Three years ago in the bathroom off a bioscience lab at Intellectual Ventures, a group of scientists created a makeshift physics lab where they huddled to carefully connect microscopic wires to circuit boards. The team at the Bellevue campus was building the prototype of what would become technology behind a potentially industry-changing mobile satellite link.
“We didn’t have a necessary facility so we put together a small darkroom/clean room in IV’s bathroom,” said Kymeta founder and Chief Technology Officer Nathan Kundtz. “No comment on whether or not we had proper ventilation,” the 30-year-old physicist added with a laugh.
Now Redmond-based Kymeta, which raised $12 million in early stage funding last year from big-name investors including Microsoft Chairman Bill Gates, has spun out of Intellectual Ventures. The company is developing and testing a portable system about the size of a laptop that would provide high-speed internet connections by accessing satellites from anywhere in the world.
The prototype successfully connected to a satellite for the first time on April 24. Once the system is completed, the company hopes to sell devices to anyone from war correspondents to luxury yacht owners to business jet manufacturers.
Kymeta’s recent milestone follows the earlier successes of the first IV spinoff company, mini-nuclear-reactor maker TerraPower, and the creation of other startups whose founders were former IV scientists. Together, the developments shed new light on a long-running debate about whether Intellectual Ventures is supporting the next generation of visionaries or stifling innovation with aggressive legal tactics.
Over the past several years, Intellectual Ventures has used its massive patent portfolio – it claims to have more than 40,000 – to sue companies using its technology and force them to pay licensing fees.
Some have called the company a “patent troll” or non-practicing entity (NPE), because it does not use many of its patents to develop its own products. Others have said IV’s approach will be a windfall for inventors, and IV founder Nathan Myhrvold, a former Microsoft chief technology officer, has described the approach as a play on venture capital. He calls it “invention capital” — investing in inventions.
It is a highly charged argument that has prompted Congress to rewrite laws, spawned a variety of new programs in patent prosecution at law schools across the country, and even inspired crowdfunded campaigns to research the origins of the thousands of patent lawsuits filed every year.
In the midst of that, IV is making money. The company boasts more than $5 billion in committed capital, and has made more than $2 billion in revenue since it launched in 2000. (The company does not disclose its profit.)
“The NPEs argue that they help small inventors by investing in inventions,” said Jim Bessen, a Boston University professor and co-author of the book “Patent Failure: How judges, bureaucrats and lawyers put innovators at risk.”
But, Bessen said, his research has found that only about 7 percent of the revenue NPEs bring in goes to third-party inventors. He said that even if a company like IV helps create the next amazing nuclear power technology, that won’t outweigh the cumulative negative effect of thousands of lawyers stopping other innovations by suing inventors.
“I think a certain amount of this is window dressing,” Bessen said.
While IV would not make anyone available for this story, the company’s executives have frequently disagreed with the assessment that its practices discourage innovation, and have argued that the opposite is true.
“It’s hard when you work down the hall from Dr. Myhrvold and you just hear him laugh. He’s got a very jolly laugh. I don’t think he’s a guy who gets up in the morning and says, ‘Who can I crush today?’” said Max Effgen, the chief information officer of a small Seattle startup called SuperCritical Technologies.
Effgen and his co-founders worked at IV and some in the group worked at mini-nuclear-reactor firm TerraPower before they formed SuperCritical. Effgen said his experience at IV helped him understand how intellectual property works, and helped him prepare SuperCritical, which makes a very small, highly efficient energy generation system that the company hopes will compete with the largest energy companies and eventually be licensed by them.
“We’re going into the energy sector, which is dominated by very large corporations,” Effgen said. “We learned a ton (at IV) about protecting ourselves.”
For Kymeta, the path to becoming an independent company was a long one.
Researchers at Duke University were working on the basic technology behind Kymeta in the early 2000s.
Kundtz worked on the technology while studying at Duke for his doctorate in the field of metamaterials — materials that don’t naturally occur in nature. While he was there, he consulted frequently with IV, which had licensed the technology. When IV decided to invest in the inventions, Kundtz followed the technology to Bellevue to help IV develop a way to monetize it. Kundtz said he figured out a few ways to make money, but the one with the largest market opportunity — mobile satellites — was also the most difficult.
“But it made sense to try it out,” he said. “I was pretty sure it didn’t violate the laws of physics.”
He was right, and over the next three years he led the team within IV to develop a prototype.
“It was literally a circuit board with some wires on top,” Kundtz said.
Once they had that, they started trying to put together something that could be manufactured. The team then brought on wireless industry veteran Vern Fotheringham, who worked for and ran many of this area’s early wireless companies, to run the business side.
Now, the company has more than 40 employees, plans to grow to 100 by the end of this year, and hopes to have a product on the market by the end of 2015.
“This has become a magnet company for folks looking to do interesting things,” said Fotheringham, who is CEO.
His vision is that Kymeta will produce the next big enabling technology that will completely uproot the traditional satellite technology in use around the world.
Myhrvold agrees, saying last year at a technology conference that he thought Kymeta’s inventors would eventually win the Nobel Prize.
Fotheringham said he rejects the notion that Seattle is a software town.
Citing Boeing’s deep roots in Seattle, he said, “This used to be a hardware town.” He thinks Kymeta can help bring that back.
“There’s only so much you can do with apps,” he said. “They’re incredibly powerful … but the cost to enter that market is incredibly low and it’s difficult to create something that’s going to have staying power.”