Intellectual Ventures Creates a New Kind of Market from Scratch: Tales From the Wild West Era of Patents

3/30/11Follow @curtwoodward

[Updated at 9:35 a.m. with a correction, see Page 2.]Don Merino used to be the guy sitting across the table when someone went to Intel looking to sell a patent—sometimes he dealt with inventors, but a lot of times it was patent lawyers. Merino liked to say the job was about dealing with “random $40 million events.” It was hard to know when, but eventually, a company would find itself in a must-have position for intellectual property.

So when Merino joined longtime colleague Peter Detkin at Nathan Myhrvold’s Intellectual Ventures, the Bellevue, WA-based patent licensing company and invention incubator, Merino had a pretty good idea of the inefficiencies in the patent market. And that’s what he and Intellectual Ventures have set out to get rid of.

Not everyone is a fan of that work. There’s been plenty of ink spilled over whether Myhrvold’s firm is simply a “patent troll” on steroids, seeking mostly to profit from the ownership of ideas that it isn’t actually using. Myhrvold himself offered a defense of the company’s vision for a new “invention capital” industry last year in Harvard Business Review, keying on the idea that his work could lead to a better way of financing inventions. The company also sees itself as cutting down the cost of dealing with intellectual property conflicts for businesses.

Wherever you fall on that discussion, I’d say Merino’s stories are a pretty fascinating instant business history. It really is kind of mind-boggling that in the 21st century, with everything good and bad that modern finance has been able to conjure up, there was an unquestionably valuable asset being traded in a market that was still relatively wild, highly illiquid, and unpredictable.

As one of the key people helping Intellectual Ventures build up its massive trove of patents, Merino has been on the front lines of its mission to create a new kind of market for intellectual property. Merino is now the company’s senior vice president of licensing, spending a lot of time in Asia. When he started in early 2004, the company had been around for a few years, but had only recently corralled enough capital to bankroll large-scale patent acquisitions.

Don Merino

“The question was, were we going to be able to get to critical mass? When I showed up there was $150 million committed to the fund, and I remember Nathan one time grabbing me and saying, ‘You know, Don, it’d be so great if we could buy 3,000 patents over the next couple of years and spend the $150 million we have.’

“About a year later I came back and said OK, I spent the $150 million, Nathan. Now what?” Merino says with a big laugh. “So we went from $150 million to $1.5 billion in the first fund, between basically 2004 to 2008. It was a bit of a rocket ride, needless to say. We did about 1,200 deals in the first fund, and I personally did about half of them. “

Merino sees some comparison in the problem of dealing real estate in the frontier days of the American West. It was hard to know who owned what, where the boundaries were, and how valuable the land was. In modern times, land boundaries and values have all been sorted out and there are plenty of people to assess and document the history of those assets, everywhere from the local county courthouse to Zillow.com. But there is nowhere near that much transparency for patents—or at least, there wasn’t.

“One of the very simple things that we ended up having to do in the buying was understand if the person selling the IP to us actually owned it or not. There’s no title companies in IP. And IP lawyers … Next Page »

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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