementations. We also approach patent owners to partner with them and create great products.
The rapidly evolving market for intellectual property raises many questions. I’m especially concerned about the Allied Security Trust (a horrible marketing and branding execution). Will a combination of such heft invite antitrust attacks? Certainly, if only large, well-funded technology companies that already dominate their respective industries can join the trust while keeping small innovators off the membership rolls and at an unfair disadvantage, a case for antitrust actions can be made. Will the stalled Patent Reform Act of 2007, which would have curbed the ability of patent trolls to extract large monetary settlements through patent infringement litigation, find fresh support? Does the renewed focus on innovation and intellectual property that permeates the environment represent a new economic opportunity for an enterprising entrepreneur? Can someone create a new marketplace or exchange where patents can be bid upon by competing players, much like how stocks are traded today? It sounds like an immense challenge and undertaking - which smells to me like great value and profits.
I think there are aspects of our patent system that are deeply and fundamentally broken. In many ways it stifles innovation rather than encourage it, which is exactly opposite from what it was original designed to do.
Jordy - I agree that the patent system needs a good fix. My previous post on it suggested one little fix - a sort of statutory limit of time in which patent holders can sue infringing parties. This is to prevent patent trolls from waiting for a company to build up a lot of value before litigating. That reduces the risk of society investing a lot of money and time in an “unresolved” patent dispute.