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Intellectual Ventures, IP, IP Asset, Patent

Did Intellectual Ventures Drive Micron To Privateer Patent Enforcement?

You know the official story, as told by John Desmarais, and first reported by Joff Wild.  Micron approached Desmarais and asked him to purchase 20% of their patent portfolio.  Desmarais formed Round Rock Research, acquired 4500+ patents, and made at least $35 MM already from a single, limited covenant not to sue.  Not satisfied with the “official” story, I’ve been collecting information from a number of different sources that suggests the originator and driver of the Round Rock deal may actually have been Intellectual Ventures.

First of all, the publicly traded Micron has never issued a press release or otherwise reported the Round Rock transaction as a material event.  Even more telling, the company also hasn’t reported Micron’s own license agreement with Intellectual Ventures, while other companies like Verizon and Intuit both disclosed $350 MM and $120 MM payments to IV  in its own SEC filings.  Even Micron itself reported a $280 MM licensing deal with Samsung.  All of this suggests that the amount of cash paid to Micron for the Round Rock patents, and the amount of cash paid by Micron to IV was too small to constitute a “material” event.  But why would Micron accept a small payment for 1 in 5 of its (likely) its most valuable patents? More importantly, why would IV accept a token payment from a company with a $7+Billion market cap?

The obvious answer is that each company is receiving something it values far more than cash.  Desmarais launched his own practice and his patent privateer Round Rock last summer, and before the year was through his newly formed law firm was aggressively filing lawsuits on behalf of Intellectual Ventures. This obviously would not have been possible as long as Demarais was working at a major law firm due to the many conflicts with likely IV licensing targets, and Desmarais already told a room full of IP professionals at IPBC that he was reluctant to leave his position with Kirkland in the first place.  Nevertheless, from a confidential source, I’m told that Detkin desperately wanted to acquire Desmarais’ services to bring credibility and heft to IV’s licensing efforts, capitalizing on Desmarais’ reputation and familiarity with IV’s industry targets.  Before doing that, however, IV needed to make Desmarais an offer he couldn’t refuse.

The next link in the chain is Desmarais’ funding source, reported to be Gemas Capital, a California company with no history whatsoever.  My own source confirms Joff Wild’s earlier report that Gemas provided the funding Desmarais needed to acquire Micron’s patents.  Gemas is owned by Zahid Rahimtoola, who also happens to be Chief Financial Officer of IPValue, a firm self-described as a “strategic advisor” to Round Rock Research.  However, the participation of an IP Value corporate officer may have been to prevent IV’s fingerprints, connected by IP Value’s former CEO who, at the time of the Micron-to-Round Rock transfer was head of strategic acquisitions for …. you guessed it, Intellectual Ventures.

Personal connections easily demonstrate a friendly relationship between IV and IP Value, but does that necessarily mean the Gemas Capital arrangement was cover for IV?  Of course not. IP Value could have obtained funding from a variety of resources. It’s even possible that Rahimtoola personally raised the cash, albeit very unlikely.  Further, without some guarantee of IV participation, Micron’s cash expectations for the portfolio would have inevitably risen, making fundraising (not to mention shielding Micron from reporting obligations) all the more difficult.

But if IV was involved, why the ruse? The simple answer is that IV’s Peter Detkin is flat-out obsessed with secrecy to the point that IV has reportedly created thousands of so-called “shell” companies to act as owner of record for various IP assets.  Aside from keeping his accounts and lawyers well fed, these shell companies serve Detkin’s privacy concerns by discouraging investigation into IV’s holdings, forcing anyone interested in licensing the portfolio to come forward and ask for information.  Deploying Micron’s assets through Desmarais and Round Rock adds a further layer of insulation allowing IV to honestly and legitimately license its full portfolio, while maintaining the ability to later profit from additional licenses specific to the Round Rock-owned assets.

For a few other miscellaneous facts, throw into the mix the fact that Micron’s Senior Assistant GC Melissa Finocchio’s move to become Chief Litigation Counsel at IV, transitioning between May and July of 2010–the same time period that the Round Rock transfers were announced.  Also likely is the fact that Desmarais did not use Kirkland’s resources to analyze and cherry-pick through the Micron patents.  In reality, there’s only a handful of organizations that would realistically attempt such a project, and IV is one of the very few that would already have had the resources in place.

So, to summarize, just like a 3-team trade in the NBA, everyone gets something they were after:

Micron Gets: Intellectual Ventures Gets: Desmarais Gets:
  1. Favorable licensing terms with IV.
  2. Its competitors mired in patent wars with Round Rock and IV.
  3. A costly portfolio off its books.
  4. A (non-reportable) net cash infusion (possibly).
  1. A monetization opportunity far exceeding what Micron would have paid.
  2. Access to John Desmarais as litigation counsel.
  3. In house knowledge of the Micron patents (Finnocchio).
  1. Income/job security that meets or exceeds his position at Kirkland.
  2. Windfall possibilities if IV and RR are successful licensing ventures.

The deal, if one was made, has already turned out well for Micron.  The portfolio, according to Desmarais, was a costly one to maintain, with no less than 27 different law firms being responsible for various assets. (By the way, if Jeopardy wants to introduce an IP monetization category, here’s a good $200 “answer”: This company is the most experienced over the past 10 years at strategically maintaining >1000 patent portfolio for financial gain. Question: What is Intellectual Ventures?) In addition, Micron’s principal competitors (Hynix and Elipda) have been embroiled in litigation with IV since late last year, while Micron paid a non-reportable amount (possibly involving no cash whatsoever) for access to the full IV portfolio.  In addition, the two companies acknowledged in their press release the possibility of swapping additional IP assets in the future.

Will things work out for Desmarais and IV? Joff Wild already reported that “Whoever [backed Round Rock] is laughing all the way to the bank.” Whether anyone has actually witnessed Detkin making a deposit recently, and whether or not he is indeed laughing, remains to be seen.

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Discussion

8 thoughts on “Did Intellectual Ventures Drive Micron To Privateer Patent Enforcement?

  1. The problem of the great theory of IV providing secret funding, it completely ignores the fact that IPValue is owned by General Atlantic Partners and GA manages $17Billion. It is a far better bet, that GA provided RR the capital or at least helped get it. With IPValue providing the licensing assistance to RR for Samsung, Sony and HTC and with Gerry DiBlasi leaving IPValue and joining RR, it makes GA the much more likely funding source for RR, than IV.

    Posted by Francis Rushford | July 12, 2011, 12:46 am
    • Francis,

      Thanks for pointing that out. Remember, however, that Gemas, not IPValue, is funding Round Rock. The only connection to IPValue is their CFO as Gemas’ owner. The source of Gemas’ funding is likely the true architect of the Round Rock transfer. GA’s investment in IPValue is to fund an advisory services firm. There’s a big leap from that to risking significant capital on an offensive patent effort.

      Clearly, if one believes that Detkin did, in fact, highly covet Mr. Desmarais’ services, the more logical source of Gemas’ funding is IV.

      Posted by Patrick | July 14, 2011, 3:48 pm
  2. Dear Patrick

    IPValue has evolved far beyond an advisory firm. They have been broking patents since 2003 and they have entered the principal business via an Acacia type of model where they provide expertise and money and the owner gets a backend. All along this time period GA has been involved. IPValue joined with RR by providing IPValue providing licensing support for the licensing deals RR has entered into with a number of companies. With Mr. DiBlasi moving to RR and remaining on the board at IPVaue, it would seem to indicate GA has more than a passing interest in RR. As to the Troll Master, Peter Detkin, I have no understanding as to the degree of his desire regarding Mr. Desmarais providing legal services for IV. There could be a relationship there between IV and Micron, but GA needs to be considered. I think I beaten this death. Thank you and have a great weekend.

    Posted by Francis | July 14, 2011, 4:33 pm

Trackbacks/Pingbacks

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  4. Pingback: Micron Retains Interest In Round Rock Patent Monetization Proceeds « Gametime IP - May 9, 2012

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