Innovation Policy Post

Privacy laws need to be updated to accommodate the realities of fast paced technological innovation and digital progress. That’s the message of a broad coalition of consumer groups, companies, and academics who announced a new advocacy group today, called Digital Due Process. The Computer & Communications Industry Association joined with the coalition to issue recommendations on how to update federal laws to clearly define rules for government access to location data, email and private files that are stored remotely.

Last week, Microsoft got taken to the cleaners in an East Texas patent infringement case to the tune of over $100 million. With the patent system in shambles, these days even six figure damages don’t come as much of a surprise.

It’s when you dig deeper that the case becomes interesting. The plaintiff in the case is the previously unheard of VirnetX. Boycott Novell, among others, has identified them as a classic troll. Not surprisingly, they’ve never sold a product. The five year-old company has but 12 employees.

However, most of the NPEs we’ve encountered have unleashed their broad patents to take out a slew of large companies—sometimes up to 20 or 30. However, VirnetX doesn’t fit this mold. As Seattle PI points out, it appears to have been formed for the express purpose of suing Microsoft—and only Microsoft—regarding VPN technology patents.

Indeed, just a week after its big win, VirnetX is going back to the well. They’ve filed yet another infringement suit against Microsoft, this time over Windows Vista and XP. And sure enough, they’re counting on the District of East Texas to double down on its unwavering support of troll behavior.

We have to tip our caps to Zusha Elinson, who has done more than anyone to expose the inner workings of Nathan Myhrvold’s secretive enterprise, Intellectual Ventures. Elinson previously broke the story of IV handing off patents to an NPE, Picture Frame Innovations. Sure enough, Picture Frame used the patent to bring Kodak to court for patent infringement.

This may reflect IV’s new “catch and release” strategy, where a patent holder acquires a patent, grants itself a license, and then resells the patent – in this case, apparently to a lawsuit-happy NPE. This can all be done while maintaining a record of not getting directly involved in litigation. Meanwhile, according to Elinson, IV gets a stake of whatever proceeds the NPE makes as a result of the licensed patent, including via litigation.

Now comes word that Kodak is calling IV on its bluff. Elinson reports that Kodak is demanding that IV attend a settlement conference along with Picture Frame.

“The sides are also fighting over weather Picture Frame’s relationship with IV should be kept under seal. The briefing outlines some of the deal terms, all of which essentially say that IV has no control over what [famed NPE lawyer Ray] Niro does with the patent it sold him. But it doesn’t answer the big question: what kind of cut does IV get from the lawsuit?”

Originally, the Illinois judge presiding over the case agreed with Kodak’s request, only to change his mind and merely “encourage” IV to be present.

IV claims it has not yet made a decision. We will have to wait and see if Myhrvold and company are ready to acknowledge their role in these lawsuits or if they simply choose to delay the inevitable.

We have to give former Sun CEO Jonathan Schwartz credit—he’s nothing if not interesting. After all, how many Fortune 500 presidents resign via Twitter haiku?

Schwartz now occupies his time blogging and commenting on the latest tech trends. His most recent post on the increasingly litigious nature of Apple caught our attention.

Buried towards the bottom, he notes the danger of NPEs and the threat they posed to Sun during his tenure. He goes on to link to a pending patent, which he defines as “an application to patent the act of trolling.”

The actual patent needs to be seen to be believed. Essentially, if Troll A owns this patent, and Troll B sues Legitimate Company C for infringement, Troll A could turn around and sue Troll B for violating its trolling patent. As Schwartz puts it, “it would give the patent holder a reciprocal claim against a patent troll.

If that’s not strange enough, get this—the patent applicant is service provider and government contractor Halliburton. Yes, that Halliburton.

Take a look at the patent application – it’s good entertainment value.

Since Steve Lohr’s New York Times critique on Intellectual Ventures, last month the blogosphere has lit up with discussion about back door schemes to file or threaten to file patent lawsuits. Revelations of IV’s skyrocketing lobbying expenses and political contributions as well as new strategy of licensing patents to lawsuit-happy NPEs have prompted a flurry of anti-IV sentiment.

What follows is a guide to the various articles posted since the February 18 NYT article:

• Tech Crunch: Mike Masnick focuses on the revelation that IV has over 1100 shell companies, noting “No wonder IV can pretend it doesn’t sue anyone. It can simply hide behind its shell companies.”
• Tech Flash: Todd Bishop discusses Nathan Myhrvold’s desperate attempt to combat the NYT article and save face in the court of public opinion.
• Seattle Weekly: Brian Miller compares the NYT article with Nathan Myhrvold’s long-winded response in Harvard Business Journal.
• Union Square Ventures: Venture capitalist Brad Burnham provides a point-by-point rebuttal of Myhrvold’s justification for his business model.
• The Faster Times: Fred Wilson endorses Brad Burnhams views for why Myhrvold’s views on the patent system are wrong.
• Enterprise Irregulars: An anonymous patent infringement attorney, who has been the victim of NPEs: “IV has collected over a billion dollars so that it can get more patents. They make no products. They apparently don’t funnel ideas to anyone else who makes products. Heck, the only useful thing I’ve seen out of IV is that mosquito-killing laser that Mr. Myhrvold showed off at TED this year.”
• Against Monopoly: John Bennet concludes that “It doesn't sound to me like Myhrvold has much interest in the poor inventors. Rather, he just seems to want their patents so he can make piles of money suing manufacturers.”
• Boycott Novell: “Having had some direct experience with Myhrvold’s group (and hence my desire to remain anonymous), I suggest the following. “’Patent troll’ is too simplistic and limiting. Think of IV as a combination mob protection racket + ponzi monetization scheme.”
• The Economist: This editorial takes a very skeptical view of Myhrvold’s defense, noting “Mr. Myhrvold may find that the suspicions against him of patent-trollery have a long half-life.”
• Tech Dirt: Mike Masnick again posts on Intellectual Ventures, referencing the Enterprise Irregulars post to back up his anti-IV stance.
• Dow Jones: Stuart Weinberg reveals IV’s recent licensing of patents to firms located in Marshall, TX, a haven for patent infringement lawsuits: “If IV is selling patents to more aggressive third parties, the strategy has merit, said Tom Ewing, principal consultant for Avancept, an intellectual-property consulting firm. For one, IV generates revenue from the sales. Second, if IV retains a stake in the patents, it can generate additional revenue. Third, and most important, the third parties can serve as "surrogates" to pressure potential IV licensees.”
• Law.com: Zusha Elinson notes that Verizon has sued TiVo regarding one of IV’s patents.
• Tech Flash: Eric Engleman also discusses the Verizon-TiVo battle.
• Wall Street Journal: Don Clark goes in-depth regarding IV decision to start selling patents to firms willing to file patent infringement lawsuits: “Merino says some such sales deals have a ‘back end.’ In other words, his firm can receive some revenue generated by the company that buys its patents, whether through a lawsuit or some other means. But IV does not control what the buyer does with them.”

Ever had a leaky ceiling? You can place a bucket under it and delay the inevitable, but ultimately the steady dripping is going to take its toll and that bucket is going to overflow. Eventually, the ceiling may even collapse.

The latest drip in the unraveling of secretive Intellectual Ventures came last week in the form of a Wall Street Journal article. Writer Don Clark pokes holes in Nathan Myhrvold’s claims that his “invention company” makes no profits from patent infringement lawsuits:

“[IV VP of Licensing Don] Merino says some such deals have a ‘back end.’ In other words, his firm can receive some revenue generated by the company that buys its patents, whether through a lawsuit or some other means. But IV does not control what the buyer does with them.”

IV has long bragged of its record of never having filed a patent infringement lawsuit. However, these WSJ revelations suggest that they are achieving the same end product – revenue – by licensing patents to NPEs more than willing to sue. They are simply going through the back door.

Indeed, this is not the first article to note IV’s propensity to sell patents to litigious NPEs. A recent Dow Jones article revealed that several IV shell companies licensed eight patents to two firms that happened to be headquartered in Marshall, TX—a place known for its high number of patent lawsuits.

A September Recorder article titled “Intellectual Ventures Takes Indirect Route to Court” opened the lid on IV having sold patents to a firm that used them to sue Kodak for infringement:

“With its new practice of selling off patents to third parties, litigation is much more likely. It’s similar to the ‘catch and release’ model used for some time by other patent-holding companies. That’s a friendly sounding name for a threat that goes like this: Take a license because we’re going to sell the patent on the open market—and you never know what unscrupulous and lawsuit-prone troll is going to buy it.”

As the steady drip continues, one can only wonder how long the infamous IV machine can sustain its image of benevolence.