The Allied Security Trust would rather remain secret, but is gradually revealing its background and motivation to safeguard tech industries for litigation.

Brian Hinman likes secrecy.  As CEO of the vaguely named Allied Security Trust, his job is to acquire potentially valuable patents on behalf of some of the world’s largest technology companies while garnering as little attention as possible.  Like Walt Disney acquiring hundreds of acres of central Florida swampland, sellers would artificially raise prices if they knew which deep pockets fund his missions.  “We don’t want companies to know that it’s the Allied Security Trust buying the patents.  We have a structure that we present which keeps our identity anonymous,” he said.

“We tried to keep this thing as secret as we could.  So we'd been preparing for damage control for some time,” he said.  In a recent leak to the Wall Street Journal, Trust members were identified as Cisco Systems, Ericsson, Google, Hewlett-Packard, Motorola, Sun Microsystems and Verizon.  Sources within the named companies said Hinman’s former employer, IBM, is likely to join soon.  “We’re going to withhold comment on that for now,” Big Blue spokesman Ari Fishkind said.

For all members, the method is simple: Companies identify interesting patents and direct the Trust into acquisition mode, after which members can obtain non-exclusive and fair-value licenses.  Then the patents are put back on the open market as quickly as possible, because “I don’t want to be known as a patent-holding company,” Hinman explained.  The process is designed to protects members from exorbitant license fees and from litigation, especially from patent trolls.  Similar to the Trust itself, trolls are companies accumulating potentially valuable patents, except that trolls exist purely to charge high prices or to sue for infringement without any capability or intention of making actual products.

“This started back in March 2007,” Hinman said. “The concept was developed by the four founding companies,” which were Hewlett-Packard, Motorola, Sun and an undisclosed member. Hinman hopes to recruit another half-dozen companies by the end of this year but said he has already acquired a few sizable patent portfolios. “We tried to keep this thing as secret as we could.  So we had been preparing for damage control for some time,” he said.

Ericsson’s Gustav Brismark, vice president of patent strategies and portfolio management, said his company was not a founding member of the Allied Security Trust but was glad to be invited.  “We felt that the concept was well in line with supporting the fact that the overall market of selling and buying patents is increasing.  From Ericsson’s viewpoint, we see this as a way of taking care of our defensive side and making sure that we can in a cost-effective way continue selling the products that we are already selling, and avoid possibly unnecessary costs related to possibly [intellectual property rights] in the future,” he said.

FUTUREPROOF ASSETS
Ericsson nor the Trust has any intention of keeping newcomers away from essential patents, in telecommunications, wireless or any other areas, Brismark said.  “It has nothing to do with other companies’ abilities to get involved.  We see a potential risk in the fact that the telecom market is attractive as we work toward open standards… the setup is quite future-proof,” he added.

Yet the future is open for debate.  “This is a really startling development. In some ways, it looks like a return to a business model that was more common 30 or 40 years ago than it is today.  Anything that helps inventors get a fair price without having to go to court, my immediate reaction is that’s a good idea,” said Robert Groover, principal at the law firm Groover & Associates, which specializes in technology patents.

Although the Trust does not intend to hold patents for any substantial time, there could still be antitrust accusations depending on which patents are purchased, Groover said.  The Trust also may need to answer further questions about licensing opportunities for non-members and about the size and agenda for its war chest, he said.

Not that the Trust is alone in trying to creatively protect technology patents.  Other companies possess similar goals through different strategies.  An example is ThinkFire, described on its Website as “an intellectual property licensing and advisory firm,” which in May spun out another company, PatentFreedom.  The latter helps established companies to “better manage their interactions with non-practicing entities, including patent trolls,” by maintaining a database of likely litigators, according to a recent press release.  But the best-known company is Intellectual Ventures, founded by former Microsoft CTO Nathan Myhrvold.

“We are actually pleased to see things like the Allied Security Trust being announced because to us it’s very much a confirmation of the assumption we made about the IP marketplace,” said Vincent Pluvinage, general manager for strategic alliances and private equity partnerships.  “The first assumption is that there’s a lot of sources of inventions around the world, not just in the large labs of one or two large companies,” he said.

Unlike the Trust, Intellectual Ventures also works in the opposite direction, by holding onto patents and trying to match them with potential manufacturers.  The company isn’t ruling out litigation, although Pluvinage objects to the “troll” label.

“Even the largest companies, IBM or Sony or whoever you decide, will never have the breadth to invent it all.  There are probably 20,000 inventions behind an LCD screen today,” he noted.  “Knowing which ones are good and which ones aren’t good is not easy to do.  It takes time and it takes money.  You need to aggregate a lot of inventions to be able to license them properly.”

Regarding the Trust, “We both agree that using capital to buy patents is a great way to combine the purchasing power of companies that seek non-exclusive licenses.  I think there is more and more interest in creating a liquid market for inventions.  It is further ahead in life sciences and biotechnology but there’s no doubt it is a trend,” he said.

Hinman, who at IBM directed intellectual property initiatives and also held a similar role at Westinghouse, does not disagree.  “There are other mechanisms now, other business models that exist.  We are not the solution to solve all the patent problems that exist.  Small companies and inventors are part of the deal flow that I am entertaining,” he said.  “The entrepreneurial part of me wanted to see if this thing would work.”