July 11, 2007, 5:59 PM — The basic framework of Nathan Myhrvold's story is well known. Born in Seattle in 1959, he went to college at age 14, taking a bachelor's degree in mathematics in 1979 at the same time he earned master's in geophysics and space physics at UCLA. Then, came the master's in mathematical economics two years later before Ph.Ds in theoretical and mathematical physics, both at Princeton. He was 23 at that point when he headed to Cambridge University in the U.K. for post-doctoral work in cosmology and quantum theory with Stephen Hawking, who holds the mathematics chair that Sir Isaac Newton held 300 years ago.
A man of multiple interests, in 1984 Myhrvold started a software company called Dynamical Systems, to produce an equation editor. It wasn't long before he attracted the attention of Bill Gates. Microsoft bought Dynamical Systems in 1986 and Myhrvold became Microsoft's chief technology officer, a post he left in 2000 with what is estimated to be more than US$600 million. He then started AIntellectual Ventures, a company with which he hopes to reinvent the IT industry business model.
In this interview, Myhrvold, 48, details his business strategy and defends himself from those who call him "the most feared man in Silicon Valley" and "a very large patent troll."
IDG: Intellectual Ventures is a company devoted to buying potentially profitable patents -- some say you've already bought more than 3,000 -- as well as providing a pleasant environment for very smart scientists to produce new inventions and share the patent rights with the company. Could you explain this new business model?
Myhrvold: I left Microsoft and started Intellectual Ventures because I loved the idea of changing the business model for developing technology. At IV, we invest in invention -- invention is our asset. Some of the invention we do ourselves and some we buy from others. I compare the different parts of our business to the venture capitalist and private equity models.
On the side where we are inventing ourselves, we are supplying capital and expertise much as a venture capitalist would. Only, we're doing this in order to stimulate the ideas. Essentially, we are providing capital and expertise to some of the world's greatest inventors to help stimulate new ideas. Currently we have nearly 45 senior inventors who work with us on a part-time basis to brainstorm ideas across a wide range of technologies. As of August 2003, when we actively started inventing, we have held 90 invention sessions, resulting in the filing of close to 1,000 patent applications and we have received nearly 20 patents. In the U.S., the latency between patent filing and issuance is at least 18 months but usually longer.
The other side of our business is more like a private equity model. Much like private equity managers work with distressed companies that have gone adrift, we work with inventors or inventions that have gone adrift. Our approach is to take a controlling investment and manage the asset -- in this case the invention -- better than the current owner for the financial benefit of everyone involved. In the case of the private equity side of our business, we're buying the inventions not creating them ourselves. In both models, however, we are investing directly in the process of invention by stimulating new ideas and financial rewards.
Ultimately, our inventions will get to market in a variety of ways. In some cases we will do spin off companies where the invention is the core of the company. In other cases, we may license the idea to industry or interested parties; we might donate the invention to a consortium or project. By taking a portfolio approach and combining complementary inventions together, we believe we will create an interesting product for people to license. To date, we have thousands of assets.
IDG: Last year, an HP high executive referred to your company as "a very large patent troll" [In a June 2006 Fortune article.] Some even say that you are the most feared man in Silicon Valley. It seems to be a general fear in the computer industry that Intellectual Ventures will eventually control several key patents of this industry. Are you really that Big Bad Wolf?
Myhrvold: There are two elements to the question. First, the notion of being a troll or that there is such a thing. I always find it ironic when people quote HP criticizing my company. HP is a very inventive company and they sue companies regularly to force them to pay for using HP's patents. They reportedly collect $200 million per year in licensing revenues. At times, they have asked for injunctions against companies who are using their inventions and won't pay. A recent WSJ article profiled attorneys who sue companies on behalf of HP that refill ink jet cartridges -- an effort to protect HPs margins.
