The changing face of IP management at GE

How to build brands fit for the 21st century

Licensing challenges in complex markets

Why it pays to invest in strategic portfolio creation

Inside the new pharma patent dynamic

Issue 45 January/February 2011

Intellectual Asset Management Magazinewww.iam-magazine.com

The rise of theprivateers

How operating companies are using NPEsto make money and shape markets

Intellectual Asset Management January/February 2011 31www.iam-magazine.com

Introducing thepatent privateers

Do operating companies sometimesauthorise third parties to chase theircompetitors using IP rights? Because patentlitigation in particular typically involvesstakes of several million dollars, a commonassumption is that the primary motivationbehind the lawsuit is to make money fromthe litigation. But what if the ultimatemotivation is something beyond a merelitigation victory? Can third-party IP rightsassertions provide a useful tool for shapingthe competitive landscape? This is thesimple premise behind IP privateering.

Sven-Christer Nilsson, a former CEO ofEricsson, once remarked that IP strategy isnot the sort of thing that a company shouldoutsource or share with outsiders. “You keepall that to yourself,” he said. After a momentof reflection, he added that SMEs might dowell outsourcing some strategy matters,since they have less environmentalknowledge than a seasoned consultant. Themessage clearly implies that there are issuesand practices related to overall corporatestrategy that rarely, if ever, come to theattention of even a firm’s closest advisers.One closes the boardroom doors for a reason.

Some IP strategies, such as privateering,escape notice for years. First, successful

Outsourcing patent litigation –whether openly or clandestinely –not only gives operating companiesthe chance to monetise their rights at low cost, but can alsoallow them to shape theircompetitive environments. No wonder privateering is provingincreasingly popular

By Tom Ewing

privateering typically demands stealth, soonly a select group understands the overallplan. Second, few venues exist for discussingsuch strategies. Law journals and legal textsdo not typically discuss IP strategy issues,focusing instead on sets of specific legalissues arising from various litigations andthe rationale behind the court decisions inthose cases. As a whole, the legal systemdoes not typically reflect on the motivebehind any given patent lawsuit. If anything,the motive is simply assumed to beobtaining money via a damages award orsettlement. Likewise, business publicationstend to gloss over the details of IP rightscases, considering such informationspecialist knowledge. Finally, digging outmotives, especially from circumspect parties,requires an enormous amount of legwork.

But IP privateering exists. Ruud Peters,CEO of Philips Intellectual Property &Standards, among others, confirms that itdoes. “Privateering has probably beenaround for decades,” said Peters. “It lets theother guy do the work with no directexposure to the company. Privateeringseems to be a growing practice that takesplace under a whole shade ofarrangements.” Understandably, Peters andthe other executives with whom we spokewere reluctant to provide specific examples.

This article first describes IPprivateering, discussing the mechanics andsome variables associated with the practice,and then continues to discuss privateering’snormative aspects.

What is IP privateering and how does it work?IP privateering takes its name from ahistoric method of waging war so effectivethat it had to be abolished by treaty (theParis Declaration Respecting Maritime Law1856). The 1907 Hague Convention clarified

On the attack

©istockp

hoto.com/jam

esbenet

www.iam-magazine.com32 Intellectual Asset Management January/February 2011

On the attack

the Paris Declaration, requiring, amongother things, that non-military vesselsconverted into military vessels be under theimmediate command of a sovereigngovernment in order for the crew not to beconsidered pirates.

Privateering is state-sponsored piracy.The government hands the privateer a letterof marque and reprisal that allows him toseize the property of the state’s enemies.The privateer may capture ships flyingunder the enemy’s flag, sell the ships andtheir cargoes at auction and keep theproceeds. During the first Anglo-Dutch Warof 1652, English privateers seized more than1,000 Dutch ships over a two-year period.In the subsequent Anglo-Spanish war of1654, Spanish and Flemish privateers inreturn seized more than 1,500 Englishmerchant vessels. Many of the famousEnglish “sea dogs”, such as Sir FrancisDrake, were privateers. Privateering waseffective and cheap – the privateer’s actionscost the government nothing. Privateering,like the creation of corporations, allowsgovernments to pursue policy objectiveswithout any impact on the treasury. Inshort, classical privateering removes mostobstacles to waging war, save for theopponent’s ability to retaliate.

IP privateering, unlike classicalprivateering, has associated costs and thesponsor typically stays hidden. The sponsormay outfit the privateer, but secrecy allowsthe privateer’s sponsor to achieve objectivesthat would be difficult, if not impossible, tosecure if the sponsor operated under itsown colours. Thus, IP privateering thrivesin a shadowy world where camouflaging thesponsor’s existence is often crucial.

Figures 1 to 5 set out an allegorical storythat illustrates how privateering operates.Here, a frustrated king wants to marry hisbefuddled son off to the beautiful princessof a distant land. Other princesses havealready rejected the king’s matchmaking.Parliament refuses to spend a farthing on aroyal betrothal. The king’s adviser, Sir Peter,devises a cunning plan involving privateers.Sir Peter heads to the Crusty Litigator, atavern crawling with cutthroats,desperadoes and pirates. He presents aletter of marque and reprisal to BarristerBill, the most ruthless pirate around, andthen hands similar letters to the othercaptains at the bar. Before long, ships flyingunder the princess’s flag are being snatchedas prizes all over the high seas. With thisgrave threat to her country’s commerce, theprincess has no choice but to accept theking’s offer. Meanwhile, Barrister Billreturns to his card game at the Crusty

Litigator carrying the sack of gold coins thathe earned in service to the crown.

Privateering objectiveThe privateer’s objective is easily understood– cash obtained through a litigation damageaward or settlement. Like any commercialactor, the sponsor’s objective is alsomonetary – albeit not immediately from thelitigation, but rather from the changinglandscape brought by the litigation.

To understand IP privateering, one mayneed to recalibrate the sensitivity of theinstrument that one uses to gaugecommercial affairs. IP privateering begins tomake sense when one recalibrates thecurrency unit from the millions at stake in atypical non-practising entity (NPE)litigation to the billions at stake among theworld’s major commercial actors. For acompany with an annual turnover of severalbillion, the prospect of a court judgmentinvolving a few million is more of an irritantthan a major concern. But while a givenlitigation’s immediate costs may beinconsequential at the billion-level filter,the consequences of such litigations mayimplicate serious sums by any reckoning.

Assume, for example, that two largecompanies are competing fiercely for a giantsupply contract, with both prospectsrunning neck and neck. Assume further thatone company is perceived to be stronger inIP rights than its competitor, especiallyregarding the customer’s ultimate IP

Figure 1King Enormé auf Organizzazione bitterly kicksthe royal pooch after reading Princess Aziendaof Erewhon’s graceful rejection of a marriageproposal to the king’s somewhat peculiar sonBrevetti. Undeterred, the king’s ever-ableadviser Sir Peter crafts a cunning plan for“gently” compelling the reluctant bride.

Intellectual Asset Management January/February 2011 33www.iam-magazine.com

On the attack

objective – avoiding the threat of aninjunction for anything received from thesupplier and integrated into the customer’sproducts. In this circumstance, eithercompetitor could sponsor a privateer.Neither company would typically want tosue the other directly, since this mightirritate the prospective customer, causingmore harm than good. The companyperceived as weak on IP rights issues couldsponsor a privateer to knock down the othercompany’s higher reputation. Conversely,the company perceived to be strong couldsponsor a privateer to underline its IP rightsstrengths to the customer.

As another example, assume that anincumbent’s market position is beingetched away by an upstart competitoremploying a replacement technology.Assume that their technologies aresufficiently different that neithercompany’s patent portfolio has muchrelevance to the other company’s products.This pattern would be ideal for privateering.After all, neither competitor holds IP rightsthat it could effectively use against theother. Employing patents against the othercompany essentially requires obtainingpatents from a third party anyway. Thequestion is: do the newly acquired patentsfly under the company’s flag or do they staywith the third party?

One can imagine environmental factorsthat would suggest keeping the newlyacquired patents in the hands of a third

party. Privateering may even be cheaperthan buying and asserting patents. If theparty owning the patents is agreeable, thecosts of privateering should be lowerbecause the sponsor need only spendenough money to motivate the patents’owner to sue the competitor. Hamstringing,distracting and embarrassing thecompetition is the sponsor’s goal, ratherthan collecting a large damages award.Because privateering is stealthy, thelitigation could continue for a long timebefore the target realised, if ever, whosponsored the litigation. Thus, while onecompany is distracted, disrupted andembarrassed by the litigation, the otherparty has no corresponding problems andcan focus on its business.

Some companies dominate theirmarkets so completely that employing an IPrights portfolio risks problems with thecompetition authorities. Thus, thecompany’s IP rights cannot operate as fullyas they would if the company held a smallermarket position. When the market-dominant company finds itself in asituation where another company wouldtypically employ its own IP rights against acompetitive threat, the market-dominantcompany may have little choice but tosponsor a privateer. Of course, sponsorshipof the privateer needs to be done in amanner that will not provoke thecompetition authorities, but this should befairly easily to accomplish.

As an extreme example, assume that alarge company would like to change someaspect of IP law in a particular jurisdiction,but has trouble finding enough othercompanies that concur with the proposedchange to make a persuasive case to thelegislature. As part of its PR campaign, thelarge company could privateer against othercompanies using IP rights whose litigationwould raise the same or similar issues asthe aspect of IP law that the large companywants to change. As long as the othercompanies don’t realise who has motivatedthese litigations, the large company shouldsucceed in gathering allies for making thecase to the legislature. The large company’sprivateering expenses may be substantiallylower than the company’s lobbyingexpenses, while yielding greater results.

TechniqueIP privateering comes in a variety offlavours, depending primarily on thesponsor’s needs for stealth. Some of thetechniques for privateering have alreadybeen discussed. We discuss a few moretechniques below.

Figure 2Guarded by royal marines, Sir Peter enters theCrusty Litigator, a known haven for pirates,cutthroats and scallywags, in search ofBarrister Bill, one of the meanest, mostruthless pirates ever to sail the high seas. Sir Peter’s nervous envoy Freddie carries acarefully worded letter of marque and reprisalsigned by the king.

www.iam-magazine.com34 Intellectual Asset Management January/February 2011

On the attack

In the less stealthy case, the sponsor cansell some of its own IP rights to a thirdparty, which then uses those assets againstthe sponsor’s competitors. The lawsuit willbe brought under the name of the thirdparty, and the sponsor may retain no legaltitle to the IP rights (of course, the sponsorcould possibly retain some interest in thelitigation by contract). In the case ofpatents, the sponsor might even provide thenew owner with helpful items such as claimcharts related to the prospective target.

In the stealthier case, the sponsor mightconduct its own search for the perfect third-party patent to use against a competitor andthen provide the seed money for thelitigation. The sponsor could help to purchasethe patent from its current owner and provideit to a trusted third party. In an even simplercase, the sponsor merely motivates thepresent owner’s commencement of litigationagainst various targets. This last approach isnot only the stealthiest, but also the cheapest.The sponsor could likely motivate the patentowner by payment of a fee, especially sincethe patent owner should collect additionalfunds from either a damages award orsettlement.

Patent litigants do not necessarily knowwho has financed their litigation. Assumethat a group of contingency fee lawyersapproach a patent owner and offer theirservices for free to someone that is notundertaking its own licensing or assertioncampaign. Many patent owners would likelyjump at this opportunity. Of course, there arestill high costs for bringing a litigation, evenwith contingency fee cases. Assume furtherthat the lawyers who approach the patentowner also explain that they will absorb thelitigation costs, but don’t explain how.

In 1997 Swedish inventor Håkan Lanssued nine major electronics companiesalleging infringement of a soon-to-expirecomputer-related patent, US 4,303,986. Thelitigation went spectacularly awry and Lanswas ultimately held responsible for theattorneys’ fees for two of the electronicscompanies. In a subsequent malpracticelitigation, Lans has claimed that the idea forlitigating the patents did not come from him,but that he had been approached about thepossibility of exploiting his patent. He furtherclaims that the lawsuit was financed by agroup known as “the ‘986 Partners”, and thathe did not otherwise know their identities.This malpractice litigation is still ongoing andthe issues do not involve privateering.

Nevertheless, the take-away for IPprivateering is that one can theoreticallyarrange matters such that even the plaintiffdoes not know who has sponsored the

litigation. To add another layer of stealth,the sponsor could create a limited liabilitycompany (LLC) that itself funds thelitigation. The sponsor could even attractother investors such that the LLC would notbe a wholly owned subsidiary of thesponsor and thus avoid even more reportingrequirements, at least in some jurisdictions.

A privateer need not necessarily be anNPE. But an operating company that actedas a privateer would put itself at risk of acountersuit by the target. Of course, wherethe plaintiff and the defendant operated indifferent industries or were otherwisedissimilar, then the privateer could be anoperating company.

Looking for cluesWe examined the pre-litigation behaviourof patent plaintiffs to test whetherprivateering could be detected. We used USpatent plaintiffs having the LLC form as aproxy for all patent plaintiffs. The LLC is anearly perfect corporate form forprivateering, as many jurisdictions offermaximum privacy for businesses havingthis form. In this study, we assumed that achange in ownership would likely representa change of control, to some degree, over theasserted patents and possibly signal thepresence of a sponsor.

From January 2008 until September2010, we found that some 448 companieshaving the LLC form filed one or more patentlawsuits against one or more defendants.

Figure 3Armed with his royal privateer appointment,Barrister Bill puts to sea immediately. His ship,Dovregubben (king of the trolls), quickly findsand overpowers merchant vessels fromErewhon, such as the hapless Prodotto.Celebrating their victory (below), Barrister Billand his hearty crew split the prize accordingto the pirates’ code.

Intellectual Asset Management January/February 2011 35www.iam-magazine.com

On the attack

Collectively, these plaintiffs sued nearly anorder of magnitude more defendants. Someof these litigations were inapplicable forvarious reasons (eg, false marking lawsuits).This left a pool of some 431 plaintiffs. Ofthese, 169 plaintiffs (or 39.2%) had notrecorded a new assignment in the 12 monthsprior to litigation, while 262 (or 60.8%) hadrecorded an assignment transaction in the 12months prior to litigation. Figure 6illustrates the findings of this analysis.

Of course, we further assumed that onlya small fraction of the 262 patent plaintiffshaving ownership changes representedprivateers. More common reasons for a pre-litigation change in assignment data wouldrelate to factors such as litigation hygiene(eg, making sure that the patent is owned bythe party filing the lawsuit) and/or creatingnew legal structures to limit any potentiallitigation fallout (eg, in the event thatsanctions are obtained against theplaintiffs). The 262 plaintiffs also includecompanies owned by professional NPEorganisations, such as Acacia’s subsidiaries,which accounted for 35 different plaintiffs.

But the ranks of the 262 plaintiffs containample room for privateers. We found that thepatents in about 5% of the cases had comedirectly, or nearly directly, from an operatingcompany. These cases may represent the leaststealthy flavour of privateering. Sifting theremaining cases into pure NPE assertionsversus stealthy privateers would comprise amajor undertaking.

The target’s responseA patent defendant may often find its owncounsel not terribly interested ininvestigating whether the plaintiff may havea sponsor. After all, the issue at hand iswhether the defendant infringes the assertedpatent(s), not how the plaintiff was enticedinto filing the lawsuit. Finding a sponsorprovides no defence to infringement.

Nevertheless, knowing that a litigationhas been sponsored may provide a helpfultool in settlement. For example, if CompanyA discovers that Company B has sponsored aprivateer’s lawsuit, then Company A canapproach Company B for settlement termsand/or threaten retaliation. Stealth is typicallya critical element in IP privateering and theadvantages of privateering may vanish if thesponsor’s actions see the light of day.

In the United States, Rule 7.1 of theFederal Rules of Civil Procedure requireslitigants to disclose their parent corporationand any publicly held corporation owning10% or more of their stock. The lawimposes this rule on all litigants. The law’spurpose is not to discover litigationsponsors, but to assist judges indisqualifying themselves due to conflicts ofinterest. Rule 7.1 can likely be circumventedby the resourceful sponsor. Among otherthings, the law does not require disclosureof parties with which the plaintiff is incontract. Such a requirement in normal civillitigation could require an onerous amountof disclosure. Individual courts may imposeadditional disclosure rules, but we are notaware of a disclosure rule that requiresdisclosure of a litigation’s sponsor.

Likewise, the records for public companiescan be less than revealing, while beingcompletely open. The onus on corporaterecord keeping is to account for how corporatefunds have been spent. This simply meansthat the expenses related to privateering mustshow up in the company’s books somewhere.This does not mean that the company’s booksneed a line item that reads “privateeringagainst Competitor X”. For a company withmore than US$1 billion in annual turnover,camouflaging an expense of a few million (orless) should not be difficult. Thus, followingthe money is not typically possible. Of course,privateering is not illegal, so there’s nomotivation for whistleblowing.

Some possible examples of privateeringSome commentators have suggested thatLinux and various open source cooperativeshave been subjected to privateering. Oneexample often cited is Microsoft’s supportof the SCO Group Inc in its copyrightbattles against IBM and Novell relating to

Figure 4Sir Peter distributes letters of marque to otherpirates as well. Here, Solicitor Salty’s ship, TheTrold, claims another luckless Erewhonian prize,Sir Walter’s Bountiful Beauty. Below, servantscarry off poor Sir Walter, as Princess Azienda’sadvisers recommend that her highness “rethink”the proposed marriage to Prince Brevetti.Princess Azienda wipes away her tears with thefirst of many royal handkerchiefs.

www.iam-magazine.com36 Intellectual Asset Management January/February 2011

On the attack

portions of Linux. In early 2003, Microsoftbegan paying some US$16.6 million to SCOfor a Unix licence, apparently becomingSCO’s largest licensee. The funds appear tohave been delivered shortly after thelitigation against IBM began. Microsoft alsoreferred SCO to BayStar Capital and theRoyal Bank of Canada, which madearrangements for more than US$50 millioninvestment in SCO. ‘’It was evident thatMicrosoft had an agenda,’’ LawrenceGoldfarb, managing partner of BayStar, latertold the New York Times. SCO apparentlyspent most of the cash on the litigationsand eventually declared bankruptcy inSeptember 2007. SCO has not prevailed,thus far, in these litigations. Of course, thesuccess of a privateering operation is theextent to which the sponsor (not theprivateer) achieves its objectives.

Advanced mobile devices and smart phonesAdvanced mobile devices and smart phoneslook to be a market rife with privateerssponsored by multiple competitors. In thislucrative and highly competitive market, itwould not be surprising for companies to tryto shape the landscape using IP rights.Lawsuits involving the market’s smallerplayers could drain their meagre resources,distract management and serve to make thedefendant appear as a less than suitablesupplier/partner to large telephony operators.

MobileMedia Ideas LLC (MMI) is one ofthe companies on our list of 262 litigantswhose IP rights were acquired just prior tolitigation. MMI, which was formed inJanuary 2010, sued Apple, HTC andResearch In Motion in March 2010 forpatent infringement related to smartphones. MMI’s Rule 7.1 disclosure in theApple lawsuit states that more than 10% ofits stock is owned by MPEG-LA LLC, NokiaCorp and Sony Corp. MMI holds some 141patents and applications, all of which wereowned by either Nokia or Sony at thebeginning of 2010.

Intellectual VenturesIntellectual Ventures (IV), which holds atleast the world’s fifth largest patentportfolio, generally denies that its licensingoperations resemble privateering. IV hasrecently sold small portions of its portfolio,typically to third-party licensing firms.Many of the patents sold by IV haveunsurprisingly ended up in litigationsbrought by their new acquirers. Patentsformerly owned by apparent IV shellsViviana LLC, Gisel Assets KG LLC, KwonHoldings Group LLC, SF IP Properties 24LLC and Ferrara Ethereal LLC have been

employed in patent infringement litigationsrespectively brought by Picture FrameInnovations LLC, Patent Harbor LLC, OasisResearch LLC, InMotion ImageryTechnologies, LLC and Webvention LLC.These litigations have been brought againstcompanies such as Kodak, HP and Samsung.IV also continues to sell patents, such as therecent sale from IV’s Sinon Data LLC toPersonal Voice Freedom LLC, a companyapparently associated with CharlesEldering’s Technology, Patents, andLicensing Inc. Don Merino, senior vicepresident of licensing at IV, said the saleswere a logical step for IV. “I have enough ofa set of assets where it just makes sense tostart turning inventory,” he told Dow Jonesin an interview earlier this year.

Selling expiring assets makes perfectbusiness sense, of course. Nevertheless, onecould imagine that some of the defendantsmay view these litigations as hints that theyshould take a licence to some portion ofIV’s portfolio. Based on our IV Report (2nded), we believe that each of the patentsbeing litigated represents a much largerportion of IV’s huge portfolio. IV alsopurportedly offers licences to its portfolioon a true-up basis to its investors. Onecould imagine that the sales and subsequentlitigations may also serve as a prod tocertain investors to pay their true-uplicence fees. Finally, one could even imagineIV itself serving as a mammoth privateer forits operating company investors.

Figure 5Prince Brevetti joins Princess Azienda inmarriage, as the court titters about little royal feet soon scampering through the palace.

Sir Peter enjoys the king’s profoundgratitude, along with title to certain desirableroyal estates. Meanwhile, Barrister Bill returnsto his card game at the Crusty Litigatorcarrying the sack of gold coins that he earnedin service to the crown.

Intellectual Asset Management January/February 2011 37www.iam-magazine.com

On the attack

Micron and Round Rock Research, LLC Micron Technology recently sold about one-quarter of its highly regarded patent portfolioto Round Rock Research, LLC. JohnDesmarais, a distinguished patent litigator,runs Round Rock. Micron has been fairlycircumspect about its relationship to RoundRock. One might imagine that the sale of4,000-plus patents would be an event worthnoting in quarterly or annual financialreports. However, Micron has yet to mentionthis sale, which has led to suspicion thatRound Rock is still highly tethered toMicron. By comparison, Micron sold many ofthese same patent assets a few years ago to acompany known as Keystone TechnologySolutions LLC. Keystone shared the sameaddress as Micron Technology. Just prior tothe Round Rock sale, many of the Keystonepatents quietly migrated back to Micron.

Round Rock recently filed aninfringement lawsuit against the HTCCorporation. Round Rock’s Rule 7.1 disclosurestates that it has no parent corporation andthat no publicly held corporation owns 10%or more of its stock. So, the relationship

between Micron and Round Rock remains amystery. By contrast, General Electric hasmade little secret of its relationship with CIFLicensing LLC, a wholly owned subsidiarythat has brought 11 patent litigations against afar greater number of defendants.

Infrastructure IP privateering has apparently been aroundfor years. We are not aware of any agency thatoffers privateering services as such, butwould not be surprised to learn that oneexists. Acacia Research Inc has recentlyadjusted its business model to act more like aturnkey licensing operation for businessesholding IP rights, but we are not aware ofAcacia explicitly offering privateeringservices. Acacia’s Securities and ExchangeCommission filings mention that in someinstances “costs paid by Acacia’s operatingsubsidiaries to acquire patents are recoverablefrom future net revenues”. Essentially free IPrights could theoretically allow some ofAcacia’s IP assertions to be privateered.

Privateering could be engaged, forexample, as easily as contacting a licensingorganisation and telling them that thecompany would like to invest in thelitigation of a patent having X, Y and Zcharacteristics. The sponsor could thenprovide a list of targets for such a patent.The investment could take the form of ageneral investment in the licensingorganisation, which could then engage in asearch for a patent matching the particulardescription, and once the patent was found,either purchase it and/or finance pertinentlitigations. Of course, the facilitator’sreputation would be built on its discretion.

Is privateering good, bad or just another tool?One could simply regard IP privateering asanother tool in the strategist’s kit that, likeany other, could used for good or ill. Thiswould be my personal position. Others mayreject such a value-neutral assessment.

The goodIP privateering works only when one canfind an IP right that is sufficiently valid andsufficiently infringed to survive in litigationlong enough for settlement to becomeplausible. In short, these are essentially thesame necessary conditions for just aboutany IP rights litigation. It is difficult to arguewhy it is acceptable for anyone to infringe avalid IP right, and it would be even moredifficult to set out the boundary conditionsfor when and under what circumstancesinfringement becomes acceptable.

In short, privateering provides a tool for

Action plan AThe emergence of the IP privateer throwsup challenges for a number of stakeholdersin the IP system:• Prospective plaintiff: In applying IP

rights against a competitor, do youprimarily seek cash directly from thelitigation or do you primarily wish tochange the competitive landscape? Ifthe latter, then consider whethersponsoring privateers might betterserve your ultimate goals and needs.Questions to ask include:– Do third parties hold more damaging IPrights to your competitor than you do? – Can you accommodate themanagement distraction that arisesfrom litigation? – Can you handle the invasivediscovery issues that arise in litigation? If you opt for privateering, assess yourrequired level of stealth early on andshape the outcomes accordingly.

• Privateer: In your agreements with thesponsor, make sure that the downsiderisks are covered. Has the sponsoradequately insured you against allpossible sanctions and/or attorneys’ feesawards? Remember that your discretionis nearly as important as anything elseyou do – limit knowledge of the sponsorto the smallest possible group.

• Defendant: Consider and, if warranted,investigate the possibility that the litigationhas been sponsored by someone otherthan the plaintiff. If this seems highly likely,or even provable, consider this fact informulating an end or settlement to thelitigation. You may find that confronting the sponsor will end the litigation fasterand cheaper than other alternatives.Consider, for example, how damagingpublic exposure will be for the sponsorand/or the extent to which the sponsor’sactions are anti-competitive.

• Supplier: Examine the extent to which your existing business can facilitatesupport for privateering. The typical IPbroker, for example, should easily be ableto accommodate this line of business. Can you serve as an intermediary betweenthe sponsor and the privateer? Does yourIP rights inventory already contain itemsthat could be helpful to a would-besponsor? Remember that discretion andtrust are traits equally important to anylevel of skill that you may bring.

• Regulator: Investigate the economicharm, if any, arising from privateering.Consider, for example, the circumstancesin which the practice may violate Article81 of the Treaty of Rome (agreementsthat impede competition).

Figure 6. Changes in recorded patentownership prior to litigation

No recorded change

Assignment change

39.2%60.8%

431 separate patent plaintiffs (Jan 2008-Sept 2010)

You Deserve

VIPTreatment.

IP. One Focus. Every Facet.

Ranked consistently as aManaging

Intellectual Property, Legal 500 and Chambers.

www.kenyon.com

New York | Washington, DC | Silicon Valley

www.iam-magazine.com38 Intellectual Asset Management January/February 2011

On the attack

evicting freeloaders from the IP system –companies must pay something for thethird-party IP assets that they consume. Of course, privateering does not ensure thatevery IP asset is enforced.

The badPrivateering can be opposed on a number ofgrounds. The easiest objection relates totransparency. If Company A wants to sueCompany B for patent infringement, this isfine, as long as Company A does not hidebehind a third party. One would be hardpressed to name the systemic economicbenefits from camouflaged litigations.

One could also take the position thatpatents should be deployed primarily tothwart the infringement of products. Ofcourse, this is the general argument againstNPEs. How “legitimate” NPEs (eg,universities and research labs) receivecompensation for use of their IP assets isalways problematic to this argument.

Privateering would seem fairlyindefensible when used to circumvent anti-competition laws and regulations. Of course,

one could object to anti-competition lawson general principles. It seems difficult toconstruct an apologia for privateering tododge anti-competitive complaints whilestill being supportive of anti-competitivelegislation generally.

Likewise, it is difficult to argue why amarket incumbent should be able toprivateer against an upstart competitor. Ofcourse, the sponsor’s stockholders will likelybenefit from the privateering, but the generalpublic may be deprived of the upstart’soptimal product and service offerings.

Shaping the landscapeIP privateering, while rare, neverthelessexists. This IP practice comprises a tool thatcan be employed by a company to shape itscompetitive landscape. The target of aprivateering effort can typically do littlemore than simply fight off the privateer(s)that it faces – unless it can establish whosponsored the privateer(s). Once the sponsorhas been exposed, the target can employvarious techniques to make the privateeringstop, including retaliatory privateering.

Tom Ewing is the principal consultant atAvancept LLC