Intellectual Ventures Founder, Greg Gorder, Speaks to Mason IP Law Students and Faculty

On Tuesday, September 18, Greg Gorder, Founder & Vice-Chairman of Intellectual Ventures, addressed the topic of “Creating an Invention Economy,” in an event sponsored by the GMU Intellectual Property Law Society.

Gorder helped found Intellectual Ventures in 2000, and since that time has played an instrumental role in developing the company into one of the largest holders of patents in the United States.  Prior to joining Intellectual Ventures, Gorder was partner at the law firm of Perkins Coie LLP, where he specialized in high-technology, corporate and securities law and provided business and legal counsel to early stage technology companies.

Gorder introduced the audience of several dozen students and faculty to two related problems in the field of patent law: (1) the “invention gap,” and (2) the “long tail.”

The Invention Gap

The invention gap is the difference between the number of rights-protected inventions embodied in a given product or service and the number of rights-protected inventions a firm producing that product or service is lawfully authorized to make, use, or sell.

To understand the invention gap, consider a product you likely use every day: a smartphone.  Hundreds or even thousands of distinct inventions are incorporated into a smartphone, embodied in everything from the logic in the circuits, to the algorithms in the software, to the design of the exterior, to yes, even the method of swiping your finger to unlock the phone.  (U.S. Patent No. 8,209,637 B2 “Unlocking A Device By Performing Gestures On An Unlock Image.”)  Every one of the components of a smartphone was at some point invented.  U.S. patent law rewards inventors with patents, which allow patent owners to exclude others from making, using, or selling patented inventions during a limited period (usually 20 years from the date of filing).

In order to produce a smartphone, a firm such as Apple necessarily makes, uses, or sells hundreds or even thousands of inventions.  Many such inventions belong to Apple, in the form of patents.  Other inventions, Apple licenses from a host of third-party patent owners.  (For example, Apple licenses the right to use Amazon’s patented 1-Click shopping model in its iTunes store.)  But, according to Gorder, despite a firm’s best efforts to obtain patents and to obtain licenses, many products and services nonetheless contain or make use of numerous unlicensed inventions for which exclusive rights exist, but for which inventors and patent owners go uncompensated.

This is the “invention gap” – the group of patented inventions incorporated into a given product without the permission of the patents’ owners.  Who are the owners of the patents in the invention gap?  They are the “long tail.”

The Long Tail

The term “long tail” arises from a graphical representation of the number of patents owned by the firms in a given field, ranked from left to right.  On the left are the heavyweights (think IBM in computing, Toyota in hybrid cars, etc) who may own thousands of patents each.  On the right, is the “long tail,” the hundreds of small firms who, individually own small numbers of patents, but who in aggregate, may own a substantial number, or even a majority of the patents in a given sector.

Who is in the long tail?  According to Gorder, the long tail includes hobbyists, garage inventors, tinkerers, failed start-ups, universities, and widows and orphans who inherited the intellectual property of deceased family members.  These small entities often lack the resources (or a strong incentive) to go into production for themselves.  Since they don’t make or sell anything, they don’t “practice” their patented inventions, thus they are called non-practicing entities, or NPEs.

NPEs often lack the resources to efficiently license their patent rights to larger firms or to pursue patent infringement lawsuits when unlicensed products and services using their patented inventions enter the marketplace.  On the flip side, the challenge of negotiating licensing agreements with the counless small firms in the long tail makes it difficult to manufacture products in the industry without infringing some patents.

Gorder discussed how Intellectual Ventures’ business model works to address the invention gap.  Intellectual Ventures acquires large volumes of patents and packages them in industry-specific patent portfolios.  Intellectual Ventures then offers non-exclusive licenses for the rights to entire patent portfolios.  This helps smaller firms monetize their patents, giving the firms value they were not otherwise likely to obtain, while helping larger firms compete without the specter of infringement.

Gorder believes the Intellectual Ventures model is efficient because Intellectual Ventures is able to achieve economies of scale and because its incentives are aligned with the firms it licenses.  Also, as a non-practicing entity, Intellectual Ventures does not compete with its licensees.  This means there is less of a strategic behavior concern and lowers the cost of licensing.

Gorder closed his talk saying that while Intellectual Ventures does not completely solve the invention gap problem, or the long tail, but it is taking big steps in the right direction.