My Own Pirate Radio

…but names will never hurt me. At least, not if you’re Nathan Mhyrvold, CEO of Intellectual Ventures, and the name you’re being called is “patent troll”.

Patent trolls have been on my mind lately, partly due to a long-standing personal interest in intellectual property, and partly because I’m in the midst of putting together a startup company. If you dig into trolls you will soon find this Wikipedia article that lists a number of firms related in some way to the concept. On that list you will see Intellectual Ventures. Having met Nathan several times when he was Microsoft’s CTO I’ve been wondering which category his company fits into — troll, victim, or something else — for up until now, he has been largely mum about the business model.

News.com has been wondering too. They just published an article on the company and a 90 second video excerpt of an interview with Myhrvold. The video ends on him saying, “I’m willing to have people call me a patent troll”. Myhrvold’s claim is that he might in fact be perfect for the job of running IV, because he has such thick skin after years of working for everyone’s favorite punching bag, Microsoft. (Hmm… on that grounds, maybe I should throw my hat in the ring too.)

It turns out Myhrvold is positioning Intellectual Ventures as a member of the “something else” category. Here are two fascinating snippets from his conversation with News.com:

Many in the IT industry worry that the patent portfolio will become a vehicle for patent suits. Not so, said Nathan Myhrvold, founder and CEO of Intellectual Ventures. Although lawsuits may result, the company primarily exists to devise inventions that can generate new markets.

“Our goal is to try to invent things. We try to do things about five years out. The reason is that almost every engineer at every company is working zero to three years out. It might slip to three to five years, but the plan is zero to three years,” Myhrvold said. “We’re not going to try to make products, so in order to make money we have to convince someone else to make it.”

Speculating a bit further based on this wikipedia piece, the other way IV will probably make money is by immunizing investors against infringement lawsuits. This is a classic BigCo software strategy: cross-license IP with major competitors so as to create a lawsuit-free zone amongst all licensees. IV might be adding a new twist here by proactively generating IP and then marketing itself to investors. In other words, they might sell both the disease and the cure.

I just don’t know how to feel about companies like Intellectual Ventures. On the one hand, they’ve apparently partnered with some very bright inventors, so one could argue they are sponsoring invention that might not otherwise happen. Invention is good for society, right? We want to incent invention, don’t we? That’s why patents exist.

On the other hand, one has to wonder how much of their revenue will come from suing infringers rather than selling patent licenses to wannabe implementors. Infringement lawsuits are bound to happen, whether IV seeks them out our not. Are we to believe Intellectual Ventures is benevolent, a “patent angel” even, provided they don’t proactively seek to lodge lawsuits? The proactive element seems to be a key defining characteristic of trolls. Or is squatting on IP just inherently bad, and something we should dissuade in all cases?

Too many questions, not enough answers. We’ll have to wait and see.

Links:

• John Cook led me to the news.com article
• Intellectual Ventures .com
• Wikipedia on Intellectual Ventures
• Wikipedia on patent trolls
• New.com “Patent firm woos big name inventors”
• News.com interview with Nathan Mhyrvold
• my thoughts on trolls

While we’re on the topic of IP, Paul Graham has an essay worth reading entitled “Are Software Patents Evil?”. Thanks Mike for the link and summary.

I think Paul is right: patents aren’t evil, they just don’t matter much, especially at the startup end of the business spectrum. He states three reasons for this:

One is that software is so complicated that patents by themselves are not worth very much. … The second reason patents don’t count for much in our world is that startups rarely attack big companies head-on … The third reason…is public opinion– or rather, hacker opinion.

Public opion is by far the main reason big companies don’t sue other companies. The lawsuits just aren’t worth the pain of public acrimony.

For startups, patents mainly make you a little more attractive to a potential acquirer.

For BigCo’s, the steady accumulation of patents is almost purely for defensive reasons. Would-be litigators are greeted with a portfolio of patents that they are surely infringing on. It becomes a case of one superficial patent versus tens of fundamental patents, and the discussion ends quickly.

IBM is a notable exception in strategy, in that they license patents outbound for royalty generation. Read “Open Innovation” if you want to know more about this as a business model. See also this interesting EE Times article on patent auctions.

Unfortunately, as Graham goes on to say, the defensive strategy doesn’t work well with patent trolls.

“I’m not sure what the proportions are of the preceding three ingredients, but the custom among the big companies seems to be not to sue the small ones, and the startups are mostly too busy and too poor to sue one another. So despite the huge number of software patents there’s not a lot of suing going on. With one exception: patent trolls.

Trolls don’t make anything, and so by definition they aren’t stepping on anyone else’s turf. Must be nice, paying the bills with vapor.

That’s “IP” as in intellectual property, not Internet Protocol.

There’s a growing trend towards squatting on intellectual property purely for the purposes of speculation and extortion. And it stinks.

IP squatting comes in different flavors (fragrances?). The recent RIM / NTP case is a great example of the patent troll variety. Paolo Del Nibletto at IT Business echoes my sentiments exactly when he says, “I don’t like NTP. They do not make any products. They do not deliver any valuable service. Sure they have the law on their side, in this particular case, but that is it.”

What’s particularly sad about the RIM case is that they actually tried to fight it, and lost, badly. Many patent troll cases never see the light of day, because companies prefer to settle quietly out of court.

Stinky flavor #2: Domain Trolls. I wrote here about the frustrations of trying to find a good domain name. It’s hard. You’ll surely have noticed the growing number of sites out there that are essentially ad-funded domain name parking lots, sometimes masquerading as search engines. While I don’t have data to back it, it seems to me that it’s happening at a growing rate, making it more expensive and time-consuming to secure a domain name. A blog post by John Cook of the Seattle PI sheds some light on this practice:

Houston entrepreneur Marc Ostrofsky … is back with a new Houston startup called Internet REIT that has purchased more than 400,000 domain names. The competitor to Seattle’s Marchex also recently scored funding from Perot Investments and Maveron, the Seattle venture capital firm co-founded by former investment banker Dan Levitan and Starbucks Chairman Howard Schultz.

400,000 names. That’s a lot. According to Dennis Forbes there are about 50 million .COM domain names registered. If Internet REIT’s names are all .COMs, that would mean it holds almost 1% of all registered .COM names. And that’s just one company. No wonder I’m left looking for table scraps.

As far as I’m concerned, the social impact of IP squatting is almost entirely negative. It lets a small number of people get rich(er) by imposing rents on those who have a legitimate need for the property, and frustrates would-be-productive enterprises from progress.

It sure would be interesting to see some stats on this: number of patent troll companies (see bottom of wikipedia article), number of patents held by such companies, dollar value of settlements with such companies, etc. And the same for domain trolls.

Here’s an idea: let anyone get a one-time lease on a domain name (or a patent), but terminate the lease after a reasonable time - 12 months, say - if they don’t actually DO something useful with it beyond attempting to sell the property or litigate.

I know, I know, not very free-market of me. You will not often hear me advocate regulatory policy. But if software has any area in need of a corrective change, IP squatting is it.

Michael Crichton has a funny NYT editorial piece “This Essay Breaks the Law“. In it he talks about the absurd things patents are being granted for these days.

The question of whether basic truths of nature can be owned ought not to be confused with concerns about how we pay for biotech development, whether we will have drugs in the future, and so on. If you invent a new test, you may patent it and sell it for as much as you can, if that’s your goal. Companies can certainly own a test they have invented. But they should not own the disease itself, or the gene that causes the disease, or essential underlying facts about the disease. The distinction is not difficult, even though patent lawyers attempt to blur it.

He’s on target.

It’s equally bad in the software space: the big companies patent everything they can just to amass up a defensive portfolio; the little companies try to patent so they can look better to investors and potential acquirers, but patent filing costs too much to do it aggressively; and patent trolls try to shake down everyone with a bank account. Yuck.

Alternatives, please.