Valuing Ideas as Assets—The Case of Intellectual Ventures

A Radical Model: Innovation Decoupled from Production

Nathan Myhrvold, former Microsoft CTO, creates in 2000 a strange company: Intellectual Ventures (IV). Its product? Ideas. Its business model? Buying, creating, and licensing patents. With 70,000 patents and 6 billion dollars raised, IV embodies a radical model: innovation decoupled from production.

How Intellectual Ventures Functions

Intellectual Ventures functions as an “invention fund”:

Patent acquisition: IV buys dormant, undervalued, forgotten patents. Universities, individual researchers, bankrupt companies sell their intellectual property. IV acquired 30,000 patents on the secondary market.

Invention on demand: IV employs networks of inventors—4,000 researchers in 50 countries. They organize “invention sessions”—structured brainstorming on specific problems. 3,000 patents have been created internally.

Monetization: licenses to companies using these technologies. If they refuse, lawsuits. IV has won more than 3 billion in licenses and judgments.

Lemley and Shapiro (2005) analyze this “patent troll” model or, according to IV, “invention capital”—treating patents as financial assets to optimize.

IV’s Innovation Machine

IV has created a unique innovation machine:

Invention laboratories: in Bellevue, Washington, cutting-edge facilities where ideas are prototyped. An experimental nuclear reactor, anti-mosquito lasers, vaccine preservation systems. Innovation for innovation’s sake.

Inventor network: IV does not salary its inventors but pays them per project. An MIT professor, a retired IBM engineer, an independent inventor in India collaborate virtually.

Portfolio approach: like a venture capitalist, IV knows 90% of patents will be worthless. But the remaining 10% compensate largely.

Cross-domain innovation strategy: IV excels at transferring technologies between domains. A military imaging technique becomes a medical scanner. A trading algorithm becomes a traffic management system.

Value Creation Mechanisms

IV creates value through several sophisticated mechanisms:

Patent aggregation: IV assembles coherent portfolios. For a technology, dozens of patents are often needed. A company prefers negotiating a global license rather than 50 individual licenses.

“Patent privateering”: IV finances lawsuits by third parties. A small company with a valid patent but no means to defend it. IV finances the lawsuit, shares the gains.

Creating “patent thickets”: walls of patents around a technology. Impossible to innovate in this domain without going through IV.

Spin-offs: when an invention has particular potential, IV creates a company. TerraPower (new generation nuclear reactors) with Bill Gates, Kymeta (satellite antennas) raised hundreds of millions.

Controversies and Criticisms

The IV model is deeply controversial:

Accusation of “patent trolling”: IV produces nothing but taxes those who produce. Technology companies pay “defensive licenses”—a form of legal blackmail according to critics. Google, Apple, Microsoft have all been sued.

Innovation slowdown: fear of lawsuits paralyzes. Startups avoid certain patent-mined domains. Large companies accumulate defensive patents rather than innovate.

Opacity: IV operates via 2,000 shell companies. Impossible to know who owns what.

Bessen and Meurer (2008), in Patent Failure, estimate that patent trolls cost 29 billion per year to the American economy in litigation and forced licenses.

Fundamental Questions

IV has transformed the innovation ecosystem. Companies create defensive “patent pools.” Universities better value their intellectual property. Individual inventors have an outlet for their ideas.

But the model poses a fundamental question: should innovation be a public good or a private asset?

Intellectual Ventures reveals tensions at the heart of the knowledge economy. Can innovation be separated from production? Are ideas assets like any others? Does the patent system encourage or block innovation?

These questions go beyond IV—they question how our societies value and reward knowledge creation.