Stamped and filed on September 2, 2011, a brand-spanking new lawsuit (courtesy of my friends at PriorSmart, and embedded below) from Xilinx (the Intellectual Ventures investor-turned-target) accuses IV of “unlawful, unfair or fraudulent business practices,” simultaneously shedding dim light on IV’s opaque array of holding companies and their general licensing strategy. According to Xilinx, the company was approached in 2004 about investing in one of IV’s patent acquisition funds. In 2005, and again in 2008, Xilinx agreed to participate in Intellectual Ventures Funds I and II, respectively, although Xilinx remains silent as to the amount of its investment in either fund.
In the following years, IV repeatedly sent Xilinx notices about the funds’ respective acquisition of various patents–presumably under the auspices of notifying investors of how their money was being invested–including patents that are the focus of fierce litigation between IV and Xilinx. Then, in 2010, IV invited Xilinx to increase their investment in Funds I and II and acquire licenses to the patent portfolios owned by the funds. These requests were allegedly complete with claim charts mapping 16 different patents to various Xilinx products.
In other words, IV used Xilinx’s money (likely, along with other investors like Cisco, Google, Intel, Microsoft and Nokia) to acquire a set of patents that Xilinx now needs to license.
After litigation erupted between the chip maker and patent aggregator, IV defended itself based on a teensy legal technicality that, if true, eviscerates grounds for a lawsuit against it. According to Xilinx–because the actual statement has been withheld from the public–IV representative Joe Chernesky told the court that neither Intellectual Ventures nor IV Management own the patents or have the right to sue for infringement.
Granted, while this representation, if true, leaves IV untouchable for any legal action attempt to invalidate the patents in question, Xilinx claims the conduct violates California Business and Professions Code Section 17200. Xlinix claims that IV concealed the true ownership and falsely represented that IV had acquired the patents in question, only to admit in other filings to the court that it did not.
For IV’s part, one reasonable explanation for all of this is the receipt of some questionable legal advice. IV famously obscures the patent ownership records in an elaborate series of holding companies. IV very likely controls, directly or indirectly, the “technical” patent owners. However, the legal team appears to believe the separation–on paper–of patent ownership requires the California court to dismiss the case. Effectively, this frees IV to take its patent fight back to Delaware where most of its cases are already on file. As Xilinx’s new lawsuit demonstrates, this strategy boxes IV into a situation where they were either lying when they told Xilinx that IV owns the patents, or they’re lying to the court by saying that IV does not.
For Xilinx’s part, this still looks like a defensive patent risk management strategy gone terribly awry. IV’s mission when first created was to generate funding from industry participants and use that funding to acquire patents. Early adopters could potentially profit when late-comers had to pay higher licensing fees due to IV’s growing portfolio. Unfortunately for Xilinx, it appears that their investment failed to actually secure licenses to the patents IV acquired–a point Xilinx does not appear to contest in the court papers produced thus far. Hindsight is always 20/20, but this is an obviously terrible strategy. How a management team can get away with using shareholder money to fund IP acquisition that increases the company’s liability risk is beyond me.
The lawsuit is Xilinx, Inc. v. Intellectual Ventures, LLC et al, Case no. 5:11-CV-04407 pending before Judge Paul Singh Grewal.