Intellectual Ventures Company Research
The evolution of making a business out of inventions as opposed to
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By: Bruce Bahlmann - Contributing Author (your
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Last Update: 02/25/2007
A compilation of information from public media sources (much of which is
listed on the company?s website under ?Related News?.
Much has been written about Intellectual Ventures (IV),
from its founders Edward Young and Nathan Myhrvold to the assembled staff of
top talent, the sky is seemingly the limit for this nearly 7 year old
company. But what is going on behind the scenes at IV? There is much
speculation about this due to more recent events, but studying its history
answers a number of questions as well as asks a number completely new
questions. This report is the result of reading the company website,
researching the founders, as well as reading much of what has been written
about the company since it was founded in 2001.
Historical of Invention ? The key to IV?s Future?
IV believes that the evolution of invention is at a
cross roads and moving into an opportunistic fourth stage where it is
uniquely positioned to be very prosperous. According to IV, during the first
phase of invention (from 1830 to 1920) the US experienced what IV calls the
?Golden Era? which was brought about by changes to the patent laws in 1830
which included rigorous patent review on new patent applications. This
review process quickly gained the attention of inventive people because of
the advent that new patents would not be allowed in areas where there was
prior art (previously issued patents) as was the case previously. During
this era many famous inventors established themselves to the point where the
job of ?inventor? was recognized publicly and by the government as a serious
and esteemed career and many individuals and small companies represented the
source of a many of those patents filed during these years. The second phase
of invention (from 1920 to 1970) brought the rise of the corporate
controlled innovation era. After many successful years of individual and
small companies inventing, larger companies like General Electric, DuPont,
and AT&T started to take a great interest in inventing and patents. These
large corporations assembled extensive research and development laboratories
much of which produced a wealth of original primary research. For example
the transistor was invented by large research laboratories. However, as the
era came to an end, larger corporations began looking more closely at the
bottom line and the amount of funds dedicated to their large R&D groups ?
gradually these laboratories were held accountable to the business of making
money rather than the advancement of pure science. The third stage of
invention (from 1970 to 2000) brought about the PC era which was
characterized by the rise of personal computer over the previously popular
main frame computer. This development began placing low cost computing power
into the hands of the general public. Also during this era dot com companies
commanded considerable attention from investors and venture capitalists
because of their focus on ?development and marketing?. Because of the high
rewards for going public rather than maturing protected technology, many of
these start ups did not file many patents ? a majority didn?t file any. As
investors recouped after the bottom fell out of investing in speculation,
this gave rise to an evolving forth phase of invention. The fourth phase of
invention (from 2000 to present), which has yet to be named by IV,
represents a period of time that IV believes will be the resurgence of the
golden era where individuals and small companies once again represent a
significant source of filing patents once again. Nathan Myhrvold believes
one of the early industries where this will take place is the biotech
industry where individual and small company patent filings will represent
first 50% of the filing, then eventually 90% and beyond. As of 2004,
individuals and small companies only represented 25% of the patent filings
in biotech, but this figure is much higher than other technology areas in
terms of the percentage of individual and smaller companies related patent
IV believes the amount of financing available as well as the
unprecedented array of information tools (mainly a powerful computer as IV
looks at it but we also believe the large sources of online data plays an
important role) provide a strong catalyst for heightened inventing by
individuals and small companies. However, what IV believes is missing is the
infrastructure and support (mainly legal but also advising and patent
preparations) for individuals and small companies to expand their patent
filings. IV also believes that it can also spur invention by matching
different inventors together on particular projects to maximize
breakthroughs. In addition, IV believes there are four major trends which
have spurred the climate for individuals and small company inventors
The reemergence of invention outside big
corporations ? As research and development budgets continue to be pulled
back, large company R&D regularly cease development of primary research
that has little, if anything, to do with the companies primary business
or products. This leaves many Greenfield areas up for grabs by the
public sector or opportunistic entrepreneurs.
Patented inventions are now required by venture
capitalists (VC)s as prerequisites for investment.
Internet and ubiquitous communications tools
enable new global connections.
With the increasing amount of outsourcing,
especially within the US as well as overseas, many jobs such as
developers and manufacturers have disappeared leaving only two job
classes left: Symbolic Analysis Jobs and Personal Services jobs with the
technology sector. IV claims that symbolic analysis jobs involve the
application of knowledge, R&D, design, engineering and PATENTING,
whereas Personal services jobs involve retail clerks, security, and
Although some of these trends seem to have merit, we
certainly don?t believe all are true ? especially since outsourcing has not
impacted technology across the board, rather only in particular areas.
However the combination of these developments and trends, fuels what IV
believes will be the ?New World Economy? which forms the basis of market
demand that the company believes it is uniquely positioned to exploit.
This New World Economy is influenced by several areas
IV calls exponential economies. Exponential economies represent markets that
change very rapidly such as computer chips which have followed an
observation by the co-founder of Intel, Gordon Moore, who found that the
number of transistors on an integrated circuit doubles every 18 months. This
repeatedly observed behavior eventually became known as Moore?s Law. IV
describes five exponential economies that it believes holds the key to its
All these exponential economies have three things in
common: They are all in demand, have numerous standards associated with
them, and represent a virtuous cycle (such that supply stimulates further
demand). IV believes that companies that can create, build, or adapt
products within these global economies stand a better than good chance to
Since its inception in 2001, the company has focused on
an increasingly number of different areas. Below represents a list of these
areas under their associated exponential economy or unknown exponential
economy if they don?t neatly fall under those originally stated by the
company and the year they were first discussed as a field of focus for the
Unknown Exponential Economy:
- Energy (2002)
- Military (2002)
- Defense (2003)
- Business Models (2002)
- Intellectual Property (2003)
- Reinventing Invention (2003)
- Information Technology (2004)
- Nanotechnology (2004)
- Consumer Electronics (2004)
- Advanced Particle Physics (2006)
- Medical Devices (2006)
What we found particularly interesting is that during
the initial years, the company stayed pretty close to its originally stated
theory of operation (focusing on the aforementioned exponential economies)
believing that in doing so would put them eventually on the right tracks at
the right time as its products (patent filings) matured and issued. We
believe that this theory came under increasing pressure by its investors
because exponential economies, in spite of IV?s insistence to its investors
that it would take 5 or more years before the company could make money on
newly filed applications, represent very competitive technology fields.
Therefore, while focusing on exponential economies is tremendously
opportunistic, such a focus also represented pretty well traveled roads of
other larger businesses who were already heavily patenting in these areas.
As such, we believe IV had to find the areas within exponential economies
that were not currently being researched, change their business focus a
little to seek out other areas least mature which require pure science to
solve, or focus on areas perhaps once previously ahead of their time but now
on the sales block dirt cheap. Since focusing on pure science areas takes
something IV didn?t have much of (time), we believe they are likely placing
the most emphasis on addressing the other two areas. The following two
announcements seem to corroborate this theory:
- IV announced that it had built a portfolio of 1,000 patents in
2004, and in 2005 other estimates placed its portfolio at around 3-5,000
patents. There are also unconfirmed accounts of IV offering to buy most any
patent for $48k. A clear sign they are acquiring existing patents
- IV announced that in 2005 it had filed 22 patents, by 2006 it
said it had filed 500 patents, and had increased its filing to approximately
300 new applications per year (or 25 applications per month ? nearly one a
day). Also a clear sign that they are trying very hard to patent the next
breakthrough idea. However, these filings came relatively late considering
the company was founded in 2001 and it took them 4 years to file 22 patents.
These accomplishments, while impressive, come with a
degree of fear and doubt about what IV is really up to. From 2004 to 2005
their portfolio grew by a factor of between 3 and 5, and some have estimated
that by the end of 2006, it grew by a factor of at least 3 to 5 again ?
which in all estimation places IV?s current portfolio anywhere from 9,000 to
25,000 patents. Speculation is that once IV amasses a portfolio of 20,000
patents it may change some of its business strategy and become either a
patent troll or a very aggressive, but ?friendly?, licensor. Since it seems
IV has not yet changed its disposition, it is likely that IV is still south
of 20,000 patents, but this is just an estimation. In one article, one of
the IV employees stated that some of its business meetings where the staff
is discussing future business models or strategy end up turning into
screaming matches so certainly IV has at least as many different options as
far as business models as they have strong opinions on which is the best way
for the company to go. It probably doesn?t help that the company has a
number of former CEOs and extremely senior people working for it ? suffice
to say there are a lot of people used to getting their way so that could
also escalate such discussions.
Evolution of Business Models
Since its inception, IV believed it could provide the
missing infrastructure and support inventors require to help them more
easily invent. However, just as its fields of focus have changed over time,
so have its publicly stated business objectives. The following represents
IV?s evolving business objectives:
- In 2002, IV stated its plans for supporting the inventive
process included splitting licensing and royalties between IV and the
inventor. In this way, inventors profit in direct relation to the success of
their invention. While the amount of this split is held very tightly and
probably varies from case to case, this concept of unbundling ideas from the
product or market confines that exist at large corporations surely sits well
with inventors. To address its own need to invent, IV created what it called
the Invention Factory and attracted famed inventors such as Dean Kamen ?
inventor of segway personal transporter.
- In 2003, the company discussed its business as that of patent
and licensing rather than building products. It renamed the Invention
Factory to the Invention Science Fund and announced it now had 10 senior
inventors which included Leroy Hood ? inventor of the DNA Sequencer.
- In 2004 the Invention Science Fund had expanded to 24
inventors. In addition, IV seemed to have expanded its business objectives
to include Defensive Portfolio and Spin Off Companies, in addition to
re-describing its inventive support efforts as a Patent Marketplace.
- In 2006, several additional members of the 22 inventors it now
claimed where part of the Invention Science Fund were identified. These
members include: Robert Langer, Edward Harlow, Eric Leuthardt, and Muriel
IV?s business objectives, in fact its whole business,
appeared to be in jeopardy in late 2005 through 2006 as a number of
important cases came before the US Supreme Court as well as the US Congress
around whether inventors could file for injunctive relief ? a key aspect of
a patent that gives it value (teeth) in the marketplace. Without injunctive
relief, a patent infringement case can drag on indefinitely and likely end
in either the inventor giving up (cutting losses) or in some kind of
settlement that is in the best interest of the company rather than the
inventor. Brent Frei of IV as well as co-founder Nathan Myhrvold both
responded heavily to this challenge on behalf of IV. These efforts included
- Lobbying to congress about the need for patent reform but only
to the point of improving the quality of the patent examination process but
not changing in any way the enforceable power granted by law to the patent.
An improved examination process would seek to prevent lower quality patents
with obscure claims from issuing.
- IV testified before congress in support of the current
protections afforded inventors and inventions.
- IV took out a full page ad in the Wall Street Journal to
continue to lobby its case to the investor community and congress.
- IV submitted legal opinions written as amici in two
important cases before the US Supreme Court in: eBay vs Merc Exchange and
KSR vs Teleflex where they thoroughly attempted to plead the case of the
inventor, the basic right to protect invention rights for a granted limit of
time, and the need for this right to exclude others from this right.
In all, IV dedicated significant energy addressing this
issue (and rightfully so as its livelihood was at stake). Clearly it
benefits from inventors and having teeth (injunctive relief) in a patent
infringement case motivates companies to settle patent litigation versus the
risk of shutting down operations related to an alleged infringed technology.
Invention Science Fund ? Legitimacy Questioned
As IV has exposed increasingly more members of this
brain trust, most of which are still professors at their esteemed
educational institutions, we grow increasingly doubtful whether this group
will invent the next break through. Clearly the level of talent it has
attracted is among the world?s best inventors, however breakthrough
technologies don?t come often nor do they come after the groundbreaking work
in a way that will be the most lucrative. Take the television for example.
Invented in the late 1800s, it wasn?t commercialized effectively until the
mid 1900s. Wireless CDMA technology was invented in the early 1900s by the
military, yet wasn?t commercialized until late 1900s to early 2000. Since
patents only have 20 years of shelf life before they are offered up free to
the public, attempts at pushing the envelop of science (well ahead of
commercialization) is unlikely to lead to breakthrough licensing.
We also believe that the most valuable inventions are
not necessarily the breakthrough initial ideas, but rather the improvements
on those ideas which generally come after the idea has been commercialized.
These later inventions which are more correctly stated as improvements on
existing inventions are what make good ideas successful products in the
marketplace. For example, just because the Apple?s Lisa was the first real
graphically usable personal computer didn?t make it a success. Rather it was
the refinements on this initial work as well as the reverse engineered
follow on products which commanded market success. As such, it is nearly
impossible to define patent claims so broadly that they will apply to later
(more valuable) improvements if you are lucky enough for the patent to have
survived long enough to have any shelf life once the idea comes into
IV?s focus on inventions rather than products (at least
in this case) put it at a noticeable loss, excluding it from what arguably
are the most valuable ideas with the longest shelf life. Instead of it
chasing after these highly sought after ideas on improvements, IV leaves to
these to what it calls ?corporate controlled innovation? ? or products that
have already reached some degree of commercial success.
Although IV filed its initial patents under the
assignee name of Intellectual Ventures, it has since created and is now
using a number of shell companies to acquire patents as well as assign newly
filed patents to. The following list represents the known shell companies
associated with IV:
- CORPS of Discovery
- Ben Franklin Patent Holding
- Zen Corp
- Searete, LLC
While using shell companies to acquire patents is
pretty standard practice of other patent firms today, its even used by
larger companies, the assets assigned the Intellectual Ventures company name
represent the minority of all its supposed assets. In fact, one could
surmise that Intellectual Ventures is merely as shell company representing
many other shells each with their own assets and or objectives. We ask the
question, if Intellectual Ventures went away today, could the company
continue operating under some other name (perhaps a new shell managing the
other shells) or would that really be the end of the company all together?
Perhaps IV is positioning itself for just such a transition in the future ?
if it did, it could become even stealthier than it already is.
Readers who use this information for investment purposes do so
at their own risk! Opinions expressed are just that and not based on
insider information or information otherwise obtained illegally.
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