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The ethics of university dealings with patent trolls stirs debate


By David Schwartz
Published: April 25th, 2012

Many research universities around the globe have invested in and licensed technologies to Intellectual Ventures (IV) and other non-practicing entities — or patent trolls, if you prefer. Critics accuse the $5 billion firm of suppressing technological innovation and product development, using its massive patent holdings as a blockade to other innovators.

As  Jeff Hargarten of the Minnesota Daily points out, the firm charges other companies fees for utilizing the technologies owned by member organizations, and also gathers revenue from the lawsuits it wages against companies it accuses of infringing on patents from the firm’s behemoth portfolio. And despite IV’s posturing as an innovation-driven company, it has done little if any true innovating, except perhaps in its business model, the critics charge.

Melba Kurman, founder of the university consultant company Triple Helix, questions the ethics of university investment in IV’s strong-arm approach, given the mission of universities to promote the translation of research into commercial products that improve society.

According to Mike Masnick, president and CEO of technology analysis publisher Floor 64, institutions that commercialize technology are being pressured to invest in Intellectual Ventures. If they resist, he claims, they are threatened and sued for innovating. “That money,” Masnick says, “should be going towards building better products and serving the market.”

Hargarten cites a key argument against “patent trolls” that was explored in a recent Northwestern University study: not that these companies’ lawsuits are invalid, but that their position to negotiate licensing fees is greatly out of proportion to their actual contribution to products or services embodied in the patents they own. “Among the mass aggregators,” says University of California law professor Robin Feldman and co-author of a 2011 Stanford Technology Law Review paper about Intellectual Ventures, “there are almost no cases of patents turning into products, as far as we’ve been able to see. It appears to be a dead end.”

Officials at Intellectual Ventures defended their operation in a Forbes article in February.

“To hear some critics tell it,” says Kenneth Lustig, IV’s vice president and head of strategic acquisitions, “the explosion of patent suits in the smartphone industry is evidence of a patent system that is fundamentally broken, at great cost to U.S. innovation. Such histrionics, however, ignore a crucial but little known fact: throughout American history, the buying, selling and litigating of patents has always been essential to U.S. economic success.”

While there are a few schools that invest directly in Intellectual Ventures, according to Hargarten, it’s much more common for them to license or sell patents to the firm, which recently reported its involvement with over 3,000 inventors and 400 universities and companies worldwide.

Cornell University is a limited partner in one of the firm’s investment funds, said Alan Paau, executive director and vice provost for technology transfer and economic development at the school. He said the university’s relationship with Intellectual Ventures is at “mostly arm’s length.” The University of Texas invested a total of about $28 million in two Intellectual Ventures funds, according to a 2010 performance analysis from the school. It showed negative returns from each investment of 73 percent and 10 percent.

In their deal with the University of New South Wales in Australia — a “typical” deal, according to firm spokesperson Naomi Zeitlin — Intellectual Ventures sends researchers “requests for invention” (RFIs), basically asking them to invent something the firm can patent. IV has paid millions to universities for their inventions and in many cases has profit-sharing arrangements in place to provide schools with an ongoing revenue source, she said.

Masnick says that while there are tax benefits for schools licensing innovations through Intellectual Ventures, for the most part these deals are being struck because “a very large percentage of university tech transfer offices have been pretty big flops.”

The New York Times recently quoted IV president Adriane Brown saying, “Our company is challenging the status quo. Our business model is disruptive, and like any other product or service that disrupts established markets, we’ve invited our share of controversy. But we are no different from any other company working to deliver on its mission.”

According to Feldman, “what created the incentive for mass aggregators is the current patent system” and how difficult it is to discern what technological developments a patent actually covers, all of which leads to “a bargaining of epic proportions.” He claims that the rise of companies like Intellectual Ventures was an attempt to tackle these issues and create liquidity for patent holders, but that it has since moved in “a destructive direction for innovation.”

Source: Minnesota Daily

Posted under: Tech Transfer e-News

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