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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.

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