Topic: Invention Capital
1. What is invention Capital (LEE, Jin Su)
2. Intellectual Ventures (WOO, Seung Ho)
3. Business Model (JUN, CHAE OAK)
4. Patent Troll (KIM, Su Mi - Editor)
5. Korean Invention Capital Market (BAEK, Su-Dong)
1. Invention Capital: New idea with old roots
Invention Capitalism- Invest in invention directly
Invention Capital (hereinafter “IC”) invests in invention directly not in companies. IC treats inventions as an asset like securities, commodities, real estates etc. Offers prolific inventors new opportunities and incentive to play the game. Also provides existing companies new sources of innovation.
The key invention drivers are incentives (who has the greatest incentive to invest) and alternatives (who makes invention a priority).
Current market undervalues invention and discourages innovation. There are lack of incentives, market inefficiency, lack of invention-focused business models and invention-hostile business culture. IC makes a thriving marketplace for ideas and activates free market forces to ensure fair competition for investors. Emerging free market forces facilitating market for invention rights.
IC differs from Venture Capital or Private equity.
Venture Capital and Private Equity provide capital and expertise to companies not directly invest in invention.
Create 60% patents, Receive less 1% revenue – individual investors
Who is the source of inventions?
That is not a corporation or a university. Corporations are not a major source of invention. They put lots of money for R&D. But they focus on development rather than research. Product development is main goal. They think invention is risky. Most effort focused on just next generation not a long-term development.
Universities are also not a major source of invention. Academic research is for publishing papers, discovering things about the world not for invention. Invention is a byproduct, not a goal.
Individuals and startups are major sources of invention. They create more than 60% of patents. Startups often are based on initial invention. But they are also invention is a byproduct, not a goal. Most inventions are done prior to funding.
Individuals are real huge source of invention. They don’t have systemic help and that makes lots of problems to funding, business judgment and marketing. So individuals and startups receive virtually none of patent licensing revenue.
IC makes Inefficiency IP market to Efficiency Market
Intellectual Property (hereinafter “IP”) market is inefficiency since it is lack of active and innovation. And without sufficient incentives, entrepreneurs do not develop business models focused on invention.
IC tries to make IP market as a efficiency market.
In many efficient models, scale and aggregation are the key components. More ubiquitous access to information also leads to proper valuations. Efficient markets are providing capital and liquidity which ultimately sooth the market for all.
If the IC is big enough to get scale and aggregation, IP market will be efficient.
IC market is growing fast
Continuously, Patent licensing Market, which is one of the profit sources in Invention Capital industry, is growing. It was below $ 20 billion in 1990. 10 years later, market is growth 10 times to $ 150 billion. In 2007, it reached to $ 500 billion. Experts expect that the market size have more potential to grow.
2. Intellectual Ventures; Investing in Invention
27,000 patents – World largest Invention Capital
Intellectual Ventures (hereinafter “IV”) is the world largest and fastest growing patent holdings invention capital with $5 billion.
Intellectual Ventures is a private company with many shell companies founded in 2000 by scientists Nathan Myhrvold and Edward Jung who is Korean-American. Driven by the belief that invention is the highest-value and most interesting part of the commercial food chain, Myhrvold and Jung set-out to build a company that would focus exclusively on inventing and the business of invention.
IV’s goal is to develop a large patent portfolio rather than to actually develop new systems.
So far it’s built a portfolio of about 27,000 patents (by June 2009), the bulk of which it has accumulated by acquiring them from other companies or individuals. It is ten times more than Interdigital Inc. the second largest invention capital with 2,633 patents.
Intellectual Ventures Overview
|Type||Privately held company|
|Founders||Nathan Myhrvold, Edward Jung, Peter Detkin, Gregory Gorder|
|Headquarters||Bellevue, Washington, US|
|Fund Size||$5 billion|
|Investors||Bill Gates, Intel, Sony, Nokia, Apple, Google, eBay|
|IV Asia||Korea, Japan, China, India, Singapore|
Imagination into Intellectual Capital: Collect Royalties
IV was created to amass and license intellectual property: inventions, but more specifically, patents that can be used to collect royalties from companies that use the patented concepts in their products.
When IV acquires inventions from investors, it appeals them with twofold: the opportunity to interact with a diverse group of thinkers purely for the sake of invention, and the efficiency with which IV translates imagination into intellectual capital.
To pursue this vision, IV has hired some of the brightest minds in business, technology, computer science, physics, biotechnology, mathematics and intellectual property, so predominantly patent attorneys, physicists, engineers and biotechnologists as well as prominent scientists to perform invention.
After that, IV makes money from royalties it receives when other companies use patented ideas that IV has acquired, brokered or leased. The acquired patents have produced about $1billion in licensing revenue. Patents that IV has won for its own work have produced about $80million. Besides the patent work, Myhrvold also hopes to create two or more spinoff companies every year.
Patent Litigation equal to Bankruptcy: Troll Repellent
When Myhrvold and Jung first began raising money for IV in 2002, the sales pitch was crystal-clear. The company’s patent portfolios would provide a way for big tech companies to defend themselves against intellectual property lawsuits.
At the time, many people feared an explosion in patent litigation because of the bursting of the dot-com bubble, which had sent many starts ups into bankruptcy. That, in turn, had forced the defunct companies to put their patents -their last remaining assets, in some cases- on the market at bargain-basement prices. The threat that opportunistic trolls would buy the patents and then file lawsuits alleging infringement worried many executives in Silicon Valley.
So Myhrvold and Jung began making the rounds of major technology companies to drum up investment in what they called the Patent Defense Fund, a name that pretty much translates into “troll repellent”. Initially, each company, say several individuals familiar with the sales effort, was asked to pony up $50 million.
The plan was that IV would go out and buy patents that were knocking dangerously around the marketplace and investors would get a license to the entire portfolio – effectively immunizing them from the danger of intellectual property litigations.
Put $65,000, get $25 million. 400 times return
Legal developments, meanwhile, provide some useful marketing support for IV’s concept. In February, 2003, a jury hit Sony Corp. with $25 million in damages for infringing a handful of patents that the plaintiff had purchased for $65,000. (Sony settled for an undisclosed amount and took out a license.) Sony signed on with IV, as eventually did Intel, joining a group that now includes Microsoft, Apple, Nokia, Google, and eBay. Some have paid much more, and some less, than $50 million.
IV declines to confirm the identity of its investors, and the other companies declined to comment. IV requires investors to sign a nondisclosure agreement.
If you don’t invest, you are No.1 target: Troll?
Bill Gates , Intel, Sony, Nokia, Apple etc. invested :
Although the ostensible purpose of the Patent Defense Fund was to protect its big investors, some executives saw an implicit threat when IV approached. It was “green mail pitch,” says Jim Hutson, a former patent and licensing executive at Intel.
“If you don’t invest, you’re our No.1 target.” In other worlds, the worry was that IV would use the patents it bought to file infringement suits against companies that turned it down.
IV purchased patents have largely been kept secret, though press releases with Telcordia and Transmeta indicated some or all of their patent portfolios were sold to IV. IV claims its purchasing activity as of early 2009 has sent $315 million to individual inventors and $848 million to small and medium size enterprises as well as returning “approximately $1 billion” to investors without filing any lawsuits.
Korea, China, India, Japan, Singarpore : Invest $1 billion
In March 2009 IV announced expansion into Korea, China, India, Japan and Singapore to build partnerships with prominent scientists and institutions in Asia to create and market inventions. Asia fund’s size is $1 billion and headquarter located in Singapore.
IV’s staffs participate actively in United States patent policy, filing several amicus briefs in court proceedings as well as several testimonies before the legislature. The company is considered to be policy aligned with small inventors and academic institutions.
Despite no history of litigation thus far Intellectual Ventures has been described as a "patent troll", accumulating patents not in order to develop products around them but with the goal to pressure large companies into paying licensing fees. Recent reports indicate that Verizon and Cisco made payments of $200 million to $400 million for investment and access to the IV’s portfolio.
Godfater of Invention : Founder Nathan Myhrvold
98% of crazy new ideas would fail, 2% will change the world
Nathan Myhrvold says “I’m one of the first invention capitalist,”
Myhrvold was born in 1959 in Seattle, Washington. He was the Chief Technology Officer at Microsoft and co-founder of IV.
He personally holds more than 18 U.S. patents and has applied for more than 100.
Myhrvold began college at age 14. He studied mathematics, geophysics, and space physics at UCLA. At Princeton he earned a master's degree in mathematical economics and completed a PhD in theoretical and mathematical physics by age 23.
For one year, he held a postdoctoral fellowship at Cambridge working under Stephen Hawking, studying cosmology, quantum field theory in curved space time and quantum theories of gravitation, but left to join a computer startup in Oakland, California. The company, Dynamical Systems Inc., sought to produce a clone of IBM's TopView multitasking environment for DOS. Microsoft purchased Dynamical Systems in 1986 and Myhrvold worked there for 13 years.
When he established IV, he hopes to advance the notion of “invention capital,” a concept that can be traced back to Thomas Edison. “I would like someday my legacy to be, yes, we got invention capital going, and billions of dollars got handed to people having crazy new ideas – 98% of which would fail. But that 2% will change the world,” he said.
IV Founder & CEO Nathan Myhrvold
3. Invention Capital business model: IV Case
Raised $5 billion, generate $1 billion revenues without Suing
Intellectual Ventures (hereinafter “IV”) raised $5 billion across all funds from 2000 and generated $1 billion in proceeds for 8 years.
About this result, Nathan Myhrvold who is founder and CEO of IV is satisfied. “You would not expect a fund to be profitable at this point. We’re way ahead of all our expectation. When we started, people told us to pound sand and said this wouldn’t work. Actually working pretty good.” he said.
IV established a patent portfolio and utilized it to make profit, quite similar to ordinary Patent Troll structure except suing. IV collected more than $1 billion royalties without suing anybody. IV focuses on the business of invention. Since invention takes a lot of time and money so litigation is not a goal of IV,
IV also use diversified invention investments as a foundation for a variety of business pursuits. IV expect to focus on a number of commercialization avenues and market opportunities including; starting spin-off companies, doing joint ventures with other companies and licensing inventions to product development organizations.
90% of invention worth nothing, 2~3% something, a few worth a lot
IV’s overall investment strategy looks beyond the immediate horizon and focuses on technology-related problems that will need a solution 5~10 years from now. There are many avenues we can pursue, and the particular direction we take will depend on the inventions, the marketplace opportunity and most importantly, timing.
But the 90% of inventions is that it’s worth nothing. There’s a couple percent case that it’s worth something. And a few percent that it’s worth a lot. It’s one of these classic long shot bets. IV’s business allows us to try a bunch of things. The trick is to do enough of them that at least one does succeed.
Buying Patents via Funds
However, the major difference to other businesses is that IV purchase many patents through fund management.
IV invites investors in order to raise the funds to purchase patents. Well known investors are Microsoft, Intel, Sony, Nokia, Apple, Google, e-Bay etc. and there are many more individual and organizational investors raising funds up to total of $5 billion.
It is known that IV is managing more than 51 funds and through this activity, they are attracting investors. By doing this, patent portfolios are established and make profit by claiming for patent licenses and raise return rates for investors.
One odd thing is that businesses who conclude a license contract with IV also become another investor for IV. This can be further explained:
Technology related businesses agree to pay for patent license and invest in IV funds or shares in order to prevent any potential patent legal proceedings.
The patent fee becomes profit and therefore, this fund’s investment expands.
With the enlarged investment, IV purchase more patent licenses and investors receive certain amount of shares of the fund in return.
Some of IV's shell companies
|Action Grindelwald, Alberti Anemometer, Athens Blueston|
|Bar Harbor Acadia,Bayard Chimney Rock,Ben Franklin Patent Holding,Bradbury Press,Breckenridge Capital Fund|
|Calumnt Keweenaw,Copper Data River,Corps of Discovery Patent Holding|
Protection for investors
Almost all businesses or individuals who invest in IV will assume that they will be safe from any patent legal proceedings. However, because each fund’s patent portfolios are unique, Nathan Myhrvold says businesses or individuals will only be safe from only patent portfolios they have invested in.
Appeal to patent lawsuit
There have not been a patent lawsuit since 2000 in which IV were established. It is very surprising as patent lawsuit is used to put enormous amount of pressure on competitors for ordinary Patent Troll. However, this doesn’t mean that IV will not file a patent lawsuit in future and Nathan Myhrvold said in the Wall Street Journal interview that IV will definitely think about legal proceedings when needed.
For the last 7 years, IV have been purchasing patents and establishing portfolios and have only recently started patent licensing activity and therefore unlike Patent Troll, they tend to negotiate which explains why there have not been a patent lawsuit. Also, even without any legal proceedings, IV have spent large amounts of money on thousands of patents under their ownership and because of this, it will be quite a burden for businesses who oppose IV.
How to achieve Patent
Invention Capital is a new form of business model. Currently, IV is the biggest in terms of market size and similar to IV, ex-IV worker opened RPX.
IV is established in 2000 with the purpose of connecting capital with invention to make profit. They currently base in Bellevue, Washington and currently employing workers from various backgrounds such as scientist, physicist, inventors and lawyer. The ordinary business process is to pick out and deduce ideas from scientists and inventors and connect to production businesses for license issues.
At the beginning, IV concentrated only on turning inventions into capital but recently, they have expanded their activity by establishing various business models such as technology analysis, patent lawsuit, invention licensing, and invention capital network. They have many workers in invention department and it is a characteristic of IV that new inventions are coming within their firm. Recently, they formed a strategic partner relationship with university labs and funding researchers’ ideas. IV continues to adapt to altering cultural/market environment involving licensing, spin-out, etc.
Invention Capital purchase patents in the following ways:
Investing in patents which belongs to the shareholder’s company
Investing in patents which are developed by their own employees
Purchasing other businesses’ patents directly
Developing bright ideas into a strong patent by
By looking at the statistics, we can assume that IV has been purchasing patents rather than developing their own. There have been 236 purchasing history compare to only 5 developed cases.
Shareholder’s investment in patents
It is widely known that Nokia, Sony etc. have invested in their own patents and IV are managing a separate fund for them. Nokia’s patent called Spyder Navigation is currently being managed by IV’s Shell Company.
IV is currently employing more than 350 specialists and it will be strange not to see any inventions coming out within them. Nathan Myhrvold, for example, is introducing 18 patents in his hompage and more than 100 application cases.
4. Patent Troll
Technological innovation or invention is one of the most important driving forces of the economic growth recently. The patent system is an institutional foundation to promote these activities of the company. Because the science technology of the company became an important factor which determines its competitiveness, the patent infringement disputes concerning high-technology industries frequently occur in recent years. The Patent Management Company (Patent Troll) gets the immense profits raising legal patent suits since 2000. Before we go more deeply on how patent troll we should know what it really means in dictionary term.
According to Wikipedia, Patent Troll is a derogatory term used to describe a patent owner, frequently a small company, which enforces patent rights against accused infringers, but does not manufacture products or supply services based on the patents in question.
Patent Troll employs some inventors, technical experts, and lawyers for its purpose. However, it does not found manufacturing factory or business system. Patent Troll made technical wall and technical net using a lot of patent application. In addition, it takes the patent of small or medium enterprises and inventors into its side.
The Patent Troll take strong interest in the IT(information technology) and Software Applications market. Please see the charts as shown below…
Top 10 NPEs with Largest Patent Holdings
|Wisconsin Alumni Research Foundation||1,806||28|
|Tessera Technologies Inc||816||20|
|Jerome H Lemelson||513||28|
|Mosaid Technologies Inc||389||9|
|Scenera Research LLC||324||18|
Key Information By Product Category
At first, the Patent Troll institute a lawsuit against the highest enterprise(ex Nokia, Samsung etc) of the field. And then, the rest enterprises cannot but adopt the proposal of the Patent Troll.
The problem Patent Troll is that it would restrict the fair competition and trade. The second problem is that it would delay the use and development of technology. The third problem is that there would be many good victims.
Ranking of Operation Companies by Number of NPE Lawsuits
5. Korean Government’s Strategy for Reinvigorating Invention Capital
The 15th meeting of Presidential Council on National Competitiveness was held on July 29. PCNC proposed Knowledge Property Strengthening Strategies for promotion of national competitiveness through creativity and innovativeness within the context of knowledge-based economy. Reinvigoration of Invention Capital is one of the key Knowledge Property Strengthening Strategies.
Reinvigoration of Invention Capital;
(Current Status) There are concerns for brain drain that results from the lack of Invention Capital that rewards researchers for their knowledge property.
(Objective) Discover, purchase, and patent creative ideas generated by Invention Capital. Accelerate the creation and utilization of intellectual property through the establishment of Industry-State Collaborated NPEs(Non-Practicing Entities)
(Direction of the Plan) Acquisition of forward-looking ideas and technologies Value -adding of knowledge properties by means such as developing additional technologies Generating profit by utilizing intellectual property (patent or licensing).
1. First Stage (2010): Establishment of infrastructure via the utilization of Invention Capital (acquisition and management of knowledge property) (KRW 10bln, Korea Institute for Advancement of Technology acts as NPEs(Non-Practicing Entities). Budget in discussion)
2. Second Stage (2011 onwards): Considering the supply of corporate investment, establish industry-state collaborated NPEs(Non-Practicing Entities) (max. of KRW 500bln within 5 years).
*(Pilot Program in 2009): In the process of establishing a niche-market oriented NPEs (Non-Practicing Entities, paid in capital: KRW 20bln) under the control of Korea Intellectual Property Office.