Intellectual Ventures, the company Silicon Valley loves to despise, is laying off about 20 percent of its employees, Bloomberg Businessweek has learned.
On Tuesday, IV sent a memo to its workers, notifying them of the cuts. The company has been employing 700 people, which means about 140 will be let go. “We are making operational changes that are consistent with this reduction and will enable us to maintain and expand our leadership in the market for invention,” the company said in a statement. “Our assets—both people and intellectual property—are among the best in the industry.” Now, let me try to translate that.
IV was founded in 2000 by a couple of ex-Microsoft (MSFT) higher-ups who had concocted a controversial business plan. They set out to buy patents—tens of thousands of them—and then turn that intellectual property into a multibillion-dollar venture. IV also recruited teams of scientists and lawyers to sit in rooms and think up new ideas.
IV created a fund around the patents. Companies could buy into the fund, in exchange for which they’d receive access to the IP haul. If you were Intel (INTC) or Google (GOOG)—both invested in IV’s original fund—this seemed a good deal. You were acquiring added protection against intellectual property lawsuits because IV had so many patents at its disposal that it and its partners could counterattack almost any claim.
Over time, IV amassed more and more patents and started up fresh funds, coming back to the Silicon Valley technology companies and asking them to invest again and again. This pattern rubbed people the wrong way, to say the least. The implicit threat was that if you didn’t keep buying into IV’s patent fund, the company would dig through its arsenal, find something you were violating, and file a lawsuit. It was the classic patent troll—a company that didn’t actually make anything but used questionable patents to go after those that did. A number of high-profile executives in Silicon Valley started likening IV to the Mafia and describing its business model as a protection racket. NPR famously went to town on IV with such comparisons in a couple of episodes.
While NPR and others have focused largely on this aspect of IV’s business, the company has pursued additional avenues. It created a network of thousands of inventors who get paid for their ideas. These people, often academics, receive flat payments for their concepts, as well as part of any licensing royalties that arrive if their ideas get turned into products. IV has spent the past couple of years refining this part of its business and is now helping dozens of companies create products based on its ideas. IV has also built an internal team to turn ideas into the basis of startups it funds.
The buzz around Silicon Valley is that IV’s original business model didn’t work out as well as the company hoped. IV has made more than $6 billion, but Google, for example, stopped investing in the company’s new funds, and such names as Oracle (ORCL) and Hewlett-Packard (HPQ) have put up resistance, too. Lawsuits that IV pursued against some banks and technology companies have also taken longer to see to fruition than the company expected. The layoffs will certainly contribute to a perception that IV has fallen on tough times.
Edward Jung, IV’s co-founder and chief technology officer, insists that the business is doing fine. It’s true, he says, that not as many companies bought into the patent funds as IV expected, but he says the company is happy with its returns.
The layoffs, according to Jung, represent part of the company’s evolution. IV was the first company to try to amass so many patents, and it had to hire hundreds of people to invent the processes for buying ideas in bulk. People were needed to sort through patents, acquire them covertly, think up complementary ideas, and deal with the associated paperwork. “We have more data than anybody and have analyzed it over the years,” Jung says. “Our analysis has allowed us to save a lot of needless paperwork and become more efficient. We don’t need as many people to sift through and sort information now.” Much of the work has been simplified and automated.
To date, IV has tried to highlight its efforts outside the patent fund by pointing to a handful of spinouts. Health Technologies makes medical devices, TerraPower is building a new type of nuclear reactor, and Kymeta is advancing satellite communications; all this technology began in IV’s idea laboratories. IV is expected to unveil a number of new ventures in the coming weeks as proof that it’s expanding these parts of its business. If IV does become a startup factory, it’ll make it a bit tougher for the folks in Silicon Valley to loathe the company.