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Intellectual Ventures, IP, Patent

And The Other Shoe Just Dropped … Intellectual Ventures Files Its First Patent Infringement Lawsuits

UPDATED 12/14/10 — Original post follows with updates below:

Unless you’ve been under a rock, you’ve already heard the news.  Not only has IV filed its first three lawsuits,but they’ve done it in a very public manner, issuing their own press release identifying the defendants and providing PDF copies of the complaints.  Despite IV’s public bragging about its licensing efforts being devoid of litigation, anyone with experience in licensing probably expected something like this sooner or later.  Recall Myhrvold’s comments to Business Week back in 2006:

In other words, the worry was that IV would use the patents it bought to file infringement suits against companies that turned it down. Myhrvold scoffs at this charge, noting that businesses that aren’t infringing have nothing to worry about, and that IV has yet to file a single lawsuit.

If you actually believed that a company with 30,000 patents and a business model built around licensing the patent rights to downstream producers would never file a lawsuit, I have a bridge to sell you. The truth is, the inevitability of IV’s litigation has been recognized for some time, and IV’s fingerprints have been noticed on patent litigation, at least since 2009. In fact, Webvention’s litigation, a subject of discussion on this blog, is a more explicit example of IV exploring alternative means to monetize its portfolio.  Of course, these earlier cases involved situations where IV sold the patents outright to investors who later brought lawsuits.  The decision to hold on to these patents, rather than repeat what they’ve done in the past indicates that IV puts a much higher value on these three portfolios.  By taking their case to court, IV will inevitably expose more about its business model and structure than was previously known.  While most information will be shared only under a protective order, we’ve seen in the past that leaks happen.  Also, the media coverage by transparency hawks like Joe Mullin may help force additional information to the surface.

According to IV’s allegations, it has paid “hundreds of millions” to inventors while earning $2 Billion in licensing revenue.  While these numbers sound impressive at first, other sources peg the amount paid to inventors at $350 Million.  However, this figure likely doesn’t include an additional $850 Million paid to small and medium businesses.  While earning $800 Million over the cost of the original investment is nothing to sneeze at, IV is likely now after the “real money.”  This could mean that IV’s demands on potential defendants have risen over the years, which could explain the reluctance of these particular companies to accept IV’s terms, or IV’s reluctance to compromise.  Another possibility is that IV faced internal pressure to litigate from some of its member companies that are competitors of these first 9 defendants.

Either way, the offer that IV put on the table originally is likely long gone, as these companies are now on the defensive.  The defendants will most likely look for some leverage, while IV will want to make an example of companies that resists is more “friendly” licensing efforts.  Because of their size, and the mystery that shrouds their operations, IV has more at stake than a typical NPE asserting only a single portfolio, so bringing this lawsuit immediately signals a level of seriousness and a perceived position of strength.

Additional coverage:

Peter Zura’s Blog: *** Intellectual Ventures Launches Massive Litigation Across 3 Industries ***

PatentlyO: Intellectual Ventures Takes First Overt Legal Actions to Enforce its Mammoth Patent Portfolio

WSJ: Big Patent Firm Sues Nine Tech Firms

UPDATE — 12/14/10:

Joff Wild dug up some additional quotes from IV’s founder regarding his thoughts on patent litigation:

In 2006, Nathan Myhrvold, IV’s co-founder, told Business Week that “litigation is a huge failure”. It is, he went on, “a disastrous way of monetising patents”. For a long while the firm made a major play of never having launched an action, though earlier this year it emerged that patents formerly owned by IV were being litigated. Then when I interviewed Joe Chernesky, the firm’s head of hardware licensing, he told me that IV always wanted to negotiate, but “if we can’t reach an agreement, we are prepared to litigate”. And so it has come to pass.

via Intellectual Ventures goes on the attack

In an updated post, Joff also points the discovery woes that IV may be facing:

So says Dan McCurdy, the chairman of PatentFreedom and CEO of Allied Security Trust. In an email he sent to me on Thursday, McCurdy stated:

As you know IV has operated since the beginning in great secrecy under the cloak of non disclosure agreements. Details on who has financed them, who has taken licences and for how much, their purchase practices, prices they have paid for purchases, sharing arrangements if any with patent sellers, accounting and tax treatment of revenues, licensing techniques and practices, the extent of patent holdings, subsidiaries and affiliates, and other details may all be relevant to the defence. Obviously the case will be closely watched.

via Discovery may be painful for Intellectual Ventures, says PatentFreedom and AST boss

Expansion on McCurdy’s quote at Intellectual Ventures Litigates

Ultimately, Joff reaches a similar conclusion:

It strikes me that, as McCurdy states, the kind of top class defence counsel that the companies it is going after can afford to hire could potentially cause IV and its investors a lot of embarrassment. No doubt this would have been thought through before the litigation button was pressed, but nevertheless it is an uncomfortable background noise that could blow up into something rather serious.

Presumably, IV weighed these risks against the risk of not litigating (e.g. not being taken seriously by other potential licensees) against the monetary and intangible benefits of fighting over these patents.

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