Intellectual Ventures' Patent Protection Racket

David Gerard writes "Nathan Myhrvold's Intellectual Ventures doesn't sue people over patents, because that would be patent trolling! No, instead they just threaten to sell the patent to a known litigious patent troll. So that's all right then. Timothy Lee details how using patents to crush profitable innovation works in practice, and concludes: 'In thinking about how to reform the patent system, a good yardstick would be to look for policy changes that would tend to put Myhrvold and his firm out of business.'"

Comments

Malcom Gladwell thinks it's swell

[DaveInAustin]

In this gushing article Malcom Gladwell implies that this sort of patent trollism is some great innovation on it's own.
Bill Gates, whose company, Microsoft, is one of the major investors in Intellectual Ventures, says, âoeI can give you fifty examples of ideas theyâ(TM)ve had where, if you take just one of them, youâ(TM)d have a startup company right there.â

Fractional pools

[IamTheRealMike]

Consider the following replacement patent system, let's call it the fractional pool system.

Let's say ACME Inc invents a new wonder drug at an approximate cost of $1 million. Let's also state that I is the "innovation incentive", a quasi-fixed constant specified by the government - sort of like the central banks base rate. I is expressed as a multiplier. For simplicity let's say I is 1.2

Multiply the cost of development by I to arrive at $1.2 million. ACME Inc applies for a patent on their wonder drug, and it is deemed novel thus granted. A new pool is created with a value of $1.2 million. Anybody who wishes to license this patent (and anybody can - there is no exclusivity in the fractional pools system) must enter the pool by paying enough into it to split it evenly.

For example, if MegaCorp wishes to compete with ACME Inc, they'd need to pay $600,000 into the pool, which is transferred to ACME Incs bank account. Now both companies are down $600k each. ZCorp sees that the wonder drug is popular and wants to enter the market too, so ZCorp pays $400k into the pool, which is split evenly between ACME Inc and MegaCorp. Thus all three participants in the pool are now down $400k.

This continues until the cost of entering the pool reaches some minimal floor at which point the pool is cancelled and the invention becomes public property. There is no particular time limit on this. It happens whenever it happens. You can see that ACME Inc will eventually make back their $1 million plus an additional profit of nearly (but not quite) $200k.

This scheme has some big advantages:

• Pro - there is no exclusivity. Thus companies cannot blackmail other companies or cause widespread economic disruption by suspending the distribution of a popular product. Nor can a company sit on an invention for decades without using it.
• Pro - the size of the pool is determined by the audited cost of development. Thus you cannot make millions off something trivial or obvious.
• Pro - there is no arbitrary time limit on an invention, which will never be right for every industry.

Of course there are some disadvantages too:

• Con - It can be difficult to judge exactly how much a particular invention cost - where do you draw the line between costs specific to that invention and general shared costs?
• Con - The "innovation incentive" is a fixed constant under political control. I used 1.2x in my example but perhaps a more realistic value is a lot higher, like 20x. Thus governments of the day can adjust it up or down - up likely means more inventions but higher costs to the eventual consumer, lower means cheaper toys but less R&D. Whilst the value could be adjusted per industry or even per invention, it will never be quite right for everything.
• Con - The second entrant to the pool has the advantage of not needing to do the R&D yet can immediately benefit from the invention. First mover advantage might not be enough to offset this. Perhaps could be solved by throttling the entry rate to the pool.

Despite these problems I think fractional pools are a more robust and flexible way to promote R&D than the existing patent system, which not only has arbitrary fixed constants but also gaping loopholes of the type we witness in this article. Discuss.

Re:Shorter lifetime?

[Ragingguppy]

For any of you who know patent lawyers that think that software patents and patents on business processes are a good idea show them this patent. Here is the link.

http://www.google.com/patents?id=ZUUNAAAAEBAJ&printsec=abstract&zoom=4#v=onepage&q=&f=false

Intrinsic failure of the system

[girlintraining]

The problem isn't that businesses litigate over patent disputes. The problem isn't even so-called "patent trolls". It's the legal framework that creates it; The deeper judicial and legal principles. Patents were meant to cover an applied technological advancement; Not a theoretical one, or to intangibles like a process. But the patent system has been expanded to cover these, and it was done in a haphazard fashion by people who didn't fully understand the implications of doing so.

The net result is that the patent system is being used to protect intangibles -- markets, processes, and "intellectual property". This was never the intend of the patent system. Even worse, the time limit of 7 to 14 years was needed due to slow business processes of the pre-computer era when it would take years to develop something and bring it to market. Now, development to market time can be weeks or months. While this was originally designed so that the inventor (an individual) could profit from his invention while safely making available details of how it worked to the public (thus advancing the state of the art), it nowadays functions as an impetiment to invention because of the long life of the patent and the nearly endless variations that are possible to keep basic inventions protected in perpetuity.

What's needed is a radical rethink of business process and economics, and the removal of the extreme reliance upon the legal system to protect it.