Corporations, universities, and even attorneys continue to express heated criticism towards non-practicing entities (sometimes referred to as “trolls”). Is this criticism justified?
Absolutely not, because this criticism stems from a perspective that fails to view intellectual property as an investment class, particularly an investment class in which any person or entity can earn a substantial return.
By way of background, a non-practicing entity is one that asserts patent assets typically through licensing or litigation, with an eye towards earning a financial return on the patent assets. As opposed to a practicing entity that may sell a product or service, a non-practicing entity does not sell a product or service and typically does not further market or develop the inventions covered by the patent assets.
What is the basis for this criticism regarding the monetization strategies of such non-practicing entities?
When a non-practicing entity monetizes a given patent asset, they do so by suing or threatening to sue companies such as Apple, Google, and Intel. And when they sue or threaten to sue such companies, these companies are sometimes forced to pay a massive amount in legal fees and other expenses; these fees and expenses adversely affect these corporations’ bottom line, thereby preventing them from hiring additional employees, as an example.
A closer look under the veil, however, reveals that the picture is not as black and white.
As an example, Intellectual Ventures (“IV”) is by-and-far the largest non-practicing entity in the world. It is backed by a coveted list of investors that have financed IV, enabling it to have acquired over 30,000 patents, which it continually asserts against companies that have operations in the U.S.
But who are these investors that have enabled IV to purchase these patent assets? These investors include none other than:
Corporations such as Apple, Google, Adobe, Amazon, Cisco, eBay, Microsoft, American Express, Nokia, Sony, Verizon, Yahoo, and Intel;
Universities such as Northwestern, Cornell, Brown, University of Pennsylvania, University of Southern California, University of Minnesota, University of Texas, and Grinnell College;
Financial institutions and persons JP Morgan Chase, Nancy Peretsman, Adam Holiber, and Eric Dobkin;
Foundations such as the Rockefeller Foundation, Flora Family Foundation, Bush Foundation , William and Flora Hewlett Foundation, and Skillman Foundation;
Medical institutions such as Howard Hughes Medical Institute, the Mayo Clinic, and Reading Hospital;
Consulting firms and investment funds such as McKinsey & Company, Sequoia Holdings, Dore Capital, Flag Capital, Allen SBH Investments, Charles River Ventures, Commonfund Capital Venture Partners, Legacy Ventures, Next Generation Partners, Noregin Assets, Sohn Partners, and TIFF Private Equity.
The list continues . . .
Is it fair for corporations, universities, and other entities to criticize the monetization strategies of non-practicing entities, when these very same (or at least similarly-situated) entities financed and thereby enabled IV to assemble one of the largest patent portfolios in the world? Would be it fair to characterize the non-practicing-entity business model as being a drain on the U.S. economy, when numerous corporations, universities, and financial institutions earn returns along with non-practicing entities?
Of course not.
Remember, anyone can become an investor in IP and earn substantial returns; it is not a terrain limited to just non-practicing entities. As described above, entities across a wide spectrum invest in the monetization strategies of non-practicing entities. Moreover, corporations monetize their own patent assets in models similar to those employed by non-practicing entities.
Instead of criticizing, we would do much better learning from and implementing the monetization strategies of the most successful non-practicing entities, so we all can become smarter investors in IP.
