The term “privateering” is a new one for some, but by the end of 2013, everyone will talking about it. It’s the transfer of patent rights, including the right to sue for infringement, from a large company with a strong research and development capability to a patent holding company.
There is a tremendous amount of unrealized (“un-monetized”) value in the patent portfolios of many large companies. Yet, for one reason or another, such companies have chosen over the years not enforce their patents in court or through a licensing campaign. In recent times, however, a few of these companies have, one-by-one, started to transfer their patent rights to patent holding companies that are quite willing to enforce those patents. What does the large company receive in return for its patents?
Sometimes it’s a share of the profit form enforcement of the patents. In other cases, it’s a covenant not to be sued for infringement of the patents already “controlled” by the patent holding company – it’s like insurance or protection. The word “controlled” is important because the large company often retains some ownership rights to the patents or even owns part of the patent holding company itself.
The effectiveness of privateering was demonstrated in December by MobileMedia’s victory in its infringement trial against Apple. MobileMedia’s patents, that claim important mobile phone technology, came from Nokia and Sony who in turn have minority ownership rights in MobileMedia. MobileMedia not only is willing to sue, it multiplies the potential value of the patent rights it receives by aggregating those patent rights – the aggregated patent portfolios of several companies into a single portfolio can become a juggernaut because it makes “design-around” ever more difficult.
MobileMedia’s strategy is not unique. Many others pursuing a similar course. And MobileMedia is by no means the largest. That title might go to Intellectual Ventures whose portfolio includes “nearly 40,000 assets” and recently grew larger when it acquired Kodak’s digital imaging patent portfolio. The enforcement of Kodak’s portfolio, aggregated with related portfolios already controlled by Intellectual Ventures, could be the story of 2013, and perhaps 2014.
Intellectual Ventures often works indirectly through surrogate companies. Most notable among them might be Intellectual Ventures II who, yesterday, filed three massive patent infringement actions in the Western District of Texas against AT&T and a host of other telecom companies. The defendants are accused of marketing DSL equipment and systems that infringe each of 19 patents. All 19 patents originated with either Bell Atlantic or Image, Inc., both manufacturing entities, and were transferred through a series of assignments to Intellectual Ventures II.
Considering Intellectual Ventures’ financial strength – from earning more than $2 billion in patent licensing – it seems likely that yesterday’s cases in Texas will not be the last.