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Microsoft alums amass thousands of patents

An IP firm wants to reinvigorate Thomas Edison's ethos of invention. Some in Silicon Valley fear the firm will channel Tort-king Melvin Belli instead.

Intellectual Ventures, a start-up specializing in intellectual property, has proclaimed its dedication to inventing new technologies.

And it has amassed quite a large patent portfolio, as well.

The company, founded by former Microsoft scientists Nathan Myhrvold and Edward Jung, has acquired thousands of patents in the past few years, according to sources close to the company. Some sources have further narrowed the figure to between 3,000 and 5,000 patents.

Many were bought from companies still in business, such as Ramtron International. Others came from inventors with expired patents or from listing companies such as General Magic. Although Intellectual Ventures has been open about its patent buying activities, its portfolio's size had been unclear. Earlier, some had estimated its patents to number in the hundreds.

A patent portfolio of thousands is somewhat unusual for a company with around 50 employees. To put it in perspective, the U.S. Patent and Trademark Office in 2004 granted IBM 3,248 patents, the most it issued to any company in the world last year. Matsushita and Canon landed in second place and third place with 1,934 and 1,805 U.S. patents, respectively.

Intellectual Ventures' patent portfolio also appears to be quite large compared to other intellectual property firms dedicated to buying third-party patents. Acacia Research, for example, has acquired a total of about 120 patents.

The surge in the Intellectual Ventures' patent portfolio is likely to fuel tech industry speculation about the company's business plans. Some executives have worried, privately, that it will seek royalties. Since few companies pay royalties voluntarily, a push on licensing could prompt a rash of lawsuits.

While most individual patents do not result in royalties or lawsuit verdicts, the rare diamond in the rough can really pay off. Forgent Networks has garnered around $100 million in royalties revenue from the so-called JPEG patent. With further lawsuits pending, Forgent has said that the patent could ultimately bring the company $1 billion.

Peter Detkin, managing director for Intellectual Ventures, asserted that the speculation doesn't really mesh with the company's plans, which revolve around finding and promoting promising ideas.

"Our mantra is we invent and invest in invention," Detkin said. "There are a lot of small inventors out there that do not have the time, resources or expertise to be compensated for it."

Patents can be used in a number of ways, he added.

"We could do spinoffs. We can do licensing. We could work with other industry organizations," Detkin explained. "We work with both small inventors and large companies."

Although litigation is always a possibility in the IP business, Detkin indicated that Intellectual Ventures' intent is not to use its patent portfolio as an engine for lawsuits.

Conceivably, the acquired patents could also be exploited to prevent litigation. The company's investors include Microsoft, Intel and others, according to sources, and those investors have licenses to all of Intellectual Ventures' intellectual property.

Intel has agreed in the past two years to pay a total of $975 million to two companies--Intergraph and MicroUnity--to settle patent claims. Intel is also defending itself against patent claims filed by firms that have only a handful of employees.

Similarly, Microsoft has been hit with large patent infringement verdicts. The Redmond, Wash.-based software giant has also begun to increase its patent portfolio, in part to offset royalty payments to others.

Buy versus build
Intellectual Ventures is, in fact, coming up with its own inventions and patents. The company has filed hundreds of patent applications, according to a spokesperson. So far, the U.S. Patent and Trademark office has published 22 of these applications. (Publication is the first stage that outsiders can examine to see what the application involves.) Soon, Intellectual Ventures expects to get its first patent granted.

Its original patent applications are far fewer than those acquired, in part because getting a patent can take 18 months or longer and cost thousands in legal fees. Acquiring patents, by contrast, is somewhat easier. The dot-com collapse prompted several companies to sell their intellectual property.

Companies also often abandon patents, discovering that their hard-won invention has little apparent market value. A U.S. patent grants a monopoly over the idea embodied in the patent for 20 years from the date the patent was filed. But more than half of all patents granted are abandoned by the 11th year by owners unwilling to pay renewal fees, according to statistics from the U.S. Patent and Trademark Office.

"There's a lot of IP floating around out there without a home," Paul Ryan, CEO of Acacia, said earlier this year.

Like other firms, Intellectual Ventures itself doesn't technically buy the patents. It sets up a shell organization for each group of patents it buys, and then controls the shells. Two of its shells are CORPS of Discovery and Ben Franklin Patent Holding, which in January acquired a patent from four California inventors for better managing their contacts.

The only officer listed for those two Delaware limited liability shell companies is Zeon Corp., another Delaware shell.

While shell corporations give IP firms a whiff of skullduggery, it's generally not considered insidious. IP firms and established companies do it all the time.

"When Nathan (Myhrvold) or Peter (Detkin) come knocking, you're going to know who they are," said Jerry Klein of the Chatham Group, which provides patent consulting to law firms.

Legislators in Washington and the European Union are touting reforms to balance the rights of patent holders and potential defendants. Striking that balance, however, is proving difficult, said Klein.

"The industry is trying to figure out how to manage intellectual property," said Klein. "The system isn't perfect by any means, but it's the best in the world."