Is Intellectual Ventures Foundering?

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I really enjoyed this profile of Nathan Myhrvold, the incredibly prolific inventor and amateur paleontologist, which appeared in the New Yorker last year. The article painted an impressive (and totally uncritical) portrait of the man:

In 1999, when Nathan Myhrvold left Microsoft and struck out on his own, he set himself an unusual goal. He wanted to see whether the kind of insight that leads to invention could be engineered. He formed a company called Intellectual Ventures. He raised hundreds of millions of dollars. He hired the smartest people he knew. It was not a venture-capital firm. Venture capitalists fund insights—that is, they let the magical process that generates new ideas take its course, and then they jump in. Myhrvold wanted to make insights—to come up with ideas, patent them, and then license them to interested companies. 

But not everyone sees Myhrvold's business as a benevolent idea factory; in fact, many in Silicon Valley apply another term: Patent troll. Here's one take on Intellectual Ventures's business, from Techdirt: 

Basically, IV buys up (or in some cases, applies for) tons of patents, and then demands huge cash outlays from those same companies (often hundreds of millions of dollars) for a combined promise not to sue over those patents and (here's the sneaky bit) a bit of a pyramid scheme, where those in early supposedly get a cut of later deals.

Now, documents published by PEHub and flagged by Chris Dixon, suggest that the business model, whatever it is, may be foundering. Two Intellectual Ventures funds have posted negative returns, according to a filing by the University of Texas, including one fund with returns of negative 73 percent. Dixon says this suggests that, "patent trolling might not pay." But the documents also reveal that the fund in question was formed in May of 2007, meaning that it's probably too early to assess its success or failure.

Whether or not Intellectual Ventures is succeeding, I'm curious what people make of this strange, secretive business. Are patent licensing shops inherently evil, or can they produce value?

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Max Chafkin

Senior writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York.

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