Intellectual Ventures' Nathan Myhrvold
Intellectual Ventures’ Nathan Myhrvold

Intellectual Ventures, responding this afternoon to This American Life’s latest report on its patent dealings, denies that it uses shell companies to pursue patent lawsuits on its behalf.

The statement specifically denies any ownership or control of a mysterious firm, Oasis Research, that filed suit against 18 tech companies using a patent purchased from Intellectual Ventures, a case that was at the center of the radio program’s investigation.

However, the company doesn’t dispute the revelation that it negotiated a deal to receive 90 percent of the ongoing profits from that patent even after the sale.

Here’s an extended excerpt from Intellectual Ventures’ statement.

The relationship between IV and Oasis Research

  • Oasis Research is an independent company who purchased patent assets from IV.
  • Oasis Research is not a holding company that IV owns, controls or manages.
  • Oasis Research is not a company doing business at IV’s direction.

Intellectual Ventures and its holding companies

  • IV’s acquisition entities (what others refer to as “shell companies”) are holding companies that hold our assets – they are not vehicles for our litigations. Since that part of our business continues to confuse people and generate speculation, we wrote about it at length here last December.
  • We realize others – including Mr. Ewing who was an expert for the story – want to perpetuate this myth. In fact, in good faith, we have invited Mr. Ewing to visit IV so he can learn more about our business.
  • We do litigate and when we do, you can find that information on our website and our name will be in the filing.

How we structure asset divestiture deals

  • Intellectual Ventures divests assets and will continue to divest assets as we refine our portfolio and business strategy. There is an active market for buying and selling invention rights, and we engage in that market on both sides of the transaction.
  • In spite of how this activity is represented in the story, insinuations that we divest assets to our acquisition entities and then sue companies through them makes for dramatic storytelling but does not reflect the truth.
  • While we cannot disclose specific financials for specific deals due to contractual obligations, we can disclose that divestiture activities and related revenue account for a small part of our overall business.
  • As for how the divestitures are structured, about two-thirds of our sales have been cash up front. The remaining sales are deals that include cash with a back-end arrangement (like the transaction discussed in the story).
  • The bottom line is, when we have interested buyers for our assets, we will entertain a sales discussion. The details of how those sales are structured vary from deal to deal – including the amount of the back-end arrangement.
  • When we do an asset sale, our preference is to sell assets for cash, but we often need to work within the financial means of the buyers.
  • The reality is it’s not uncommon for IP transactions to be structured in this way – when we buy assets from inventors we often pay them less up front with the possibility of making more downstream.
  • The same is true for when we sell – we often sell for less up front with possibility of making more over time.
  • This so-called “back-end model” isn’t a practice IV came up with. In the IP asset industry – one that is still very risky – back-end arrangements are more typical than not as a way to share the risk given the long life of patents. This is true whether the buyer is a non-practicing entity or an operating company. Full-cash deals tend to be the exception in the industry, but most of IV’s sales deals are for cash up front.

Bottom Line

  • Regardless of the facts, we understand the structure of this particular deal and others like it have upset people.
  • As with all of our business practices, we are constantly evolving them and revisiting them, including how we structure our deals.
  • In fact, our CEO discussed Oasis Research and other similar transactions in some detail in an interview earlier this year.
  • As for the inference that we sold Oasis low-quality assets – IV has no business interest in buying, litigating or selling assets that are going to be found invalid. Our business depends on owning and monetizing high-quality assets.
  • As the story pointed out, however, patents are complex and given we’ve acquired more than 70,000 assets, even with our best due diligence process, the odds are, not every asset will hold up in court.

The full statement is available here, and also includes IV’s written response to This American Life during the reporting of the story. The public radio program first dug into Intellectual Ventures’ dealings as part of a larger exploration of the patent system in 2011.

The controversy comes as President Obama pushes for a series of patent reforms including a “Real Party-in-Interest” rule that would require ownership disclosures from companies filing patent suits, sending demand letters or seeking a patent review.

Here is IV’s statement on the proposed reforms.

Intellectual Ventures supports improvements to the patent system, and we supported the president when he introduced the American Invents Act (AIA). The AIA received broad, bipartisan support and represents an ambitious overhaul to the current patent system. Although we appreciate some of the president’s current proposals and they could help alleviate some of the issues that persist in the current patent system, Intellectual Ventures would encourage lawmakers to continue pursuing the bold changes set forth as part of the America Invents Act since they have yet to be fully adopted. As for specific comments on the proposals the White House issued today, the details of these proposals still need to be reviewed more closely. As we’ve argued in the past, Intellectual Ventures believes ‘real party in interest’ proposals are misguided and merit further discussion, but we will of course comply with whatever regulations are enacted.

Bellevue-based Intellectual Ventures is run by Nathan Myhrvold, the former Microsoft chief technology officer, who still works regularly with Bill Gates on a variety of businesses and projects. Microsoft itself has called for more transparency in the patent system and an end to the practice of patent owners shielding their true identities.

Previously on GeekWireWatch out, Intellectual Ventures? President Obama says enough with patent shenanigans

Editor’s Note: Intellectual Ventures was one of the category sponsors for the recent GeekWire Awards.

Comments

  • Guest

    Where are all the comments from trolls and shills now that IV categorically denies the allegations and lays out the facts?

  • PatentTroll

    Troll here,

    Ok, they purchased the patents from IV. But IV is still trolling like mad suing people and stopping any innovation. They are sue happy at many levels.

    They are kind of like the up and coming healthcare tax. We have no say in the matter, pay up or die.

    Even if you are 1st to file a patent, doesn’t mean you should should get a patent.

    Like of like the companies that are patenting DNA when they didn’t invent DNA.

    The Patent idea and process is broken and companies like IV are just abusing it to the tenth degree.

    Regards

    Troll.

    PS: Thanks for responding Nathan.

  • SeriouslyIV

    Here’s an apt analogy: IV (douchebags) sell car to a bank robber (Oasis) who only robs bank for a living. IV claims 90% of anything Oasis steals while using the car but denies any knowledge or involvement in robbing banks.

    I mean really Intellectual Ventures. You sold the patent to a company that has no employees, no operations, nothing. Obviously they were just going to take the patent to sue other companies. Please don’t try and act like you didn’t know.

    Hiding behind this “we don’t have ownership” crap is pitiful. It’s even more damning when you claim 90% of the profits.

    • PatentTroll

      Amen brother!

  • Scott

    IV’s response is a straw man (and the Geekwire headline falls for it). The TAL story doesn’t accuse IV of owning or controlling Oasis Research: it just says that IV profits from Oasis collecting on claims for the patents IV sold it. As Oasis is obviously a non-practicing entity, that’s the only value IV could get from the backend of the sale. It doesn’t matter if IV owns or controls Oasis, only how it derives value from Oasis’s actions.

  • krisdahl

    Here is the problem. If IV is getting 90% of the ‘back-end’, they are the ones that benefit most from the the actions of Oasis. IV may not technically own the patent, but they certainly own the financial interest in it, and I’m sure must have been party to the strategy on how to monitize it.

    Sounds a lot like a shell company to me.

    As an added bonus for them, if a judge rules against Oasis and awards damages (as Obama is recommending judges be able to do), Oasis has no real assets and could file bankruptcy. IV gets all the upside, but none of the risk.

    Shame is that I do think that IV is doing some really cool original research, in some really great fields. I suspect they’ll stick to that even if patent law gets reformed, but are simply taking advantage of the current landscape with the 70k patents they’ve owned.

  • Guest

    Why is it I keep getting the feeling that Geekwire has a very tight relationship to IV?

  • Thiago

    That’s the way things work in the business world, unfortunately. It’s definitely not always fair. If they have to file for bankruptcy, at least now they’re expecting it and have time to prepare. Thiago | http://www.wagnerlawofficepc.com

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