Intellectual Ventures
Founded in 2000 by the legendary Nathan Myhrvold, Microsoft’s first chief technology officer, and three partners, Intellectual Ventures (IV) is unique to say the least. Although it doesn’t manufacturer any products, it holds 35,000 “intellectual property assets” in its portfolio. Intellectual property assets is the term IV uses to describe its collection of inventions, patent applications, and issued patents.
Buying and licensing IP assets is in fact the company’s bread and butter. It sources inventions, patent applications and patents either through building them at IV’s dedicated laboratory, buying them or partnering with those who create them. To date, the company has partnered with inventors and their institutions – universities, research laboratories or companies – in 10 countries around the world including China.
With more than US$5 billion under management, Intellectual Ventures, headquartered in Bellevue, Washington, USA, licenses its portfolio to innovative companies and institutions, earning more than US$2 billion in licensing revenue and injecting more than US$1 billion into the economy through its purchasing program. The “buy” programme, as it is known, is the largest contributor to Intellectual Ventures’ portfolio, followed by the “partner” programme and the “build” programme.
So far, IV has paid out more than US$400 million to inventors. It deals with more than 3,000 active inventors and 400 universities and institutions in an international network spanning the world. Its goal is to assist inventors in developing, patenting and monetizing their inventions.
Despite the fact that the magnitude of the IV operation probably overshadows any other aspect IP trading across the globe, the company regards the concept of a trading bourse as one that would be extremely valuable. Intellectuals Ventures’ trades are all done on a one-to-one basis with customers, according to Donald Merino, Intellectual Ventures’ senior vice president of licensing.
Finding a more efficient way to market all of these patents and licenses is crucial. Thus for the company a Hong Kong IP trading bourse is an attractive option.
“We do it the old fashioned way,” Merino said. “But I do think that our vision is very closely aligned to what the vision of such a bourse would be. Having a market mechanism would bring rationality to pricing and create liquidity. The more people doing trades, even one-on-one, the more information everybody has about what’s out there.”
Intellectual property, Merino said, closely resembles other assets that have moved to being publicly traded. He likens it to the 300-year-old development of insurance through Lloyds of London, which began with a handful of individual brokers, or “names” sitting around Lloyd’s Coffee House in London, learning the value of combining individual transactions to create additional liquidity.
“Historically this was the trend. The idea of Hong Kong taking a step like this accelerates the movement towards transparency and ultimately results in lower prices for everybody. The ability to give access to everybody creates a larger market. There a lot of finer points that are tricky and challenging that must be solved. But as an idea I think it’s great.” That is because “making more inventions available to more people is absolutely of benefit, not only to the first-line user but to society in general. You’re accelerating technological progress. That is something our company feels very strongly about – that inventions have value. Working with IV, inventors around the world who can’t afford to patent can make sure that companies using their inventions are paying for it, that they have someone there who is willing to fight for them.”
The ability to post saleable assets on an IP bourse, Merino said, would give the company a way to make parts of its portfolio more readily available to potential customers, opening up the process in a rational manner that would allow for adding value and determining a fair price. Trading and transactions already are on the rise. IV is one of the leading catalysts for the increasing importance of intellectual property trading.
“I think for now that closed-door, confidential transactions between two parties are still the primary form of transaction in the IP world,” Merino says. “But new tools are being developed all the time. These include patent auctions, auctions of “covenants not to sue”, third-party buying, collective buying, and mergers and acquisitions to acquire intellectual property.
In particular, he says, demand in Asia is increasing quickly, largely a reflection of the growing importance of Asian companies that are working in the many different sectors of the IT industry. Traditionally the leading high-tech companies were largely based in Japan, with companies based in other Asian countries primarily involved in ODM – original design manufacture -- building products designed in other countries. Now more of them are making the jump to branding their own products.
“Because these companies may not have as long a history and experience in IP matters, they have a larger need for more IP from outside their four walls,” Merino said. “This is a great opportunity for companies like Intellectual Ventures and others. I think if a company wants to truly understand the needs of their customers in Asia, they need to have offices in the region. Hong Kong is potentially a great location to be located as it is central to all the new hubs of IP activity in the region. IV currently has an office in Beijing and another in Singapore (in addition to offices in Seoul, Tokyo, Bangalore, as well as Sydney.”
As an example of IV’s operations, the company recently signed an agreement with an SME in Guangdong. It won’t give the name of the company or the product because the transaction is not public yet. But the SME loved one of the inventions that IV had developed jointly with its university inventor partners.
“The SME gets access to a cutting edge idea, they will invest development funds into expanding on the idea, and Intellectual Ventures as well as the original inventor both get to share in future royalties,” Merino said. “It really is a win-win situation that helps drive innovation and we are happy to see a growing company in China being so creative in the way they manage their IP strategy for growth. “
IV have also helped universities in Hong Kong and the rest of China develop more of the inventions and ideas that come from professors. The process helps to bring needed outside research funding to these universities as well as helping to make sure that important inventions in China are not locked up and are usable by companies around the world.
“We have been buying inventions and patents from start-ups for many years and in fact I myself have handled many of those transactions,” Merino said. “We have a very active acquisitions group and we would be happy to hear from any inventors or companies who have inventions, patent applications, or patents they would like to sell.”
In response to criticism that IV is a so-called “patent troll” – a company that buys up patents simply to use them to sue product manufacturers, Merino responds, “because of our size and global reach, we seem to attract critics who don’t believe as we do that inventions and ideas are valuable. While we will use litigation to protect our assets and when we believe it is the right thing to do for our business, litigation is not our business model. We remain committed to licensing our portfolio on fair and reasonable terms, and we’ve been very successful doing so. We have earned all of our revenue from licensing and we’ve circulated hundreds of millions of dollars back to inventors. Our many customers include leading global companies from Asia, the United States and Europe.”