Joff Wild

It’s been a couple of days now since this blog broke the news that a full list of investors in several major funds run by Intellectual Ventures had been revealed in court documents relating to a declaratory judgment case being heard in the Northern District of California (PatentlyO also reported the news a little later on the same day). The last 48 hours have given everyone a little time to have a think through some of the implications.

Over on GametimeIP site, for example, Patrick Anderson wonders whether IV will actually be that concerned that the names have been released. His conclusion, like mine, is that it will not be. In fact, my guess is that IV is probably quite pleased. Last year when I interviewed Joe Chernesky, VP of licensing at the firm, he talked about wanting to be more transparent, but that the wishes of investors and licensees had to be respected. In fighting to maintain secrecy, but in being ordered by the court to make the disclosure anyway, IV has now got the best of both worlds: being seen to do the right thing by its investors, but also ending up with the names put out into the public domain. As Anderson says, IV will surely be only too happy for everyone to know that big names from the corporate and financial world think highly enough of its business model to back it.

What we still don't know, of course, is how much money these investors have put in or under what terms. And IV is not releasing information about its subsidiaries and how these work inside its wider corporate structure. So, while we know a little more, there is still a lot that remains opaque - though discovery may change that moving forwards.  

Another point that occured to me relates to claims we reported on earlier this week that IV was behind action undertaken by Lodsys in the Eastern District of Texas against Apple developers. Was this part of a campaign by IV to get Apple to become a licensee? Although we concluded that it was probably not the case, the list of investors may be more confirmation, as Apple is named and, therefore, presumably already has access to the firm’s portfolio. But, then again maybe not – Xilinx is also named as an investor, but that did not stop IV issuing proceedings against it.

Anyway, when a big Intellectual Ventures story blows up, one of the first people I always turn to for comment is Tom Ewing of Avancept. Tom has a special interest in IV and has published detailed studies on the firm. I doubt if there are many people on the planet who know more about its operations. I got in touch with Tom to get his reaction to what was revealed.

The first thing Tom did was produce a handy chart of the IV funding sources. This separates the investors into companies, investment funds, institutions, and individuals – after removing the IV individuals and shells. He also provided a few comments:

At least some of the operating companies listed are believed to be some of IV’s founding members; eg, Microsoft and Sony. On the other hand, some of the companies listed may be more along the line of licensees whose licence fees relate in some way to the revenue of particular funds. For example, there has been a longstanding rumour that IV’s licences are true-up licences and that some of their licensees don’t “true up”, which is supposedly one of the reasons that IV has sold pieces of the portfolio off to third parties – the third parties sue and this serves as a prod to pay the larger licensing fee. Anyway, Xilinx, the plaintiff, is also listed as a party that has a financial interest in two of the funds.

As you can see, I’ve charted all the parties against the four funds listed in the litigation. I’m not certain what the differences are between these funds. I know that some of them are older than the others, and may have closed several years ago, but I don’t think that’s the only difference. You’ll notice, for example, that the institutional investors tend to invest somewhat more often in the “fund II’s” while the operating companies tend to “invest” somewhat more often in the “fund I’s.”

I’ve skimmed through the Xilinx case records, and if I’m reading this all correctly, the only reason that this list was made public was because IV wouldn’t agree to let Xilinx’ general counsel have an unredacted copy of the list. Peter Detkin even filed a declaration (that itself was kept under seal) that supported IV’s motion to keep the information from public view.

Here’s what seems to have happened – at some point Xilinx invested in two of IV’s investment funds. The records don’t explicitly say this, but Xilinx seems to have believed that it had a licence to the portfolio. Their complaint against IV says a lot of things, but one line that gets repeated over and over is: “Plaintiff has informed IV that Plaintiff contends that it has the right to engage in the manufacture, sale, use, and/or importation of these circuits without a license to [a patent in suit].” This language could be taken to mean a lot of things, among them that Xilinx believed it was effectively already licensed.

For its part, IV describes its negotiations with Xilinx as “routine patent licensing discussions” when Xilinx suddenly broke off discussions and filed the declaratory judgment action. IV’s papers also include this gem: “For nearly two months, the parties engaged in dialogue and were on the verge of reaching a non-disclosure agreement to allow more detailed technical discussions to proceed.” IV is rumoured to have one of the toughest NDA’s around … two months to negotiate an NDA strikes me as an awfully long time.

I am struck as to how the World Bank invested in IV. I just didn’t know they did such things, although maybe this is their pension fund. I’m also struck, as always, by the intransparencies that the system allows – the only reason we know this information now is because IV wouldn’t agree to letting Xilinx’ GC have an unredacted copy … oh, the information was important enough that it’s likely the reason why the original judge in the case had to step down. (In fact, this is why the court system has the rules in the first place requiring disclosure of interested parties – it’s for the benefit of the judges.) Shortly before this information was revealed Judge Lucy Koh had to recuse herself and a new judge was appointed. The record doesn’t say why, but I’m guessing it’s because she had too many intimate dealings in her past legal career with one of the interested parties.

Remember the stories about IV muscling in on poor Apple? Seems less likely given that Apple is invested in 3 of those 4 funds … unless this is one of those “true up” issues ... in which case, IV might very well be applying some muscle. It would be interesting to know how many of IV’s corporate investors were confused as to what rights they received by joining the funds, which seems to be a part of Xilinx’s defence.