In response to This American Life’s updated story, “When Patents Attack Part 2,” Intellectual Ventures would like to set the record straight particularly with regard to some of the misinformation and speculation the story included about our company. In addition to referring you to our original statement about the first story they did about our company in 2011, we’d like to offer the following facts. We also encourage you to read the statement we provided This American Life last month when they asked us to comment on their updated piece. We’ve included it at the end of this post.
The relationship between IV and Oasis Research
- Oasis Research is an independent company who purchased patent assets from IV.
- Oasis Research is not a holding company that IV owns, controls or manages.
- Oasis Research is not a company doing business at IV’s direction.
Intellectual Ventures and its holding companies
- IV’s acquisition entities (what others refer to as “shell companies”) are holding companies that hold our assets – they are not vehicles for our litigations. Since that part of our business continues to confuse people and generate speculation, we wrote about it at length here last December.
- We realize others – including Mr. Ewing who was an expert for the story – want to perpetuate this myth. In fact, in good faith, we have invited Mr. Ewing to visit IV so he can learn more about our business.
- We do litigate and when we do, you can find that information on our website and our name will be in the filing.
How we structure asset divestiture deals
- Intellectual Ventures divests assets and will continue to divest assets as we refine our portfolio and business strategy. There is an active market for buying and selling invention rights, and we engage in that market on both sides of the transaction.
- In spite of how this activity is represented in the story, insinuations that we divest assets to our acquisition entities and then sue companies through them makes for dramatic storytelling but does not reflect the truth.
- While we cannot disclose specific financials for specific deals due to contractual obligations, we can disclose that divestiture activities and related revenue account for a small part of our overall business.
- As for how the divestitures are structured, about two-thirds of our sales have been cash up front. The remaining sales are deals that include cash with a back-end arrangement (like the transaction discussed in the story).
- The bottom line is, when we have interested buyers for our assets, we will entertain a sales discussion. The details of how those sales are structured vary from deal to deal – including the amount of the back-end arrangement.
- When we do an asset sale, our preference is to sell assets for cash, but we often need to work within the financial means of the buyers.
- The reality is it’s not uncommon for IP transactions to be structured in this way – when we buy assets from inventors we often pay them less up front with the possibility of making more downstream.
- The same is true for when we sell – we often sell for less up front with the possibility of making more over time.
- This so-called “back-end model” isn’t a practice IV came up with. In the IP asset industry – one that is still very risky – back-end arrangements are more typical than not as a way to share the risk given the long life of patents. This is true whether the buyer is a non-practicing entity or an operating company. Full-cash deals tend to be the exception in the industry, but most of IV’s sales deals are for cash up front.
- Regardless of the facts, we understand the structure of this particular deal and others like it have upset people.
- As with all of our business practices, we are constantly evolving them and revisiting them, including how we structure our deals.
- In fact, our CEO discussed Oasis Research and other similar transactions in some detail in an interview earlier this year.
- As for the inference that we sold Oasis low-quality assets – IV has no business interest in buying, litigating or selling assets that are going to be found invalid. Our business depends on owning and monetizing high-quality assets.
- As the story pointed out, however, patents are complex and given we’ve acquired more than 70,000 assets, even with our best due diligence process, the odds are, not every asset will hold up in court.
As the story also points out and today’s announcement from the White House affirms, there are many legislative activities underway – many aimed at improving patent quality – and we support many of those efforts both through our policy activities as well as in our business practices.
IV’s response to This American Life in May 2013:
The patent marketplace has been quite active since your story first ran in 2011. The secondary market for patents – a market that Intellectual Ventures has helped create -- has continued to grow. In fact, industry sources estimate that over $20 billion worth of patent sales took place in in 2012 alone.
As a major player in this market, Intellectual Ventures buys, sells and monetizes patented technologies. Like any other business that buys, sells and monetizes assets, we have teams – including sales teams -- dedicated to each of those functions.
Buyers of our patents range from non-practicing entities and small businesses to Fortune 500 companies. There is no single profile among our buyers and given the importance of patents in business and the rising market demand, we expect our sales activities to increase. Currently, however, patent sales (also called divestitures) account for a small percentage of our total revenues.
As for our purchases, over the past 12 years, we’ve reviewed hundreds of thousands of patents and purchased only about 15 percent of the assets we’ve reviewed. Since we are focused on making a return, we are obviously interested in investing in the highest quality assets available. In fact, our business depends on us owning, buying and selling high quality assets. This attention to quality has been validated by some of the world’s largest technology companies who are our customers, licensees, and, in some cases, investors. In the intellectual property industry, we are recognized for our market leadership and for creating a portfolio that stands above the rest.
Nonetheless, given that we’ve acquired more than 70,000 assets, it is possible that some patents will be invalidated after we’ve purchased them. If a final court determined a patent we owned was invalid, we would remove it from the market. If a patent we sold were to be invalidated, it would be up to the new owners to determine what to do. Ultimately, we have great faith in the USPTO and the U.S. court system to help maintain the quality of patents.
As for details on specific transactions (such as Oasis Research), unfortunately, our contracts and confidentiality provisions prohibit us from providing you those details. To date, however, Intellectual Ventures has received licensing revenue of more than $3 Billion and as noted above, divestitures – such as Oasis Research – account for a small fraction of our overall business.
On the subject of Oasis Research specifically, since your story first ran, our founder and CEO, Nathan Myhrvold, did an interview with Slashdot (a technology industry forum) and he addressed this and other divestitures in a Q&A with readers. He said:
“In a perfect world we could make money without any side effects, and the buyers of our patents would not cause as much controversy as those sales have done. Here on planet earth things are far from perfect, and that is not what happened. I re-learned an important management lesson from This American Life: I cannot control every outcome, but I certainly take responsibility for it.
On one hand, I don’t feel a bit ashamed that Intellectual Ventures could make a return on those investments for us and for our investors. We bought the assets originally, we licensed them, and then we sold them. That is how the market works.
On the other hand, I feel that even though I don’t control them, I do take responsibility for the backlash it created. As CEO, it’s my job to determine whether that’s the best business practice moving forward. We will most definitely continue to divest assets since there is market demand, but the company will be looking more closely at the *how* we do it and under what terms.”