Nathan Myhrvold Shares Plan to Create Invention Capital Industry, but Skeptics Abound

2/18/10Follow @gthuang

Intellectual Ventures has been making a lot of waves lately. Today the Bellevue, WA-based firm, focused on the business of invention and patents, laid out its arguments for creating a new industry of “invention capital,” in a Harvard Business Review article penned by CEO and co-founder, Nathan Myhrvold. In a separate piece, the New York Times’ Steve Lohr addresses some longstanding questions from Myhrvold’s detractors, who call him a patent troll (more on this below).

In the HBR article, Myhrvold, who is coming off his talk at the TED conference in Long Beach, CA, presents the thinking behind his firm’s efforts to establish a separate marketplace for inventions, loosely following the models of venture capital and private equity. He also gives a status update on where Intellectual Ventures stands, and the formidable challenges it faces.

Invention capital is really the big vision of the company—with patent acquisitions as part of its overall strategy—and it’s fascinating to see how much things have progressed since the summer of 2008, when Myhrvold first spoke with me about it. Back then, the discussion was heavy on the historical context and the need for a new system to nurture inventions and inventors. In terms of results, it was largely wait and see. Now, it’s clear the company’s efforts worldwide are starting to pay off.

Myhrvold writes that Intellectual Ventures has 30,000-plus patents in its portfolios, most of them purchased. To critics who would say the company doesn’t invent anything itself, he notes that its 30 staff inventors and 100-plus consultants applied for 450 in-house patents in 2009, placing it in the world’s top 50 filers (ahead of Boeing, Johnson & Johnson, 3M, Mitsubishi, and Toyota); and that its wider network of 1,000-plus inventors in seven countries applied for more than 1,000 patents last year.

On the technology licensing and patent acquisitions front, he writes that Intellectual Ventures has made deals with more than a hundred Fortune 500 companies and their international equivalents, and that the firm’s “licensing activity has so far earned more than $1 billion.” To put that figure in perspective, Intellectual Ventures has raised some $5 billion from mostly undisclosed large investors (Microsoft is one).

In the Times piece, Lohr quotes critics who call Myhrvold’s outfit “Intellectual Vultures” and say the company uses its huge patent trove as leverage to extract hefty licensing fees. These critics also question Myhrvold’s penchant for setting up hundreds of shell companies and affiliated entities; by masking who actually owns Intellectual Ventures’ patents, this strategy reportedly makes it more difficult for other companies to know where they stand in negotiations with Myhrvold’s firm. Myhrvold is unapologetic about these tactics in the Times article, saying he’ll give up secrecy as soon as everybody else does.

But regardless of what his critics say, Myhrvold has clearly thought a lot about the hurdles that must be overcome in order for new markets ruled by inventors to take off. Here are three of his main ones:

Managing risk. Myhrvold points out that insurance companies, pension funds, and mutual funds have figured out strategies to deal with this, and that the money it takes is comparable to VC … Next Page »

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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  • http://www.inventionpartner.com inventionpartner

    This is a fascinating concept that bears more attention and scrutiny. If you read the Harvard Business Review article about this concept http://hbr.org/2010/03/the-big-idea-funding-eureka/ar/pr you will find that Myhrvold addresses his critics and lays out a plan to create an entirely new industry.

    “the US with its combination of research talent, openness to financial innovation, and a culture of inventiveness, is perfectly positioned to be the nexus of this new industry.” I agree with Myhrvold’s conclusions and hope that he is successful.

  • light

    There is no ‘innovation’ or ‘invention’ here – just patent trolling. Intellectual Vultures is gaming the patent system by having 40 people who sit around and think up ideas, followed up by 300 lawyers who try to monopolize that IP. No product or working designs are created.

    The shallowness of their business model is confirmed by their use of over 1000 shell companies to hide the nature of what they are doing.

    If this is the future of Seattle’s tech industry, we are in for a rude surprise. The only potential upside is that abuses like Intellectual Vultures will simply hasten massive reform of the patent system and reduce the ability of ‘non practicing entities’ (aka trolls) to extort others.

    And yes, I’ve had personal experience with this sort of company before, having experienced at first hand an extortion for $50,000 by a troll with a 1980′s era patent of the concept of having a “web site”.

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