SoftBank Unit Fortress Investments Wants to Become the Next Patent Troll

This is not investment advice. The author has no position in any of the stocks mentioned. WCCF TECH INC has a disclosure and ethics policy.

We recently featured a story that focused on a massive $100 billion venture that Japan's SoftBank Corp is setting up to help fund the next generation of technology startups. Well, today that firm is in the news once again, this time for something quite the opposite. While the firm's "Vision Fund" is meant to power the tech inventions of tomorrow, the $400 million fund will be aimed at suing tech companies over intellection property infringement.

The arrangement is rather particular given the above dichotomy. SoftBank, up til now, has only shown itself as a corporation focused on diversifying in new businesses via organic growth as well as acquisitions. A patent troll is something entirely different.

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Say Company A created a patent to swipe on a home screen. Company A never releases a successful product so they are auctioned off, along with all of their assets including the swipe screen patent. Company B (years later after the swipe gesture is widely used) finds this patent for sale and is now able to sue everyone from Apple to Samsung for using "it's" patent that it purchased from the now defunct Company A.

Company B makes nothing of value, it simply purchases patents (IP) and then uses them for litigation or threat of litigation all with the ultimate purpose of receiving lump sumps or royalties from companies relying on the underlying technology. This is what a traditional patent troll does. You can find people on both sides of the fence in terms of its ethical leaning but there is no arguing that Company B doesn't really provide ANYTHING of value, considering it wasn't even the creator of said patent.

SoftBank purchased US-based Fortress in December of 2017 for the lofty sum of $3.3 billion. Fortress will technically be the purveyors of the $400 million IP patent troll fund as SoftBank had to give up local control of the acquisition to pass the US regulatory sniff test. Fortress has traditionally made its profits via lending money to small-cap companies that own patents so this is somewhat in-line with that business model.

Ironically, SoftBank itself has been on the receiving end of patent lawsuits. A few years ago a Candian firm by the name of Wi-Lan sued SoftBank on some chip patents, which forced SoftBank to fork over license fee payments (amount not disclosed).