A patent privateer or intellectual property privateer is a party, typically a patent assertion entity, authorized by another party, often a technology corporation, to use intellectual property to attack other operating companies. Privateering provides a way for companies to assert intellectual property against their competitors with a significantly reduced risk of retaliation and as a means for altering their competitive landscape. The strategy began with a handful of large operating companies. In April 2013, a group of technology companies asked the U.S. Department of Justice and the Federal Trade Commission to investigate the privateering strategy as an impediment to competition.
Intellectual property privateering most commonly occurs as outsourcing of corporate patent portfolios but can also be applied as one of a corporation's competitive tools and may involve high degrees of stealth. The benefit to the privateer arises in the form of direct financial compensation, either licensing royalties, litigation settlements, or damage awards. The benefits to the sponsors can range from financial gain from licensing to an improved competitive landscape that facilitates increased sales revenue.
Intellectual property privateering has been formally defined as: the assertion of intellectual property rights by an entity (the privateer), typically in the form of a non-practicing entity (NPE), against a target company for the direct benefit of the privateer and the consequential benefit of a sponsor company, where the consequential benefits are significantly greater than the direct benefits."
The strategy, in part, relies upon the lack of transparency of ownership and motivation permitted in the IP system. The strategy relates to indirect IP strategies in that the IPRs asserted are not owned by the sponsor, although they may have originated from the sponsor's R&D.
Background
Companies have increasingly employed intellectual property rights as competitive tools since the early 1980s, frequently with the goal of extracting value directly from their own IPRs whether from licensing revenue or litigation rewards. As IPR competition has accelerated, companies and investors have tried to grow ever greater returns from IP assets which has incentivized the exploration of new applications of IPRs to fulfill competitive aspirations. Innovations in IPR exploitation have led companies and investors to develop a class of strategic techniques that facilitates the indirect application of IPRs for beneficial effects. IP privateering, one technique among these indirect strategies, concerns the exploitation of third-party IPRs as tools for achieving larger competitive goals.
During the pro-patent era which began in 1980, competitive pressures stimulated increasing interest in IPRs and consequently strategies related to their deployment. The majority of these strategies could be classified as "direct uses" in which a company exclusively focuses on how to maximize the effectiveness of IPRs developed as the result of the company's own R&D activities. Over time, increasing interest in IPRs stimulated the development of IPR markets. The competitive pressures and the varieties of IPRs available in these markets led to the development of various indirect IPR strategies. Companies no longer need to rely exclusively on IPRs developed from their own R&D.
Companies may purchase external, third-party IPRs to fulfill a variety of needs. If a competitor has a product that threatens a company's own products, but the company holds no pertinent IPRs of its own, the company may purchase relevant IPRs in the market for use in an infringement action against the competitor. Similarly, if a company is sued for infringement but holds no pertinent IPRs to use in a countersuit, the company may purchase an appropriate IPR in the market. IP privateering, a still further indirect use of IPRs, concerns the beneficial application of IPRs that a company has not purchased, or in-licensed, but has instead motivated its application against a competitor to achieve some corporate goal.