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Large patent portfolio: an equivalent of automated contracts?

Intellectual Ventures is a private company with business model relying on developing large patent portfolio and licensing these to companies with infringing products. In other words their business model is patent trolling. Given my attitude towards openness, it’s clear that I don’t like their approach at all, although I must admit that some of the ideas they have developed are freaking cool. You can imagine my satisfaction when it turned out that their first venture fund, IDF I, isn’t doing that well (see embedded document below, page 7).


However the recent tweet from Glyn Moody points to an article in TechDirt, which states that the numbers (internal rate of return at -78%) might be meaningless and the true revenue from patent trolling is still unknown.

This news inspired a hot discussion at our small research institute (the one we’ve started last year) about our attitude towards intellectual property protection and management. It seems clear that some form of IP protection is going to stay, at least for privately funded research or applied science. On the other hand, the price we as a society pay for current patent management system is constantly going up. Michael Heller in “Gridlock economy” claims that so called “quick” resolving of Golden Rice intellectual property issues took 6 years and I don’t think situation got better since then. For that reason, I’m a big fan of Michael Nielsen’s idea of automated contracts and its extension to patent system.

In the discussion we’ve had and I’d argued that in the  long run, we should stay away from holding IP rights, because of huge investment (time and money) to obtain one (just after that discussion I’ve seen an interview with Craig Venter in which he says “nobody has made any serious money off patents on human genes except patent attorneys” – worth read for other reasons as well). Instead I’ve argued for building a platform for streamlining of negotiations between patent holders and businesses in the area of our competence (which is currently green and sustainable technology). Even if we don’t grow beyond local market (Poland), my feeling is that such platform is going to be more profitable than collecting patents.

I didn’t compare our capacity for filling patents with patent portfolio of Intellectual Ventures (that would be silly). Also, despite my aversion towards IV business model, I’m not that sure their returns will never become positive. Rather I’ve argued that patent trolling might be actually profitable, but only if you can sell licenses for the whole process, or most of it. In other words, large patent portfolio might be an equivalent of automated contracts. Because the price for individual licenses is going to drop (have a look at amounts awarded for solutions over at Innocentive – there’s no way any Western university would price its services so low), small non-profit research institutions (including ours) aren’t going to earn enough from their patents to make the research sustainable.

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