Sunday, May 15, 2011

The Business Model of Intellectual Ventures

Perhaps one of the more controversial participants of CIP Forum 2011 is Intellectual Ventures, founded in 2000 by Nathan Myhrvold and Edward Jung of Microsoft, Peter Detkin of Intel and Grogory Gorder of Perkins Coie. The company has been referred to as a patent troll (see separate post on Non-Practicing Entities) and Nathan Myhrvold as the most feared man in Silicon Valley. The company and its founders claim to invest in “pure invention”.

The firm is the owner of one of the world’s largest and fastest-growing patent portfolios, and they have reportedly raised over $5 billion from companies including Microsoft, Intel, Sony, Nokia, Apple, Google, SAP, Nvidia and eBay plus investment firms. It generates revenues from licensing and technology and rights, and according to Joff Wild of the IAM Magazine, in the spring of 2010, Intellectual Ventures claimed its purchasing activity had sent $315 million to individual inventors and $848 million to small and medium size enterprises “to commercialize their inventions”. According to an article in The New York Times in 2010 the company says it has returned $1 billion to investors and collected more than $1 billion in license fees.

Since 2009 Intellectual Ventures also operates a prototyping and research laboratory where it employs scientists, engineers and patent attorneys, “to work on new inventions to help solve some of the world’s biggest problems”. To do this, the company has hired prominent scientists including Robert Langer of MIT, Leroy Hood of the Institute for Systems Biology, Ed Harlow of Harvard Medical School, Danny Hillis of Applied Minds, and Sir John Pendry of Imperial College. Intellectual Ventures claims the company files about 450 patents a year, in areas from vaccine research to optical computing.

Intellectual Ventures is constantly building its library of inventions and rights, analyzing industry trends and identifying market opportunities for the use of the inventions. Commercialization can be not only through patent licensing but through open source, joint-ventures, venture creation or sale of portfolios.

On December 8, 2010, Intellectual Ventures filed their first lawsuit, accusing Check Point, McAfee, Syamtec, Trend Micro, Elpida, Hynix, Altera, Lattice and Microsemi of patent infringement. The company has also been accused of hiding behind shell companies for earlier lawsuits.

Below is a few videos with Nathan Myhrvold and others at Intellectual Ventures presenting their business model and fascinating inventions from their research laboratory.


  1. Good post, Anders! Without having a specific opinion about Myhrvold or Intellectual Ventures, I sense that the patent troll vs venture investor discussion is typical for any market for securitised assets: there has always been, and will always be, a grey area between profiteering/speculation and accommodating/investment. It is the case for currencies, for mortgages, for music rights, for commodities and for sovereign bonds as for patents. Securitisation brings early and secure cash for the owners/creators and provides a valuation tool, but "naked" (i.e. "not involved") speculation is always a potentially ruinous side effect. When the Yale
    As in any value chain, also in securitisation a partcipant should always attempt to define what value he brings to the chain as a whole. If providing liquidity by benefitting from market inefficiencies erodes into creating market inequalities, ethical boundaries are crossed. If IP investors abuse their monopoly by extracting rents from users only because they happen to be the sole owner, not because they want to protect existing users or reward creators, they would aptly be called Trolls.
    The Myhrvold case offers an interesting view of the grey area.
    What a great idea to include this debate in your Business Model blog!

  2. You are absolutely right Gert! Thank you for your very insightful comment. It is an interesting topic and as you say in relation to what a firm brings to the value chain, it is a difference between creating- and capturing value.

  3. Cirrus has been active in leveraging its patent portfolio in private transactions. Since 2001, it has divested patents to companies such as Intel, Broadcom and NVidia in addition to Intellectual Ventures.