Infoflows’ Fedmark system is used to protect intellectual property, so naturally we’re often asked our position on trends in patents, copyright and other intellectual property protection systems. One topic that comes up frequently is patents and patent trolls. Our take on patent trolls is pretty simple: We do not care for them.

But some patent trolls have begun to change their identities to mask their true intentions. In a recent New York Times article, Steve Lohr does a good job of laying out apparent tensions surrounding Intellectual Ventures, the private company that claims to invest in “pure invention,” but has been criticized for being a patent troll. Intellectual Ventures was founded by former Microsoft Chief Technology Officer Nathan Myhrvold, a close associate of Bill Gates, who is also an Intellectual Ventures investor.

Mr. Lohr says that depending on your point of view, Intellectual Ventures is either “a white hat or a black hat.” He asks if Mr. Myhrvold is, in fact, an advocate for the small inventor, “an innovator seeking to elevate the economic role and financial rewards for inventors.” Or is something darker going on at Intellectual Ventures? Specifically, asks Mr. Lohr, is Mr. Myhrvold a “cynical operator deploying his bulging patent trove as a powerful bargaining chip, along with the implied threat of costly litigation, to prod high-tech companies to pay him lucrative fees?”

The Case for Robin Hood
I take people at face value, so I tend to believe Mr. Myhrvold when he says he is no patent troll. But, I also believe in the “trust, but verify” model.

What exactly is a patent troll? By the Wikipedia definition, it’s “a pejorative term used for a person or company that enforces its patents against one or more alleged infringers in a manner considered unduly aggressive or opportunistic, often with no intention to manufacture or market the patented invention.”

In defense of Mr. Myhrvold, Mr. Lohr provides some numbers. Intellectual Ventures has, according to the NY Times, 650 employees, including scientists and engineers, with an in-house invention effort and lab that last year applied for 450 patents. And Intellectual Ventures has paid $315 million to individual inventors.

On the surface, at least, Intellectual Ventures is attempting some innovation and succeeding in providing meaningful benefit to individual inventors.

The Case for the Evil Troll
The problem is, there is also significant evidence to the contrary. I’m curious, for example, about the nature of all those Intellectual Ventures inventors and whether they are truly to be considered individual innovators.

Traditionally, patent trolls do not manufacture any products. This is true of Intellectual Ventures. Mr. Myhrvold argues that he is misunderstood: Intellectual Ventures is creating a new business model, like during the dawn of the software industry in the 1970s.

“Software owes its ascent largely to two crucial developments,” he says. “First, software vendors gradually persuaded software users—through both education and lawsuits—to respect intellectual property rights and pay for something that they might otherwise simply copy. Then, vendors liberated software from hardware by overcoming system incompatibilities and developing solutions that could work on many different brands of computer. When the PC revolution hit, software became an industry in its own right.”

The problem with the analogy is that Intellectual Ventures is not “developing solutions” of any type, but largely acquiring patents for license to Fortune 500 companies.

Typically, patent trolls enforce their patents through aggressive litigation. Mr. Myhrvold claims that Intellectual Ventures has never sued anyone in an effort to enforce its patents.

A recent report from the research firm Avancept, however, reveals that Intellectual Ventures has up to 1,110 shell companies and affiliated entities. It is a common practice for patent trolls to set up shell companies to pursue the active portion of patent enforcement. As a result of these relationships and the secrecy Intellectual Ventures cloaks itself in, it is very difficult to tell if Intellectual Ventures does or does not enforce.

The evidence is certainly suspect. While it is fair for an Intellectual Ventures licensee to protect its investment, we have also seen in too many cases that big companies (like Microsoft) will simply ignore intellectual property rights altogether. Or worse: use a patent portfolio to block further innovation. As a consequence, many smaller investors never have a chance to bring their ideas to market or are cheated out of the rewards of their inventions.

A Proxy for Big Business
It’s clear that Intellectual Venture is about big business. There’s nothing wrong with be being successful and profitable. But it does cause skepticism regarding Intellectual Ventures intent to look out for the small investor when the company is funded by the same big businesses Mr. Myhrvold suggests are the bad guys.

Intellectual Venture says it has returned $1 billion to investors and collected more than $1 billion in license fees to date. The Times reports “most of the revenue has apparently come from 16 so-called strategic investors—big companies that pay to license patent rights and get a stake in an Intellectual Ventures fund.” According to the Wall Street Journal, Verizon Communications paid Intellectual Ventures $350 million. Intel, Nokia and Sony have also agreed to make large payments to the company.

Nor is Intellectual Ventures shy about lobbying for its own interests. From the Times: “Intellectual Ventures spent more than $1 million on lobbying last year, according to public filings compiled by OpenSecrets.org. In the three most recent election cycles—2006, 2008 and 2010—Intellectual Ventures executives, led by Mr. Myhrvold, have contributed more than $1 million to Democratic and Republican candidates and committees.”

The Horse’s Mouth
I worked briefly for Mr. Myhrvold while at Microsoft and found him to be a smart and engaging individual. He also seemed forthright; it surprises me that he would have such continued controversy surrounding his current venture.

In a recent Harvard Business Review article, Mr. Myhrvold argues that Intellectual Ventures is not a patent troll. It seems to me that there remain gaps between the marketing and the reality.

Perhaps Mr. Myhrvold will clear the air by being more transparent and answering some questions. Who are the inventors to whom he has paid fees? What is the nature of Intellectual Ventures relationship with the over 1,100 shell companies identified in the Avancept report? And when will Intellectual Ventures manufacture some of its inventions to show that its goal truly is, as Mr. Myhrvold writes, “to change the world for the better?”