Nathan Myhrvold Shares Plan to Create Invention Capital Industry, but Skeptics Abound

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and private equity funds. “A single invention is typically very risky. However, if you build (as my company has) a diversified portfolio of tens of thousands of inventions that span a wide range of technologies, the aggregate risk becomes quite manageable,” he writes. “Even if only one patent in a portfolio of, say, 2,000 patents is really successful, it could generate $1 billion in revenues, returning many times the cost of the entire portfolio.”

He uses the examples of Hewlett-Packard, Lucent, Texas Instruments, MPEG-LA, and IBM to argue that licensing inventions can net a company $100 million to more than $1 billion annually. Still, it might conceivably take a long time—20 to 25 years—for an invention fund to pay off its investors.

Overcoming cultural issues of IP protection. “In affluent nations, product companies too often see inventors and other patent holders as adversaries, and vice versa,” he writes. “But product companies should see inventors as wellsprings of innovation and should trust them—and invention capitalists—enough to tell them what new technology the companies actually need. Inventors, for their part, should see manufacturers and invention capitalists as customers and should trust them to pay fair prices for the ideas they use. We aspire to be a trustworthy matchmaker that helps make this happen.”

He acknowledges that the challenge is different in other parts of the world, like Asia. But the main thing it sounds like he’s running into is that “some large tech-hardware companies treat patents as a defensive weapon to be used mainly in retaliation against any competitors that sue them for infringement,” he writes. “This strategy of mutually assured destruction usually resolves itself in cross-licensing or a stalemate, but the effect is not benign: It breeds a disdain for inventors. And because universities and individual inventors don’t have the power to play this game, some companies just flat out stiff them. All in all, such behavior tends to dissuade inventors from working in these areas and to impoverish our system of invention…When I’m attacked as a patent troll, it’s usually by people from these special interest groups, who don’t feel they have to respect others’ patents.”

He also notes, “We have never sued anybody to defend our intellectual property rights. While I don’t rule it out, I see it as a highly undesirable recourse for several reasons: It’s expensive, it’s unpredictable, and it takes years.”

Myhrvold’s arguments are probably most speculative when he asserts there is evidence that invention capital will be seen as a positive force in the economy. (I think it’s too early to say.) But he does point out that some big companies like General Electric, Procter & Gamble, 3M, DuPont, and Caterpillar “rely on patents as fundamental business assets” and so are sympathetic to strengthening IP rights.

Building an invention capital ecosystem. There’s no denying that a professional industry, and critical mass, needs to build up before any new marketplace emerges. Myhrvold writes, “Our purchases of patents have already fueled a noticeable increase in the number of patent brokers in the market. In time, new companies will spring up to fill the many niches of the invention ecosystem. We will see a more intricate and efficient invention industry populated by professional patent finders and packagers, appraisers and underwriters, financiers and sales agents—and other roles not yet conceived.”

To establish an efficient invention market with viable exit strategies, Myhrvold says the company is doing strategic things like packaging patents together (amassing large portfolios in areas like wireless technology and memory microchips), creating new startup companies (like TerraPower, its nuclear energy spinoff), and creating patent-backed securities.

Myhrvold concludes: “A functioning invention capital market and industry can enable inventors around the globe to create hundreds of thousands more inventions each year than are being made today. Sure, some of those inventions will be silly or useless. But what matters is the top 1% that will make our lives vastly richer and better. Create an invention capital market, nurture an invention capital industry, and the resulting virtuous cycle will surely transform the world.”

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4 responses to “Nathan Myhrvold Shares Plan to Create Invention Capital Industry, but Skeptics Abound”

  1. This is a fascinating concept that bears more attention and scrutiny. If you read the Harvard Business Review article about this concept you will find that Myhrvold addresses his critics and lays out a plan to create an entirely new industry.

    “the US with its combination of research talent, openness to financial innovation, and a culture of inventiveness, is perfectly positioned to be the nexus of this new industry.” I agree with Myhrvold’s conclusions and hope that he is successful.

  2. light says:

    There is no ‘innovation’ or ‘invention’ here – just patent trolling. Intellectual Vultures is gaming the patent system by having 40 people who sit around and think up ideas, followed up by 300 lawyers who try to monopolize that IP. No product or working designs are created.

    The shallowness of their business model is confirmed by their use of over 1000 shell companies to hide the nature of what they are doing.

    If this is the future of Seattle’s tech industry, we are in for a rude surprise. The only potential upside is that abuses like Intellectual Vultures will simply hasten massive reform of the patent system and reduce the ability of ‘non practicing entities’ (aka trolls) to extort others.

    And yes, I’ve had personal experience with this sort of company before, having experienced at first hand an extortion for $50,000 by a troll with a 1980’s era patent of the concept of having a “web site”.

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