A New Way to Buy and Sell Ideas

Nathan Myhrvold's company Intellectual Ventures is trying to create a capital market for patents, inventions and intellectual property, one that would use the venture capital and private equity markets as a model. Is Myhrvold's brave new world of investment firms trading the rights to a better mousetrap feasible, or even ethical?

Intellectual Ventures -- most recently seen unveiling a mosquito death ray at the TED conference -- already owns more than 30,000 patents. Its eclectic approach matches the diverse interests of its founder, whom the New York Times called "the ultimate polymath":

"He earned his Ph.D. in physics from Princeton and did postdoctorate research on quantum field theory under Stephen Hawking, before founding a start-up that Microsoft acquired.

"He is an accomplished French chef, who has also won a national barbecue contest in Tennessee. He is an avid wildlife photographer, and he has dabbled in paleontology, working on research projects digging for dinosaur remains in the Rockies."

Setting aside Myhrvold's colorful pedigree, his company's approach has long drawn fire, with critics dubbing it "Intellectual Vultures."

Amar Bhidé, author of The Venturesome Economy, is a high profile critic of Myhrvold's vision. Invention, to him, is akin to writing a book: what if authors had to buy licensing rights for every idea they cited, instead of simply giving credit in the footnotes? Many of the best new products, he argues, are combinations of countless ideas, some patentable, some not.
A patent attorney writing under the pseudonym "Sawyer" laments:

"Mr. Myhrvold wants to create an entire economic category based on payments to entities that don't build, produce, sell, etc, any products, or create anything of value (i.e., that don't innovate, at least in any useful way that advances human progress), in exchange for not being sued on exclusionary patent rights."

In the software patent world, shell entities (often called "patent trolls") backed by investment funds already bring dozens of lawsuits against innovators each year. They target start-ups as well as technology giants like Google, Apple, and Microsoft, hoping to win money in battles over IP. Sawyer writes:

"What we have, then, is a net outflow, on a yearly basis, of at least several hundred million dollars, from technology companies who "make stuff" and unquestionably innovate, to speculators and investors who don't."

Strictly speaking, Intellectual Ventures is not a patent troll, because litigation does not form the core of its business model. It also employs an army of engineers and scientists, who create inventions of their own.
But recent divestitures by the company show that at the very least it will happily do business with firms that engage in trolling behavior. Last year, for example, an Intellectual Ventures shell sold a patent to holding company Picture Frame Innovations LLC, which immediately turned around and asserted the patent against Hewlett-Packard, Kodak, and CDW Corp. Many are afraid that Intellectual Ventures's efforts to create a pervasive "invention capital" market could cause this sort of vampirism and trolling to expand beyond the domain of software IP and stymie innovation in all sectors.

Myhrvold assures us the exact opposite will occur: that his system will create a vigorous market in IP rights and solve an epidemic of under-invention. Myhrvold confidently predicts that competition between investment funds to buy intellectual property from inventors, bundle it, and sell it to buyers who know how to exploit it will support increased output from innovators. But in his effort to encourage invention, he might be single-handedly facilitating the unholy genesis of a huge new class of parasitic middlemen.