What Exactly Does Intellectual Ventures Do That Seems to Bother (Some) People?

By Neil Wilkof

There are few companies in the IP firmament that attract as much as pro and con as Intellectual Ventures, here and here. Since its establishment more than a decade ago, this privately-held company has engaged in a combination of carrying out internal R&D, partnering with research entities and acquiring patent rights (apparently mostly the latter), whereby it is now reported to be one of the five largest owners of US patents. Revenues are based primarily on licensing and, since 2010, the company has also engaged in the filing of law suits to enforce its rights.

It is difficult to get one’s Kat paws fully around the company because it does not tend to disclose the full range of its activities and, indeed, it has been accused of artfully camouflaging at least some of what it does. For this reason perhaps, as well as the sheer scope of its patent holdings, the company has become a rhetorical lightning rod for the current state of the patent system. Its supporters see it as breaking new ground in the monetization of patent rights; its detractors see it as the worst kind of patent troll or non-practising entity (NPE), the Death Star of the IP world.

It is not this Kat’s intention to enter into the general debate about Intellectual Ventures. Rather, this Kat wishes to focus on a couple of brief quotes attributed to Melissa Finocchio, vice president and chief litigation counsel of the company, as a prism through which to gain better understanding how this NPE is challenging the way that we approach the patent system.

The source  of the quotes is a short report in the February 5, 2013 issue of IP Pro The Internet.com here. Entitled “Intellectual Ventures secures another settlement”, the piece reports that Intellectual Ventures has settled its patent infringement suit against the chip manufacturer Microsemi. The piece then briefly discusses the result of other litigation brought by the company and its involvement on the recent sale of certain Kodak patents.  In this context, the following two quotes were brought:

“In a statement, Melissa Finocchio, vice president and chief litigation counsel for Intellectual Ventures, said: ‘In the past 12 years, [the company] has assembled a world-class patent portfolio and this settlement is further confirmation of the strength of our assets'”. ” [In] a November 2012 statement, Finocchio said: ‘We have invested in one of the most extensive intellectual property portfolios in the world and the succession of recent settlements validates the strength of this portfolio. We are committed to fulfilling our responsibility to our customers and investors by licensing our assets and by defending our rights in court when necessary'”.

Imagine, for a moment, that instead of describing Intellectual Ventures, the quotes referred to a company such as IBM or Samsung. Would anyone find them controversial? Weren’t we all told over a decade ago that patent portfolios were being underexploited commercially, and that licensing is a way to realize their full potential value?  And if litigation is necessary, now and then, to support such licensing efforts, that is certainly within the right of patent holders. Looking more generally, isn’t the goal of any profit-seeking entity to deploy its assets in a way that maximize their value?  And what is wrong in a company fulfilling its responsibility to its investors and customers; aren’t they central stakeholders for the company? Ok Kat, all of this might be true, but they apply to hard assets– intangible assets are different.   That is fine, but pointing out that there is a distinction between hard and intangible assets does not explain why exploitation of an otherwise unused  patent asset but its original owner is okay, but transfer of that asset to a third party for the sole purpose of seeking to exploit the asset by a combination of benign licensing overlaid by litigation, if necessary, is unacceptable.  Arguing that the former scenario is consistent with the purposes and rationale of patents, but the latter does not, seems to beg the question. After all, there is no accepted common understanding regarding the purposes and rationale of patents. Even if there were such a consensus, why should that matter: if Intellectual Ventures, or any other NPE, is exercising its patent right in a lawful way, why should the purposes  and rationale of the patent system matter?

This Kat has no ready answers to his own questions, but he would like to conclude with a tentative suggestion. Maybe one way is to consider the notion of economic rent-seeking. We do not mean the relationship between a landlord and a tenant for the right of the latter to occupy and use the premises of the former. Rather, we mean, as defined in Wikipedia, the

“spending [of]  resources in order to gain by increasing one’s share of existing wealth, instead of trying to create wealth. The net effect of rent-seeking is to reduce total social wealth, because resources are spent and no new wealth is created. It is important to distinguish rent-seeking from profit-seeking. Profit-seeking is the creation of wealth, while rent-seeking is the use of social institutions such as the power of government to redistribute wealth among different groups without creating new wealth. Rent-seeking implies extraction of uncompensated value from others without making any contribution to productivity.”

Is there something in the notion of “rent-seeking” that might explain why the actions of an NPE vis-à-vis a patent are criticized, but the same action taken by the original owner of the patent is not?  After all, the NPE neither engages in the creation of the invention nor in its exploitation. Or has this Kat had one too many portions of catnip?

[This post originally appeared at The IPKat.]

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