02.22.10

Intellectual Ventures “a Combination Mob Protection Racket + Ponzi Monetization Scheme”

Posted in Bill Gates, Microsoft, Patents at 9:22 am by Dr. Roy Schestowitz

Summary: People who are personally or distantly familiar with Microsoft’s patent troll Nathan Myhrvold openly explain what he is doing

THE firm called Intellectual Ventures, which is backed by Gates’ investment vehicle (mentioned earlier this morning) and typically described as a Microsoft-created patent troll, is a lot more than just that. It is connected to 1,000+ other entities such as Bill Gates’ Searete and people who claim to have “had some direct experience with Myhrvold’s group” have a lot more to say. It adds to what we wrote about the New York Times article a few days ago.

The Against Monopoly Web site refers to that same article which reveals the lesser-known sides of Intellectual Ventures:

Is this just a patent troll or a new way to extract money from everybody?

[...]

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.

One reader of ours says that “Intellectual Ventures & Myhrvold [are a] fraud worse than patents trolls” and he points to this first comment from the Against Monopoly Web site (written by “Repentant Patent Owner”):

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 goal is build an increasing portfolio of interlocking patents under control through a kind of pyramid scheme. Eventually the principals (Myhrvold, Gates, others) will cash out later. The patents are rarely held directly, instead they are held in an elaborate pyramidal network of LLC’s, LLP’s, etc.

The mob protection racket is in the form of thier pitch to current patent owners & potential licensees: “we’ve never sued for infringement, but of course a few of our patents have been sold to folks who do sue for nasty damages. Be a shame if anything would happen to your nice business, eh? Why not join us as a licensee AND investor? I’m sure we can make sure no patents of interest to you end up with the nasties.”

The idea is to get patent-owning firms (particularly multi-patent owners) to agree to sell ownership of the patents to IV, but also to get them simultaneouslyh INVEST in LLP’s that buy more patents. More investors means more $ to buy more patents, which brings more investors, which (especially when leveraged) brings more patents, which, …. until (someday) they have all the patents (of course Myhrvold & Gates are gone by then). All along the way, IV takes substantial mgt fees for managing all these portfolios & LLP’s.

No, IV isn’t a troll per se. It’s probably worse long-term for the larger economy. Kind of like how some of the worse Wall St creatures haven’t been extorting per se, but when you put together a pyramid of SIV’s levering off each other and buying Mortgage backed securities and then artificial derivatives based off the already derivative securities, all with 1% capital you get something not very healthy for the economy, but enormously profitable for the bank that manages the setup for fees.

If it is indeed a pyramid scheme, then it should be treated as such, despite the massive PR and lobbying that Intellectual Ventures is doing. The president of the FFII points out that “Even the average reader of the Harvard Business Review has a gut appreciation for the fundamental unfairness of software patents.” He points to this VC who speaks about Intellectual Ventures in response to that same report from The New York Times:

Software patents are the problem not the answer

[...]

Nathan supports this argument by comparing the current market for intellectual property to the early days of the computer industry. He argues that in the 1970s people did not believe the software industry could be an independent business and that it would always be linked to hardware. He says that software industry developed for two reasons. First, software vendors persuaded software users to respect intellectual property rights through both education and lawsuits, and second, the vendors overcame system incompatibilities and developed solutions that would work on different computers. Nathan suggests that a market for inventions would emerge if the same two conditions are met, and then offers his company Intellectual Ventures as a model for how to meet them.

I do not agree. Here’s why.

Let’s start with software analogy. Put aside the fact that in the 70′s software vendors used copyright law to prevent the outright copying of their software and not patents as Nathan proposes to do. The real reason the independent software industry emerged is that operating systems and APIs made it possible for independent software vendors to develop applications independently. They no longer had to ask permission of the hardware vendors. This same characteristic of permissionless innovation led to the explosion of independently created services on the internet. The rampant abuse of the patent system has created the opposite condition for the creators of software and web services today.

Here is Brad Feld’s take on it:

Perhaps Mr. Myrhvold recognizes this, because in the article he says “I’m trying to get inventions that kind of respect as an economic entity.” (Emphasis added).  IV apparently incentivizes innovation on…inventions?  “Inventions” are actually a term of art in patent law, they are the things for which one can legally be granted patent rights.  IV, therefore, seems to admit that it wants to enforce patent rights so that we can…have more patents.  Mr. Myhrvold wants to create an entire economic category based on payments to entitles 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.

Groklaw quotes from the article a part which says: “In the article and in conversation, Mr. Myhrvold describes the patent world as a vastly underdeveloped market, starved for private capital and too dependent on federal financing for universities and government agencies, which is mainly aimed at scientific discovery anyway. Eventually, he foresees patents being valued as a separate asset class, like real estate or securities.”

“A new way to gamble at the public’s expense, as I see it.”
      –Pamela Jones, GroklawPamela Jones mocks this comparison to “real estate”. “Is he kidding,” she asks, “After what investors/bankers/hedge funds in real estate did to the world’s economy? He wants to do that with patents? A new way to gamble at the public’s expense, as I see it.”

One of our readers, the one who wrote a short article about Myhrvold glorification in some gullible Web sites, points to this followup and calls it “More vacuous glorification of Gates and Myhrvold, “The Dawning of the Age of Biology” is a dinner that makes me want to gag. There’s a nice picture of Gates looking nasty, but the text is gibberish. It is not surprising to see Huffington Post people at such a gathering, but it is sad to see BoingBoing getting suckered by the “shoulder rub”. Jardin might want to take a shower to wash that rub off if she thinks of what Microsoft business methods will do to medicine and food.”

Yes, those old PR stunts of Myhrvold do receive some attention and the same goes for Gates (coverage from The GigaOM Network which was paid by Microsoft). The writers seem not to pay attention to what really happens out there (lack of context) and overall, the problem is no longer just Microsoft because the Gates family is spreading to other abusive monopolies and even funds/creates this patent menace that Myhrvold is engineering. █

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