By Nate Raymond
Figuring out the specifics of Intellectual Ventures'
frighteningly enormous patent portfolio has always been next to
impossible. Its roughly 8,000 U.S. patents and 3,000
applications are assigned to an assortment of 1,276 shell
companies, few of which have Intellectual Ventures in their
name, according to a study published in January in the Stanford
Technology Law Review. Nor is the company alone in playing shell
games with its portfolio: Devices to mask patent ownership are
the exception rather than the rule for companies with a business
model of asserting IP rights.
For patent aggregators -- companies that amass large
quantities of patents to obtain licensing fees -- dividing
patent portfolios among shell entities can provide leverage
against potential infringers, lawyers say. A patent aggregator
could, for instance, assert its patents and get licenses for
some rather than all of its holdings. Cisco general counsel Mark
Chandler told On the Case that the current opaque ownership
system enables "gamesmanship" and makes it hard for companies
like Cisco to know what they're licensing when they're hit with
big payment demands from the aggregators. Giving operating
companies more ownership data "would take away (the
aggregators') ability to pull the wool over their licensees'
eyes over what is licensed," he said.
Chandler may get his wish. Last week, the U.S. Patent and
Trademark Office published a notice in the Federal Register,
announcing a roundtable on Jan. 11, 2013, to consider adopting
regulations that would "require greater public transparency
concerning the ownership of patent applications and patents."
The notice doesn't mention IV, Acacia Research or any other
specific non-practicing entity that uses shell companies to
house patents. But IP experts immediately gleaned a likely
purpose of the PTO's proposed regulation and interest in
collecting information about the "real-party-in-interest" for
patents. "The concern is companies like Acacia and Intellectual
Ventures that spin out hundreds or thousands of subsidiaries so
that no one knows who really owns a patent," said Mark Lemley, a
Stanford Law School professor who specializes in intellectual
The patent office's interest in transparency comes amid a
notable rise in the percentage of patent suits by non-practicing
entities. A paper published last week in the Duke Law &
Technology Review found that between 2006 and 2011, the
percentage of suits by NPEs out of all patent cases filed in
U.S. courts increased from 22 percent to almost 40 percent. And
many of those non-practicing entities are now giants in their
own right. Acacia last year had $184.7 million in revenues.
Intellectual Ventures, the 800-pound gorilla of the patent
aggregation business, claims it has earned $2 billion in
licensing revenues since its founding in 2000.
The PTO already tracks patent assignments, but the current
system leaves an incomplete record of patent transfers. And even
if transfers were known, they wouldn't reveal when companies
like IV and Acacia move patents to the shell companies they
routinely set up in Delaware, Nevada or other states for the
sole purpose of holding intellectual property. Unless a shell
company is exposed in discovery in litigation or via an NPE's
voluntary disclosure, it is rarely clear whether it is related
to a larger patent aggregator.
Outgoing PTO director David Kappos in a speech on Nov. 20
said a "root cause" of defendants' problems with software
patents is figuring out who owns the IP. Companies concerned
about the prospect of an infringement suit can face a "real
challenge" just finding out who to talk to about the troublesome
patent. Providing information about patents, including
ownership, "is essential to a functioning innovation market,"
Kappos said. He added: "It's time for the patent system to man
A change in the rules to provide further ownership
transparency could also assist regulators, including the Justice
Department and the Federal Trade Commission, in probing the
patent aggregators' impact on competition, said Robin Feldman,
law school professor at the University of California, Hastings,
responsible for both the Duke paper and the Intellectual
Ventures study. (The Justice Department and the FTC are hosting
a Dec. 10 conference on patent assertion entities and antitrust
issues.) "From an antitrust perspective, regulators and private
parties must be able to see individual movements on the ground
in order to identify broader patterns of anticompetitive
behavior," Feldman said.
Michelle Craig, a spokeswoman for Intellectual Ventures, in
an email said the PTO's roundtable "is on our radar and we are
discussing how or if we plan to participate." A spokesman for
Acacia declined to comment.
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