IEEE Spectrum February, 2014 - 32

point-and-shoot business. By the time it filed
for Chapter 11 in 2012, Kodak had reorganized and shed tens of thousands of jobs.
Even then, Kodak hoped that by selling
some patents it could recover from bankruptcy and get on with reinventing itself
as a commercial and packaging printing
company. Throughout decades of turmoil,
Kodak had continued to innovate, spending
up to $500 million annually on R&D. The
company developed the first megapixel
image sensor, which went into Apple's
groundbreaking QuickTake digital camera,
and it came out with the first cameras with
OLED screens and built-in Wi-Fi. By 2012,
Kodak had accumulated 22 000 patents
and other intellectual property covering
160 countries. From 2003 to 2011, licensing that IP to other companies had earned
Kodak over $3 billion.
The signs for a sale looked good. The market for IP was sky high. Record-breaking
deals in 2011 included Apple, Microsoft,
and Research in Motion paying $4.5 billion
for Nortel's portfolio of 6000 wireless communication patents, and Google's purchase
of Motorola Mobility's cellphone IP (and
the company along with it) for $12.5 billion.
The consultants behind the Nortel deal,
284 Partners, reckoned that a set of 1700
Kodak imaging and printing patents could
fetch up to $2.6 billion on the open market;
three other firms valued them at between
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$1.8 billion and $4.5 billion. Kodak officials
had every reason to believe their plan was
the right one.

In the United States, trading in patents

goes back more than two centuries, to when
America's founding fathers' system made
it straightforward to register, sell, and buy
intellectual property.
Two-thirds of the most famous U.S. inventors of the early 19th century sold or
licensed their patents, and legal disputes
were common, according to research by
the economists Kenneth L. Sokoloff and B.
Zorina Khan. The "sewing machine wars"
of the 1850s saw up to twice as much litigation, proportionally, as the modern struggle for smartphone supremacy. Dozens of
individuals and companies struggled to
perfect automated sewing technology, with
the result that hundreds of overlapping patents were granted. And when Isaac Singer
settled a high-profile patent suit with rival
inventor Elias Howe, litigation threatened
to rip the nascent industry apart at the
seams. Large manufacturers were sued
by individuals exercising key patents-
what some people today call patent trolls.
(More-polite terms include patent assertion entities (PAEs) and non-practicing
entities (NPEs), so called because they do
not produce goods or services subject to
countersuits or injunctions.)

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Although the rough and tumble of patent trading is nothing new, the stakes
have risen considerably. Damage awards
from IP infringement suits have spiraled
upward; in 2012, for instance, Samsung and
chipmaker Marvell each faced judgments
of over $1 billion. "Massive awards are new,"
says Robin Feldman, a law professor at the
University of California Hastings College of
Law. "The patent system is allowing rights
holders to bargain for compensation far
above the value of the right. It's become
a gold rush, and there is an extraordinary
level of speculation in the market."
Some experts link that speculation to
the arrival of patent aggregators, and specifically Intellectual Ventures. Founded
in 2000 by ex-Microsoft CTO Nathan
Myhrvold, Intellectual Ventures has used
over $6 billion of its investors' money to
acquire tens of thousands of patents. The
firm then either licenses the IP or sues companies that it claims are infringing on those
patents-a process known as monetization.
"We were early and helped create the
ecosystem around patent buying," says
Jeremy Salesin, vice president of acquisitions at Intellectual Ventures. "There has
since grown up a network of buyers and brokers. The result is that the flow of patents is
stronger and more constant than years ago."
Where once patents were traded between
companies largely as a hedge against litiga-

Previous Pages, Left: eduardo Munoz/reuters; right: istockPhoto; this Page, Left: ssPL/getty iMages; right: david duPrey/aP Photo

A FAmIly poSe shows Kodak cameras from 1888 to 1999 [above left], spanning box models, folding cameras, Instamatics, and a digital camera in
the front. Kodachrome [above right] helped the company dominate the U.S. market for film for many decades. Steven Sasson [opposite left] invented
the digital camera at Kodak in 1975, but nervous executives told him to "take that box and go away." later Kodak embraced digital systems, notably
the professional Digital Camera System [opposite right], launched in 1980 and attached to a Nikon film single-lens reflex camera. It needed a separate
storage unit to hold its 1.3-megapixel images.

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Table of Contents for the Digital Edition of IEEE Spectrum February, 2014