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Intellectual Ventures Tom Ewing & Robin Feldman: The Giants Among Us Stanford Technology Law Review The Giants Among Us ∗ TOM EWING & ROBIN FELDMAN CITE AS: 2012 STAN. TECH. L. REV. 1 http://stlr.stanford.edu/pdf/feldman-giants-among-us.pdf * Thomas Ewing, JD, MS, MA, Licentiate in Industrial Management & Economics (expected 2012); Robin Feldman, Professor of Law & Director of LAB Project, UC Hastings Law. We are grateful to Ben DePoorter, Josh Horowitz, Jonathan Masur, Darien Shanske, Steve Tadelis, Ove Granstrand, and Marcus Finlöf Holgersson. We would also like to thank James Nolan, Patricia Dyck, Chris Johnson, Sandy Liu, Jason Ross, Williams Casey, Leanne Yu, and Elaine Zhong for their excellent research assistance. Tom Ewing & Robin Feldman: The Giants Among Us TABLE OF CONTENTS INTRODUCTION ............................................................................................................................................ 1 I. FACTS .............................................................................................................................................................. 2 A. Intellectual Ventures...................................................................................................................................... 3 B. Patents and Applications Held by Intellectual Ventures ................................................................................. 5 C. Origins of the Portfolio ................................................................................................................................... 7 C. Funding Sources............................................................................................................................................. 9 D. Return on Investment..................................................................................................................................... 9 E. Collecting Revenue: Privateering & Other Exploits ..................................................................................... 12 F. Other Mass Aggregators & Interconnections................................................................................................. 15 II. POTENTIAL POSITIVE EFFECTS..................................................................................................... 18 A. The Forgotten Inventor ................................................................................................................................ 18 B. The Middleman............................................................................................................................................ 20 C. The Litigation Defense Fund ....................................................................................................................... 21 III. POTENTIAL HARMS............................................................................................................................. 23 A. A Tax on Production.................................................................................................................................. 25 B. Opportunities for Anticompetitive Conduct ................................................................................................... 26 C. Raising Rivals’ Costs................................................................................................................................... 26 D. Other Troubling Market Behavior............................................................................................................... 28 E. Odd Characteristics of the Inputs Supplying the Market............................................................................... 29 F. Odd Characteristics of the Aggregator Business............................................................................................. 30 G. Economic Stability....................................................................................................................................... 31 H. “To Serve Man” ......................................................................................................................................... 32 I. Ancillary Implications ................................................................................................................................... 33 IV. A FEW OBSERVATIONS...................................................................................................................... 35 A. Regulatory Oversight.................................................................................................................................... 35 B. Let the Sun Shine In.................................................................................................................................... 37 C. Removing the Teeth of the Tiger.................................................................................................................... 41 CONCLUSION ................................................................................................................................................ 41 APPENDIX A .................................................................................................................................................. 43 APPENDIX B................................................................................................................................................... 44 APPENDIX C................................................................................................................................................... 47 Robin Feldman & Tom Ewing: The Giants Among Us 1 INTRODUCTION ¶1 The patent world is quietly undergoing a change of seismic proportions. In a few short years, a handful of entities have amassed vast treasuries of patents on an unprecedented scale. To give some sense of the magnitude of this change, our research shows that in a little more than five years, the most massive of these has accumulated 30,000-60,000 patents worldwide, which would make it the 5th largest patent portfolio of any domestic US company and the 15th largest of any company in the world. ¶2 Although size is important in understanding the nature of the shift, size alone is not the issue. It is also the method of organization and the types of activities that are causing a paradigm shift in the world of patents and innovation. ¶3 These entities, which we call mass aggregators, do not engage in the manufacturing of products nor do they conduct much research. Rather, they pursue other goals of interest to their founders and investors. Non-practicing entities have been around the patent world for some time, and in the past, they have fallen into two broad categories.1 The first category includes universities and research laboratories, which tend to have scholars engaged in basic research and license out inventions rather than manufacturing products on their own. The second category includes individuals or small groups who purchase patents to assert them against existing, successful products. Those in the second category have been described colloquially as “trolls,” which appears to be a reference to the children’s tale of the three billy goats who must pay a toll to the troll waiting under the bridge if they wish to pass. Troll activity is generally reviled by operating companies as falling somewhere between extortion and a drag on innovation.2 In particular, many believe that patent trolls often extract a disproportionate return, far beyond the value that their patented invention adds to the commercial product, if it adds at all.3 ¶4 The new mass aggregator, however, is an entirely different beast. To begin with, funding sources for mass aggregators include some very successful and respectable organizations, including manufacturing companies such as Apple, eBay, Google, Intel, Microsoft, Nokia, and Sony, as well as academic institutions such as the University of Pennsylvania and Notre Dame, and other entities such as the World Bank and the William and Flora Hewlett Foundation. Nations such as China, France, South Korea, and Taiwan even have their own mass aggregators to varying degrees. ¶5 Moreover, the acquisition appetites and patent supply sources are quite interesting. Mass aggregators may have portfolios that range across vastly different areas of innovation from computers to telecommunications to biomedicine to nanotechnology.4 In some of the acquisition 1 Sannu K. Shrestha, Trolls or Market Makers? An Empirical Analysis of Nonpracticing Entities, 110 COLUM. L. REV. 114, 115 (“NPEs are firms that rarely or never practice their patents, instead focusing on earning licensing fees.”); U.S. FED. TRADE COMM’N, THE EVOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE AND REMEDIES WITH COMPETITION, 2011 WL 838912 at 60 (2011), available at http://www.ftc.gov/os/2011/03/110307patentreport.pdf (“NPE also commonly refers to firms that obtain nearly all of their patents through acquisition or purchase in order to assert them against manufacturers.”); see also Colleen V. Chien, Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in the Litigation of High-Tech Patents, 87 N.C. L. REV. 1571, 1572 (2009). 2 Chien, supra note 1 at 1577-78 (“The term NPE generally refers to a patentee that does not make products or ‘practice’ its inventions.”); Jeremiah S. Helm, Comment, Why Pharmaceutical Firms Support Patent Trolls: The Disparate Impact of eBay v. Mercexchange on Innovation, 13 MICH. TELECOMM. & TECH. L. REV. 331, 333 (2006) (distinguishing between universities and patent trolls); Mark A. Lemley, Are
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