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Privateering: Patent Holding Companies Unleash Patent Portfolios


Written by Scott M. Daniels
Westerman Hattori Daniels & Adrian, LLP
Author of the US PTO Litigation Blog
Posted: February 11, 2013 @ 3:55 pm

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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.


About the Author

Scott M. Daniels is a partner in the Washington, DC law firm of Westerman Hattori Daniels & Adrian, LLP, and is the author of the firm's US PTO Litigation Blog. Daniels has 30 years of experience in patent litigation, particularly litigation at the U.S. International Trade Commission. He now leads the litigation and reexamination groups at WHDA. He is also a regular contributor to the PLI Patent Law Practice Center.

4 comments
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  1. I invite due care (and at least awareness) of underlying currents in any discussion of alienable rights, and especially patent rights wherein rhetoric can quickly overcome reason.

    More of my thoughts can be found in the rebuttals at

    http://www.ipwatchdog.com/2013/02/03/supporting-proposed-rules-on-disclosure-of-real-party-in-interest/

  2. There are of lots of reasons why the patent privateer business model is attractive. Here are a few.

    It’s easier to have someone else litigate your patents then to do it yourself.

    It keeps the funds allocated for patent monetization separate from traditional operating expenses.

    It creates plausible deniability in a marketplace where patent litigation seems to violate the marketplace’s sense of fair play or when moving against a competitor directly is unsavory.

    It creates an uncorrelated asset – an asset not directly tied to the price of a firm’s stock – sometimes when the risk associated with the likelihood of success is low or unknown an uncorrelated asset is good. It becomes a correlated asset if thing go well and there are nice revenue flows back into the practicing entity (especially when such a flow of cash is beneficial for quarterly results reporting.)

    It separates corporate assets of the practicing entity and the annoying cross-licensing discussion separate from the monetization piece by eliminating counter suits and all that nasty patent licensing stuff that goes on when one practicing entity has to deal with another. It can also be helpful by annoying licensing agreements in the first place when you are no longer a big player in the marketplace where the patents apply.

    It lets the monetizing entity hide in plain sight during the cease and desist early action phase of the program until they hit a serious adversary who knows to ask the court to determine the real-party-in-interest of the entity – basically who owns the LLC and where the funds to support the operation are coming from. It gives cover until someone gets a patent attorney smart enough to figure out who is behind the PAE. It lets the barrage of demand letters to flow building the framework for the systematic monetization campaign.

    And it provides better visuals. The privateer pirate model with its skull and crossbones has such better optics than the drooling patent troll.

  3. So, are large companies joining the Patent Troll business model. That is the gist I am getting from your article. One person’s troll is another’s privateer, so to speak?

  4. Scott,

    Thanks for bringing up the subject of “privateering.” I had heard this term used for the first time a couple years back in a January/February 2011 issue of IAM (Intellectual Asset Magazine) .