The Drag on Economic Growth from Nathan Myhrvold, Patent Troll

Needless to say, the patent system really, really needs to be fixed: this is really, really damaging to us.

Alex Blumberg and Laura Sydell:

Intellectual Ventures And The War Over Software Patents : Planet Money : NPR: Myhrvold has more than 100 patents to his name, and he's cast himself as a man determined to give his fellow inventors their due. In 2000, he founded a company called Intellectual Ventures, which he calls "a company that invests in invention." But Myhrvold's company has a different image among many Silicon Valley insiders. The influential blog Techdirt regularly refers to Intellectual Ventures as a patent troll. IPWatchdog, an intellectual property site, called IV "patent troll public enemy #1." These blogs write about how Intellectual Ventures has amassed one of the largest patent portfolios in existence and is going around to technology companies demanding money to license these patents….

[P]eople at companies that have been approached by Intellectual Ventures don't want to talk publicly. "There is a lot of fear about Intellectual Ventures," says Chris Sacca, a venture capitalist who was an early investor in Twitter, among other companies. "You don't want to make yourself a target." Sacca wouldn't say if Intellectual Ventures had been in contact with any of the companies he's 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….

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 most high-tech mosquito zapper.

But the lab is a tiny fraction of what IV does. The company has received about 1,000 patents on stuff it's come up with at the lab; it's purchased roughly 30,000 patents from other people. In fact, nothing that's come out of this lab — not the mosquito zapper, not the nuclear technology — has made it into commercial use…. Imagine an inventor out there — someone with a brilliant idea, a breakthrough. This inventor has a patent, but companies are stealing his idea. And this inventor doesn't have the money or legal savvy to stop them. That's where IV comes in. It buys this inventor's patent, and it makes sure that companies who are using the idea pay for it. When we asked for an example of an inventor in this situation, someone with a breakthrough, who wasn't getting paid for it, two separate people at IV pointed us to a guy named Chris Crawford…. So we went to talk 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 not quite fit the story Intellectual Ventures was telling.

When we followed up with IV to get Chris Crawford's contact info, the company told us it no longer owned Chris Crawford's patent. And Crawford probably wouldn't want to talk right now anyway, the company said, because he was in the middle of litigation. We started digging around and found Chris Crawford in Clearwater, Florida. As predicted, he 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 patent — number 5771354. He got it in 1998. And the way IV explained the patent to us, Chris Crawford invented something that we do all the time now: He figured out a way to upgrade the software on your home computer over the Internet. In other words, when you turn on your computer and a little box pops up and says, "Click here to upgrade to the newest version of iTunes," that was Chris Crawford's idea.

But when we looked at the patent, it seemed to claim a lot more than that. The name of the actual invention is "an online back-up system." The patent says this invention makes it possible to connect to an online service provider to do a bunch of stuff — software purchases, online rentals, data back ups, information storage. The patent makes it seem like Chris Crawford invented a lot of the most common things we do on the Internet. We weren't sure what to make of all this, so we went to see David Martin, who runs a company called M-Cam. It's hired by governments, banks and business to assess patent quality, which the company does with a fancy piece of software. We asked Martin to assess Chris Crawford's patent. At the same time Crawford's patent was being prosecuted, more than 5,000 other patents were issued for "the same thing," Martin says. Crawford's patent was for "an online backup system." Another patent from the same time was for "efficiently backing up files using multiple computer systems." Yet another was for "mirroring data in a remote data storage system." And then there were three different patents with three different patent numbers but that all had the same title: "System and method for backing up computer files over a wide area computer network."

Martin says about 30 percent of U.S. patents are essentially on things that have already been invented. In 2000, for example, the patent office granted a patent on making toast — patent number 6080436, "Bread Refreshing Method." We also asked Rick McLeod, a patent lawyer and former software engineer, to evaluate Chris Crawford's patent. "None of this was actually new," he told us….

This brings us back to Chris Crawford's patent, the patent Intellectual Ventures cited as an example of how they encourage innovation by ensuring that inventors get paid. As we've said, this patent also seems to cover a big chunk of what happens on the Internet: upgrading software, buying stuff online, and what's called cloud storage. If you have a patent on all that, you could sue a lot of people. And, in fact, that's what's happening with Chris Crawford's patent. Intellectual Venures sold it to a company called Oasis research in June of 2010. Less than a month later, Oasis Research used the patent 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. He didn't return our phone calls, but we did track him down at an intellectual property conference in San Francisco. He cited attorney-client privilege, and wouldn't tell us anything — not even who owns Oasis Research. (He did say he's a big fan of NPR.)…

The office was in a corridor where all the other doors looked exactly the same —locked, nameplates over the door, no light coming out. It was a corridor of silent, empty offices with names like "Software Rights Archive," and "Bulletproof Technology of Texas." It turns out a lot 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 are not coming up with new inventions. The companies are in Marshall, Texas because they are filing lawsuits for patent infringement. Patent lawsuits are big business in Marshall, which is part of the eastern district of Texas…. We did find one key detail about Oasis Research. It was in a legal document called a Certification of Interested Parties, which lists all the entities with a financial interest in Oasis. Tom Ewing, an 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 also includes one other name: Intellectual Ventures. Peter Detkin, an attorney who co-founded Intellectual Ventures with Nathan Myhrvold, told us that IV likely has a "back-end arrangement" with Oasis…. Intellectual Ventures is taking a cut of whatever money Oasis gets from its lawsuits. Oasis is a company with no operations, no products, and, as far as we can tell, no employees, that is using a very broad patent from 1998 to sue over a dozen companies.

As it happens, Detkin is the man who coined the term "patent troll." He came up with it back in in 1999, when he was working for Intel.

We asked him how it feels to make money from an entity that's behaving much like the patent trolls he once condemned. He said:

These are patents we used to hold, we no longer hold. And we ensure that we have no control over the actions of these third parties. They are independent actors. They are not Intellectual Ventures. They may be monetizing in ways we disagree with, but it's not our call….

We asked if he could point us to a patent that was languishing, but then got licensed and built. "There were two deals that were done," he 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."…

For this story, we called people who had licensing arrangements with IV, we called people who were defendants in lawsuits involving IV patents, we called every single company being sued by Oasis Research. No one would talk 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 Silicon Valley...