I'm fairly certain that the decision in Alice Corp v CLS Bank International put the nail in the coffin of Intellectual Ventures' business model. A large percentage of the patents in their portfolio[0] are of the abstract idea implemented on a computer variety. Since patents have a shelf life most of what they purchased will likely expire returning 0% on investment. This doesn't mean that patent trolling as a business is dead, but it certainly looks like it is not scalable which is frankly wonderful news.
Since no one has said it directly; this article is about Intellectual Ventures, the patent troll firm that aggressively weaponized America's poorly written intellectual property law. http://www.intellectualventures.com/
Title might read "Nathan Myhrvold's Patent Troll Funds Show Big Losses"
> They were designed to invest in patents and innovations, not companies or their securities, over a lifespan of 20 years, as opposed to the usual 10 to 13 years. Halfway through their run, the funds are deep in the red...Invention Investment Fund II was the bigger fund that Myhrvold’s firm, Intellectual Ventures, raised in 2008
Intellectual Ventures has always maintained that “traditional accounting rules don’t accurately reflect the value of our patent portfolio.”
Hate when companies not doing well try to dodge by blasting "traditional accounting rules" when these rules have been crafted over the years to accurately reflect the value of said company.
Bottom line - the returns for both funds are in the negative. Can't avoid this by hoping for some 'modernist' version of accountancy that might make the fund look good.
"Hate when companies not doing well try to dodge by blasting 'traditional accounting rules' when these rules have been crafted over the years to accurately reflect the value of said company."
I agree that criticism of traditional accounting methods often points to inherent risks and even corruption, see Enron.
However, as I understand it, measuring firm value is not the primary goal of accounting. The way depreciation is calculated, for instance, may be convenient for other reasons, but it doesn't say much about real values at all. Accounting numbers are quite artificial.
When analysts calculate firm values, through methods like DCF, they use accounting numbers from the financial statements as their inputs to calculate cash flow etc., but that's just for lack of a better alternative. In fact the numbers don't make sense by themselves and many of the accounting rules just make the estimation of firm values more difficult.
At least three of these accounting numbers are very real: revenue, expenses and assets. When the dust from handwaving settles, they ultimately describe the health of a company any given fiscal quarter. Observing their first derivative values would typically show the direction the business is heading. It's this information that the crude corporate PID controllers (aka board meetings) use to steer the enterprise.
Look at the immense scepticism Tesla is met with based on operational stats, despite having actual, in-demand market product. Talk is cheap and accounting has been a great performance predictor many times over.
Almost all of Intellectual Ventures assets are patents with unclear value. Maybe they can use them to extract millions of dollars of settlements. Or maybe they're worthless.
When that's the majority of your balance sheet, whatever method you chose will have legitimate criticism.
And maybe my $20 pickaxe can be used to mine gold nuggets?
They can be valued with at least their acquisition value, which is a start. For all we know the "true" value (come liquidation) may now be zero, but still it puts a practical cap to how much IV can hype its business model.
And yet it is kind of true. Consider that patents in their portfolio are exactly equivalent to unexpended ordinance, ready to go when the opportunity presents itself. How do you value that? A patent my go its whole life and never be infringed, or it might turn into a $500M payday from an Apple or a Microsoft.
I don't think it's quite right to think of them as unexpended ordnance. They're more like signposted mines. In some ways they're only useful if they cover all possible paths through a solution space, since people can just avoid the minefield. How much overhead is there in trying to cover all the paths?
Even if you're just trying to catch out the unwary (or explicitly ignorant) who don't look for the mines, coverage of most routes is still pretty important.
This joint nature may affect value non-linearly, where A or B on their own are only worth X, but A and B together are worth 100X, or more.
This is not true, because almost no one reads patents. It's cheaper to do that almost all of the time than to always read and avoid them. Especially when you're avoiding patents that get invalidated in the end.
The only way to accurately value a patent portfolio would be to sell minority stakes in it on the open market. But if you expect to hold the patents until expiration and aren't short of cash then it's hard to see how valuation even matters.
It doesn't matter what most people think. Only sophisticated, qualified investors are even able to bid on assets like fractional patent ownership.
As for whether the market is "correct" that's a meaningless question since the answer can only ever be determined in hindsight. But so far no one has been able to find a more correct approach.
But they have 95k patents and have done or backed scores of lawsuits with their $3b of capital. Surely that's enough! Y Combinator didn't need $3b to show good results despite regular VC having similar long-tail or hit-driven results.
All true, but how do you put an asset value on a particular patent? So if you've got a $100M fund and it spends $50M on acquiring patents and then the other $50M on prosecuting them as it can, it isn't possible to predict if one of the patents will be a gold mine or a dud. I think the closest thing I can imagine that would be like this would be mineral rights contracts. You spend $50M on mineral rights contracts on some amount of land and the rest on trying to develop useful resources out of those plots. If one has some easy to reach dense and salable minerals it pays for the others. But a plot that hasn't been geologically surveyed? What is it worth?
If your argument is that there's no way to predict the future value of a patent, does it really have any value at all? If the patent game is basically a slot machine, investing in it shouldn't carry any expectation of return.
Perhaps, it would be like lottery tickets as assets. But the point was that it could certainly be something that isn't covered well, or at all, by standard accounting methods and practices.
It's not totally ridiculous though. Patent valuation is a bit of a black art at the best of times. And on top of that, a new opinion from the Supreme Court or the Federal Circuit could instantly cause wild swings in value. There's no simple way to account for that.
Yes. They also had other ideas, of a patent marketplace, that failed to actually happen. And directly inventing stuff, which also failed and always looked like PR rather than a serious business.
"In total Myhrvold’s firm has acquired 95,000 patents and launched or been behind dozens of lawsuits, making it a giant patent troll. But Intellectual Ventures’ litigation strategy has been dealt some setbacks. The nation’s top patent court has thrown out patents Intellectual Ventures has tried to assert against companies like Capital One. This week a federal appeals court issued a ruling that will make it very difficult for Intellectual Ventures to assert a patent it had sued Ericsson for infringing."
It's instructive to consider Mr. Myhrvold and Mr. Musk over the past 10 years. One decided to tackle hard problems because they were important for the future of all mankind. The other decided to take advantage of what seemed like a slam dunk legal anomaly in order to get rich quick at the expense of actually productive people. It's nice to see that poetic just sometimes has its way.
Good. The Sooner Intellectual Vultures dies a terrible death the better. Myhrvoid is an excellent example of someone I can't make my mind up about. Child prodigy, absolutely a genius but the whole patent story is just plain disgusting.
I am glad that his funds are not doing well. But Myhrvold is an example of people who can have a lot of qualities we support but then also have a lot of qualities we don't support. People like to categorize people into all good or all bad but a lot of people have both in them.
Sure, but it's pretty rare that someone is at both extremes of like and dislike at the same time. Obviously speaking for myself here, everybody calibrates their likes and dislikes in different ways.
I would think Bill Gates is a good example. Super competitive and often destructive businessman and then suddenly turning into a philanthropist. Or Andrew Carnegie and John d. Rockefeller. It's hard to have a conclusive opinion about them because their good and their bad sides both are extreme.
I think the evidence for Bill Gates as a force for good is strong. Sure Microsoft attained and maintained its dominance in unethical and maybe illegal ways. But I am not aware of much destruction beyond preventing other software companies from similar success. I would much rather all those billions be concentrated with Gates, whose foundation is really doing things, than scattered among a dozen software companies and supporting generic medium-wealthy lifestyles with respectable 5% of income given to charity.
"I would much rather all those billions be concentrated with Gates, whose foundation is really doing things, than scattered among a dozen software companies and supporting generic medium-wealthy lifestyles with respectable 5% of income given to charity."
I'd prefer it the other way. Monoculture is almost never good in the long run and neither is too much power in one hand.
"Didn't treat" extended to telling parents of mentally handicapped children to stop bothering. A physician at a charity in Kolkata told me: "We'd persuade the parents to include the children in daily life, speak to them, give them sensory input, then Mother Teresa's crew would come and tell the parents to just stop bothering, to just feed them and otherwise leave them in a corner, and when the parents did that, the children would return to vegetating."
Yeah, Robber Barons turning "good" is an established trope. Didn't work that well at the time for Rockefeller and Carnegie, so it shouldn't surprise you much that it isn't working for everyone now.
I got to see the Babbage Difference Engine No.2 at the Computer History Museum before he brought it north to be in his office lobby or whatever, so I have a very warm spot in my heart for this dude.
The patent trolling sucks, didn't realize that was him...
But honestly and sincerely the man is a true mad other-level genius:
"Elephants Have Fabulous Tits" (I'm not even gonna link it. It's real. It will challenge you. ;-P Search for that at yer own risk kids...)
He's undoubtedly a genius, but I see him as a greedy asshole.
He's the author of Modernist Cuisine, a cookbook based on science. He has done all the experiments to determine the scientifically best ways to cook things. Instead of making it an affordable book, he priced it at over $600.
yes, he spent millions in the process, but he's a multi-billionaire. He's never going to recoup the $25 million he spent on research, why couldn't he have done that as giving back to the community?
>He's the author of Modernist Cuisine, a cookbook based on science. He has done all the experiments to determine the scientifically best ways to cook things. Instead of making it an affordable book, he priced it at over $600.
$600 is not that extreme a price in the 'technical food book aimed at professionals' realm (which is where the book was originally aimed).
There are 4-volume references like Hui and Sherkat's "Handbook of Food Science, Technology, and Engineering" which retail at $1,800 (https://www.amazon.com/Handbook-Food-Science-Technology-Engi... a number of single-volume Wiley handbooks have prices around $290.
Factoring in that Modernist Cuisine is 23kg, 7 volumes, had an initial print run at 6,000 copies and an unusual volume (the kitchen manual is printed on plastic)...it's hard to see how this is a reasonable criticism, especially when Modernist Cuisine at Home (which is targeted at a wider audience and covers many of the same bases) is priced at $112.
Oh, he's a greedy asshole alright, but the choice to sell the book for $600 wasn't an example of it.
He had a choice to make on the book, commodity cookbook or status symbol. With all the hype around it, that book was destined to be a PDF on the pirate bay the day after release no matter what the price. Selling it for $600 so rich half-wits could perch it in their kitchen as a trophy was brilliant.
Now IV and its business model was pure, reactor-grade greedy assholery. Perhaps that's how he understood so well the mentality of the person who would drop $600 for a cookbook. With the taking one to know one and all that...
Because he wants the book to be a conversation piece for fanatics - if you price it at $30 it will be the 'joy of cooking' - which is fine, but isn't what he is going for
I'd love to know what the goal with Intellectual Ventures actually was.
Did Myhrvold really think he was going to be bring liquidity and transparency to the patent market? Or was the intention really to be a giant patent troll?
Personally I think Myvhold’s company is not as evil as people say. It actually makes a lot of sense if you take a long term view. The goal is to create a market for innovation and decentralize DARPA-like institutions so that market forces can create a sustainable source of innovation.
[0]: http://patents.intven.com/finder