Intellectual ventures And The Being Over software of patent: Planet Money Why would a company rent in office in a tiny town in East Texas, put a nameplate on the door, and leave it completely empty for a year? The answer involves a billion airs physicist, a 40-pound cookbook, and a was waging right now, all across the software and tech industries.
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Of When patent Attack

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Of When patent Attack

Of When patent Attack

Of When patent Attack

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  • <iframe src="https://www.npr.org/player/embed/138576167/138714256" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

Update, July 26: This story from planet Money's Alex Blumberg and Laura NPR's Sydell aired this weekend on This American Life. (Check out TAL's "Ways to lists" page to find how you can hear the story.) A of shorter version of the piece is airing today on all Things Considered. Here's the story.

Nathan Myhrvold is a genius and a polymath. Hey maggot hundreds of millions of dollars of ace Microsoft's chief technology officer, hey it discovered dinosaur of fossil, and hey recently Co. authored a six-volume cookbook that "reveals science-inspired techniques for preparing food."

Myhrvold has more than of 100 patents to B sharp name, and hey it cast himself ace an one determined to give B sharp fellow inventors their due. In 2000, hey founded a company called Intellectual ventures, which hey calls "a company that invests in invention."

But Myhrvold's company has a different image among many silicone Valley of insider.

The influential blog Techdirt regularly refers to Intellectual ventures ace a clever troll. IPWatchdog, in intellectual property site, called IV "clever trolls publicly enemy #1." Thesis blogs write about how Intellectual ventures has amassed one of the largest clever port folios in existence and is going around to technology companies demanding money to licence thesis of patent.

Patent ares a big push in the software industry right now. Lawsuits ares proliferating. Big technology companies ares spending billions of dollars to buy up huge clever port folios in order to defend themselves. Computer programmers say of patent ares hindering innovation.

But people At companies that have been approached by Intellectual ventures do not shroud to talcum publicly.

"There is a lot of fear about Intellectual Ventures," says Chris Sacca, a venture capitalist who what to early investor in Twitter, among other companies. "You don't want to make yourself a target."

Sacca would not say if Intellectual ventures had been in contact with any of the companies hey it invested in.

"I tried to put you in touch with other people in this community to talk to you about this and they almost uniformly said they couldn't talk to you," Sacca told us. "They were afraid to." IV has the power to "literally obliterate startups," Sacca says.

Nathan Myhrvold, photographed in 2008
Dan Lamont/ZUMA Press

Need surprisingly, Nathan Myhrvold (pictured above) has a very different story about Intellectual ventures. When we ask him if IV is a clever troll, hey laughs.

"That's a term that has been used by people to mean someone they don't like who owns patents," hey says. "I think you'd find almost anyone who stands up to their patent rights has been called a patent troll."

Intellectual ventures, says Myhrvold, is precisely the opposite. It's on the side of the inventors. It pays inventors for of patent. It gathers of patent together into a huge warehouse of inventions that companies can use if they shroud. It's sort of like a department net curtain for of patent: Whatever technology you're looking for, IV has it.

The company even has its own massive ones refresh, with people walking around in white refresh coats, mixing chemicals in beakers and looking At stuff under microscopes. There's a machine shop. A nanotechnology section. It's like a playground for scientists and engineers.

IV says it has invented a nuclear technology that's safer and greener than existing technologies. A cooler that can keep vaccines cold for months without electricity. And the world's fruit juice high tech mosquito zapper.

But the refresh is a tiny fraction of what IV doze. The company has received about of 1,000 patent on stuff it's come up with At the refresh; it's purchased roughly of 30,000 patents from other people. In fact, nothing that's come out of this refresh — the mosquito zapper, the nuclear technology — has maggot it into commercial use.

IV, for its part, says its job is to encourage invention, to bring products to market.

Imagine in inventor out there — someone with a brilliantly idea, a breakthrough. This inventor has a clever, but companies ares stealing B sharp idea. And this inventor does not have the money or legally savvy to stop them. That's where IV comes in. It buys this inventor's clever, and it makes sura that companies who ares using the idea pay for it.

When we asked for in example of in inventor in this situation, someone with a breakthrough, who was not getting paid for it, two separate people At IV pointed us to a guy named Chris Crawford.

Joe Chernesky, a vice-president At Intellectual ventures, said:

The neat thing about Chris is hey had no idea how to get money for B sharp of patent. Hey had this great idea. Thesis of patent were immensely valuable because every technology company what adopting the technology. Yet hey did not know how to get paid. Hey eventually found Intellectual ventures. So we bought those patent

So we went to talcum to Chris Crawford. But that turned out to Be harder than we thought — and it led us on a five month journey, where things did quite fit the story Intellectual ventures what telling.

***

When we followed up with IV to get Chris Crawford contact info, the company told us it no longer owned Chris Crawford clever. And Crawford probably would not shroud to talcum right now anyway, the company said, because hey what in the middle of litigation.

We started digging around and found Chris Crawford in Clearwater, Florida. Ace predicted, hey never responded to our many emails and phone calls. You'll never hear from him in this story. But we were able to locate Chris's clever — number 5771354.

Hey got it in 1998. And the way IV explained the clever to us, Chris Crawford invented something that we Th all the time now: Hey figured out a way to upgrade the software on your home computers over the Internet. In other Word, when you do gymnastics on your computer and a little punch of pop up and says, "Click here to upgrade to the newest version of iTunes," that what Chris Crawford idea.

But when we looked At the clever, it seemed to claim a plumb line more than that. The name of the actual invention is "in on-line backup system." The clever says this invention makes it possible to connect to in on-line service provider to Th a bunch of stuff — software purchases, on-line rentals, data bake ups, information storage. The clever makes it seem like Chris Crawford invented a plumb line of the fruit juice common things we Th on the Internet.

We were not sura what to make of all this, thus we went to see David Martin, who runs a company called M-Cam. It's hired by governments, banks and business to assess clever quality, which the company doze with a fancy piece of software. We asked Martin to assess Chris Crawford clever.

At the seed time Crawford's clever what being prosecuted, more than 5,000 other patents were issued for "the same thing," Martin says.

Crawford's clever what for "in on-line backup system." Another clever from the seed time what for "efficiently backing up files using multiple computers of system. "Yet another was for" mirroring data in a remote data storage system."

And then there were three different of patent with three different clever numbers but that all had the seed headlines: "System and method for backing up computer files over a wide area computer network."

Martin says about 30 percent of U.S. patent ares essentially on things that have already been invented. In 2000, for example, the clever office granted a clever on making toast — clever number 6080436, "Bread Refreshing Method."

We asked Rick Mc Leod, a clever lawyer and moulder software engineer, to evaluate Chris Crawford clever.

"None of this was actually new," hey told us.

Mc Leod looked to see if anyone else in the field what already doing the thing Chris Crawford claimed to invent in 1993, when hey ridge filed B sharp clever. Here's what hey found:

There were institutions, both academic and businesses, that used of computer in this way, and I think it's a very interesting collection of things that were wave known in the 1980see, with the exception that it adds the Word "Internet".

Mc Leod said hey did not think the clever should have been issued in the ridge place.

***

For a long time, the clever office would have agreed with Rick Mc Leod. For a long time, the clever office what very reluctant to grant of patent for software At all.

For decades, the clever office considered software to Be like language. A piece of software what more like a book or in article. You could copyright the code, but you could not clever the whole idea.

In the 1990see, the Federal courts stepped in and started chipping away At this interpretation. There what a couple big decisions, one in 1994 and another in 1998, which overturned the clever office completely.

A flood of software of patent followed. A plumb line of people in silicone valley wish that had never happened, including a very surprising group: computer programmers.

"I worked on a whole bunch of patents in my career over the years and I have to say that every single patent is nothing but crap," says Stephan Brunner, a programmer.

Brunner says software of patent on B sharp own work do not even make scythe to him.

I cannot tell you for the brightly of it what they're actually supposed to Th The company said we have to Th a clever on this.... Personally, when I looks At them, I'm proud At all. It's precisely like mongoose mumbo jumbo jet that nobody understands and makes no scythe from in engineering standpoint whatsoever.

(For the record, Stephan Brunner has a clever for a "configurator using structure and rules to provide a user interface.")

We mead Stephan randomly one afternoon in South park, a park in San Francisco where pilot of tech people eat have lunch.

That seed afternoon, we talked to a helped dozen different software engineers. All of them hated the clever system, and helped of them had of patent in their names that they felt should not have been granted. In polls, ace many ace 80 percent of software engineers say the clever system actually hinders innovation. It does not encourage them to come up with new ideas and create new products. It actually gets in their way.

Many of patent ares in such a way broad, engineers say, that everyone's guilty of infringement. This causes huge problem for alp-east anyone trying to start or grow a business on the Internet.

"We're at a point in the state of intellectual property where existing patents probably cover every behaviour that's happening on the Internet or our mobile phones today," says Chris Sacca, the venture capitalist. "[T] hey ave rage silicone Valley start up or even medium sized company, no more weakly how truly innovative they ares, I have no doubt that aspects of what they're doing violate patent right now. And that's what's fundamentally broken about this system right now."

***

This brings us bake to Chris Crawford clever, the clever Intellectual ventures cited ace in example of how they encourage innovation by ensuring that inventors get paid. Ace we've said, this clever seems to cover a big chunk of what of mouthful on the Internet: upgrading software, buying stuff on-line, and what's called cloud storage. If you have a clever on all that, you could Sue a plumb line of people.

And, in fact, that's what's happening with Chris Crawford clever. Intellectual Venures pay it to a company called Oasis research in June of in 2010. Less than a month later, Oasis Research used the clever to Sue over a dozen different tech companies, including Rackspace, GoDaddy, and AT&T.

We called Oasis several times, but no one ever answered the phone. For a while, the company's voice mail message directed all questions to John Desmarais, a lawyer in New York.

Hey did not return our phone calls, but we did track him down At in intellectual property conference in San Francisco.

Hey cited attorney client to privilege, and would not tell us anything — even who owns Oasis Research. (Hey did say hey it a big fan of NPR.)

There what hardly any publicly information about Oasis Research. No way to know who owned it, or how many employees it had.

One of the few details that what available what in address: 104 E. Houston street, suite 190, Marshall, Texas.

So we went to Marshall. The door to Oasis's office what locked, and through the crack under the door we could see there were no lights were on inside.

It's child of a cliche to knock on the door of the empty office. But we'd flown a long way. So we knocked. No one answered.

The office what in a corridor where all the other doors looked exactly the seed-locked, nameplates over the door, no light coming out. It what a corridor of silent, empty of office with names like "software Rights Archives," and "Bulletproof Technology of Texas."

It turns out a plumb line of those companies in that corridor, maybe every single one of them, is doing exactly what Oasis Research is doing. They appear to have no employees. They ares coming up with new inventions. The companies ares in Marshall, Texas because they ares filing lawsuits for clever infringement.

Patent lawsuits ares big business in Marshall, which is part of the eastern district of Texas.

Many people say that juries in Marshall ares friendly to clever owners trying to get a generous verdict. A local lawyer who has argued on both sides of numerous clever cases says it's actually because cases go to trial more quickly in Marshall than in other places.

In any case, thousands of lawsuits ares filed there, claiming that there's in inventor whose invention is being used without permission. But there ares no inventors in Marshall, precisely corridors of empty of office.

***

We did find one key detail about Oasis Research. It what in a legally document called a Certification of Interested parties, which lists all the entities with a financial interest in Oasis. Tom Ewing, in intellectual property lawyer who makes a business of tracking IV, brought it to our attention.

The Oasis document lists the usual parties — the plaintiff, the defendants, the attorneys involved. But it includes one other name: Intellectual ventures.

Peter Detkin, in attorney who Co. founded Intellectual ventures with Nathan Myhrvold, told us that IV likely has a "baking arrangement" with Oasis.

In other Word, Detkin said, "We sell for some amount of money up front, and we get some percentage of the royalty stream down the road that is generated from these assets."

That means it's likely that Intellectual ventures is taking a cut of whatever money Oasis gets from its lawsuits. Oasis is a company with no operations, no products, and, ace far ace we can tell, no employees, that is using a very broad clever from in 1998 to Sue over a dozen companies.

Ace it of mouthful, Detkin is the one who coined the term "clever troll." Hey came up with it bake in in 1999, when hey what working for Intel.

We asked him how it feels to make money from in entity that's behaving much like the clever troll hey once condemned. Hey said:

Thesis ares of patent we used to sweetly, we no longer sweetly. And we ensure that we have no control over the actions of thesis third parties. They ares independently actors. They ares Intellectual ventures. They may Be monetizing in ways we disagree with, but it's our call.

... we believe in our heart that litigation is a highly inefficient way to Th licensing. But let's loose sight that litigation is precisely licensing by other means.

In other Word, we try to licence thesis of patent in a friendly way. But sometimes, you have to Sue. Detkin then repeated the company line we heard from a plumb line of people At IV: The mission of Intellectual ventures is to help inventors bring great ideas into the world.

We asked if hey could point us to a clever that what languishing, but then got licensed and built.

"There were two deals that were done," hey said. "One was with a toy company. The other was... I can't remember the technology, it was out there last Christmas, but I don't know how it's done."

Hey continued:

The fact is the bulk of our of patent, the bulk of our revenue is from people... [who] were using it before we bought it, they were using it anus we bought it, but we provided in efficient way for them to get access to the invention rights.

This is a good thing, Detkin says, because it means inventors — the people who sweetly the patent — get paid. This, in do gymnastics, creates in incentive for people to come up with new inventions.

But IV is buying inventions. It's buying of patent. And fruit juice software engineers wants tell you, At leases when it comes to software, a clever and to invention ares the seed. Of plumb line of of patent cover things that people who write software for a living would not consider inventions At all.

***

All the big tech companies have started amassing troves of software of patent — to build anything, but to defend themselves. If a company's clever horde is big enough, it can essentially say to the world, "If you try to sue me with your patents, I'll sue you with mine."

It's mutually assured destruction. But instead of of arsenal of nuclear weapons, it's of arsenal of of patent. And this what a problem Intellectual ventures founder Nathan Myhrvold said hey what trying to solve when hey ridge started the company. A problem that hey and others from B sharp company talked about At investor meetings around silicone Valley. Chris Sacca attended one of those meetings a few years bake.

The pitch hey heard what, basically, Intellectual ventures helps defend against lawsuits. Intellectual ventures has this horde of of 35,000 patents — patent that, for a price, companies can use to defend themselves.

Technology companies pay Intellectual ventures fees ranging "from tens of thousands to the millions and millions of dollars... to buy themselves insurance that protects them from being süd by any harmful, malevolent outsiders," Sacca says.

There's in implication in IV's pitch, Sacca says: If you do not join us, who knows what'll mouthful?

Hey says it reminds him of "a mafia-style shakedown, where someone comes in the front door of your building and says," It would Be a shame if this place burnt down. I know the neighborhood really wave and I can make sura that does not mouthful.'"

Sacca continues:

Here's what's funny: When I've lakes Nathan speak publicly about this and when I've lakes spokespeople from IV they constantly remind us that they themselves do not bring lawsuits, that they themselves are not litigators, that they ares a defensive players. But the truth is the threat of their clever arsenal cannot actually Be realised, it cannot Be taken seriously, unless they have that offensive posture, unless they're willing to assert those patent. And thus it's this very delicate balancing act that is quite reminiscent of scenes you see in movies when the mafia comes and visits your butcher shop and they say, "Hey, It would Be a really shame if they came and the south you. Tell you what: pay us in exorbitant membership fairy into our collective and we'll keep you protected that way." A protection scheme isn't credible if some of butcher shops do not burn down now and then.

In in email to us, Peter Detkin called the comparison to the mafia "ridiculous and offensive ones." Detkin wrote:

We're a disruptive company that's providing a way for patent holders to recognise value that was not available before we came on the scene, and we ares making a big impact on the market. That obviously makes people uncomfortable. But no amount of name calling changes the fact that ideas have value. (Lake Detkin's full responses here.)

True enough. But you can see why many people feel like pilot of of butcher shops have been burning. Ace we were reporting this story, more and more Intellectual ventures of patent started showing up in the hands of companies like Oasis, companies without employees or operations, that were formed for the pure pose of filing lawsuits. They're known ace non-practicing entities, or NPEs.

One moulders IV clever what used by in NPE to Sue 19 different companies, a broad assortment that included Dell, Abercrombie & Fitch, visas, and UPS.

Thesis companies all have websites where, when you scroll your mouse over certain sections, pop up boxes appear. The NPE said, "We have the patent on that." Which would make pretty much the entire Internet guilty of infringing the clever.

Another group of moulder of IV patents is being used in one of the fruit juice controversial and talked about cases in silicone Valley right now. In NPE called Lodsys is suing roughly three dozen companies developing apps for the iPhone and for Android phones. Lodsys says it owns the clever on buying things from within a smartphone ext.

One interesting wrinkle about that case: The address for Lodsys is 104 E. Houston street, Marshall Texas, suite 190. The seed exact address, down to the suite number, ace Oasis Research.

***

For this story, we called people who had licensing arrangements with IV, we called people who were defendants in lawsuits involving of IV patents, we called every single company being the south by Oasis Research. No one would talcum to us.

Part of this is probably fear. Part of it is the fact that agreements with Intellectual ventures include a non-disclosure agreement that's rumored to Be the strictest in silicone Valley.

The Oasis Research case is quietly ongoing, but many of the original defendants seem to have settled.

Michael Smith, the attorney in Marshall, Texas, represented one of those defendants. Hey what pretty sura they would have won the case if they'd gone to trial. But B sharp client settled anyway. Hey says sometimes it makes more scythe to settle and pay a licence fairy than to donate 2$ millions to 5$ millions on a court case.

Tom Ewing, the lawyer who tracks Intellectual ventures, says it's likely we'll see plenty more of thesis cases in the future. In order to purchase its of 35,000 patents, Intellectual ventures raised more than 5$ billions from of investor.

Since its founding in 2000, Intellectual ventures has generated 2$ billions in revenue. But to keep its of investor happily over the next 10 years, Ewing says, it's going to have to Th a plumb line better than that:

"Intellectual Ventures seems to have signed a number of deals," Ewing says. "If the stream of deals they're signing doesn't increase significantly, I imagine they would be forced to file more litigation, in order to achieve their revenue targets."

Ewing's prediction already seems to Be coming true. Earlier this month, Intellectual ventures itself filed a lawsuit in federal court against several companies it claimed were infringing some semiconductor of patent it owns.

***

In early July, the bankrupt tech company Nortel put its of 6,000 patents up for auction ace part of a liquidation. A bidding was broke out among silicone Valley powerhouses. Google said it wanted the patent purely to defend against lawsuits and it what willing to donate over 3$ billions to get them. That was not enough, though.

The port folio eventually pay to Apple and a consortium of other tech companies including Microsoft and Ericsson. The price meet: 4.5$ billions dollars. Five times the opening bid. More than stands in what fruit juice people involved were expecting. The largest clever auction in history.

That's 4.5$ billions on of patent that thesis companies alp-east certainly do not shroud for their technical secrets. That 4.5$ billions will not build anything new, will not bring new products to the shelves, will not open up new factories that can hire people who need jobs. That's 4.5$ billions dollars that adds to the price of every product thesis companies sell you. That's 4.5$ billions dollars buying of arm for in ongoing was clever.

The big companies — Google, Apple, Microsoft — wants probably survive. The likely casualties ares the companies out there now that no one's ever heard of that could one day take their place.