How To Invent: Tips from Patrick Ennis of Intellectual Ventures (Part 2)

12/12/08Follow @gthuang

Yesterday, I gave a few highlights from a lunchtime discussion with Intellectual Ventures’ global head of technology, Patrick Ennis. The Bellevue, WA-based firm, founded by Nathan Myhrvold and Edward Jung, is sometimes called an “invention company.” It has gotten a lot of attention—and stirred controversy—for buying up large numbers of technology patents worldwide. So I wanted to hear Ennis’s thoughts on intellectual property, patent reform, and venture capital, among other things. (He’s a physicist by training, and a former VC from Arch Venture Partners.)

But first, Ennis gave me a little taste of how invention sessions work at the firm. He was fiddling with the Saran Wrap on his sandwich, wondering about its material properties and how they might relate to thin-film coatings for medical stents, say. “Inventors see inventions everywhere,” he says. “Invention is not taught, except for kids. When you’re a little kid on the playground, you’re allowed to do this. But as an adult, this would be viewed as weird—’this person is not focused.’ But that’s what inventors do.”

He ran through a hypothetical thought process with his sandwich. “Before we go to bed, we’d know if there are opportunities to invent a better film for food. I suspect we’d find the only opportunities are to reduce a little bit of cost, and maybe to change the marketing of it. A lot of the times at IV [Intellectual Ventures], we look at things like this and it turns out—because it was boring, or viewed as pedantic or mundane—people missed something obvious,” Ennis says. “You want to do a realistic market study. If it turns out there’s only 5 million a year of this sold around the world, it’s not worth your time to invent it. We’d quickly get a number for how much Saran Wrap is sold around the world….Then, someone will raise a hand. ‘You’re just talking about food preparation. These thin films are used for insulation to cover houses.’ Hmm, that’s 100 times bigger than a hamburger…That’s how invention sessions go.”

OK, on to the other highlights from Ennis:

On patent rights and reform: “Everyone’s whining about there’s too many patent lawsuits, which isn’t true if you look at the numbers,” he says. “You can make a case that stealing someone’s intellectual property is a really bad thing. A lot of patents, people didn’t know they were infringing. Part of the reason they don’t know they were infringing is they’re told not to look. When I was at AT&T in the old days, you were taught as an engineer not to look. Because if you looked, and then it turned out you were infringing, then you’d have to pay three times as much. When I was a venture capitalist, I’m sure there were times when we built something that was already covered, because we just couldn’t find it, but you were still infringing. You need rules.”

“Who can argue that strong IP is bad for the economy?” Ennis continues. “The way we feel as inventors is the same way that venture capitalists view it, the same way universities and large biotech firms view it. Patents are a bargain. You get this 20-year ability to have a monopoly, but you have to publish it worldwide. That’s a good thing, because then people can read it and get inspiration from it…Versus a trade secret, where you keep the formula for Coca-Cola secret—you can keep that forever unless someone guesses it or steals it, then it’s theirs. But a trade secret can be worse for society because no one gets inspired from it. So patents are a good thing because I have to publish my idea, and after 20 years I have no ownership of it. Versus Disney and Mickey Mouse, those copyrights get renewed forever. Why don’t they expire?”

“If I make a reasonable facsimile of a Van Gogh and sell it, I’m guilty of copyright infringement,” Ennis says. “But if I cure cancer, I only get 20 years [of a market monopoly]. After that, I’m out of it. And the pressure’s on, because you get that patent issued and your product often isn’t ready. By the time the drug comes out, it’s way too late. So I always smile when people say the patent system is too strong. If anything, it’s too weak. It’s a pretty darn good deal from society that you’ve got to publish what you’re doing and in less than 20 years, you’ve got to give it away for free.”

On his perspective from venture capital: “Arch was great preparation for what I’m doing now,” Ennis says. “Arch does venture capital the way it was intended—roll up your sleeves, be a co-founder, add value, understand the technology, do the market research, and be several years ahead of others. Venture capital didn’t arise as an asset class because it was transaction-focused. There’s a role in the economy for that—you need mutual fund investors and later-stage investors.” Ennis says VC is about “building relationships with entrepreneurs and founders in science and technology, sometimes years before an idea comes together, so you can help shape the idea and build a personal relationship.”

“Arch and the early VC firms were interdisciplinary. The exciting stuff happens at the boundaries between fields,” he says. “A lot of VCs today are so narrowly focused. When you change the world, things don’t fit neatly into a bucket.”

On the U.S. and global competitiveness: “Name the most important startups around the world in the last 10, 20 years,” Ennis says. “Google, Amgen, Genentech, FedEx, Starbucks…We can name a couple European and a couple Asian companies for sure, but if you made a list of 100, maybe 85 would be [American]. In fairness, a lot of the great innovations in Asia don’t happen in startups. Samsung is an amazing story. But the point is, the U.S. has a head start due to Bayh-Dole.” (The Bayh-Dole Act is a U.S. law passed in 1980 that gives universities and small businesses the right to patent inventions developed from government-sponsored research.)

“Countries want to move up the value stream…We’re very friendly with these nations and vice versa. We’re natural allies,” he says. “All countries start with agrarian, then city environments with bartering and efficiencies of scale, then low-cost manufacturing, then high-tech manufacturing, and then intellectual property. Every country wants those key Microsoft patents, those key Intel or Qualcomm patents. They want to move upstream because low-cost manufacturing will always migrate to where it’s lower cost. Parts of China are no longer low-cost. There’s competition for inventions, so we have to stay one step ahead of it.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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