Jack Ellis

Nest Labs – a start-up developing ‘smart’ thermostat technology – recently entered into an agreement to license and purchase patents from Intellectual Ventures (IV).

In addition to signing up to IV’s ‘IP For Defense’ scheme – which grants participants a licence to an unspecified number of IV’s 40,000-plus patents – Nest has acquired several patents outright from the aggregator, some of which relate to systems and methods for automatic registration of devices. It has been suggested by some commentators that the main impetus behind the deal is for Nest to better protect itself from assertions by larger competitors such as Honeywell, which sued Nest for patent infringement in February last year.

Quoted in a press release announcing the deal, Nest’s vice president and general counsel Richard Lutton said:

“Nest is very aggressive in bringing new technologies to market and our patent strategy… is designed to keep pace. To date, we’ve filed almost 200 US and international patent applications and we have hand-picked and acquired more in key areas, including the patents acquired from Intellectual Ventures.  Our patents allow us to defend our innovative products in the market.”

From 2001 to 2011, Lutton was chief patent counsel at Apple, where he was involved in many of the company’s key legal battles with competitors around the world, as well as major patent licence deals and acquisitions – including its purchase of the former Nortel portfolio as part of the Rockstar consortium. Lutton will also have no doubt been involved in Apple’s interactions with IV – in May 2011, this blog revealed the Californian company as an investor in several IV funds – and this familiarity with IV and its client offering would no doubt have informed Nest’s decision to hook up with the aggregator on this occasion.

As Lutton suggests in the press release, patent acquisitions can help a business to defend its product or service offerings by securing freedom to operate and providing assets that could potentially provide leverage in negotiations or counter-assertion options. When a company has products competing in the marketplace, time is of the essence – and buying patents from an external source can be far quicker than attempting to generate relevant IP internally. That is a strategy that Apple, for one, has pursued – the Nortel purchase being one example – and it is a strategy that can be employed to great effect by start-ups too.

IAM previously reported on findings from the New America Foundation’s Open Technology Institute which indicated that only a small number of start-ups are likely to work with NPEs/PAEs to leverage their IP. The study’s authors – including Santa Clara University’s Colleen Chien, a leading proponent of patent reform and now IP adviser to the chief technology officer of the United States – argued that their findings and feedback from start-ups and venture capitalists suggested that any benefits felt by start-ups through partnering with NPEs/PAEs are cancelled out by the negative effects that such entities can have on early-stage businesses. We suggested one possible alternative interpretation of the findings: perhaps the apparent aversion to partnering with NPEs/PAEs reflected a lack of sophistication among start-ups when it comes to IP strategy.

Nest, however, is an early-stage company that clearly sees IP as a critical component of its overall business strategy. Its IP credentials would appear to be vindicated in part by the fact that one of Nest’s main investors is Intertrust, an R&D and patent licensing company that is jointly owned by IP heavyweights Philips and Sony. And with experienced hands like Lutton and CEO Tony Fadell (another Apple alumnus, who led the product development team for the iPod) at the helm, Nest possesses strategic IP expertise that could smooth the way for it to grow into a bigger and more successful business. It is an example worth noting for other early stage companies.