Another Inaccurate Epithet: Patent Privateer

Patent PrivateerPrivateer: the word conjures up images of sailing ships and cannons, pirates boarding ships and stealing gold.

Privateering was a form of “legalized piracy” that was fairly common during the 16th to 19th centuries. It was a way for governments to supplement their navies: they would give merchant ships a “letter of marque” which authorized them to raid ships and other assets belonging to specified “enemy” nations in specified territories.

Those who derisively call Non-Practicing Entities (NPEs) “patent trolls” have another name they like to utter as a curse: “patent privateer.”

Florian Mueller at FOSS Patents dedicated a recent blog post to the “rampant problem of privateering.” He defined privateering as

the act of large companies feeding trolls with patents in order to maximize their patent monetization income and/or drive up their competitors' total cost of defense.

A couple of years ago Bloomberg Business ran a piece with the provocative headline “Patent Privateers Sail the Legal Waters Against Apple, Google.” The article quotes Ron Laurie,

Tech companies use privateers to distract their adversaries or collect royalties on the patents without provoking retaliatory litigation 

The implication from these articles is that there is something “unsavory” or improper about large companies outsourcing patent monetization to companies that are specialists.

Mueller has a disapproving tone as he says

If Ericsson had kept those patents, it would have licensed them to other companies as part of its portfolio. That would have been most efficient for everyone, but Ericsson doesn't want to optimize efficiency: it seeks to maximize its patent monetization income, and it apparently believes that even a substantial de facto "agency fee" it pays to Unwired Planet is more than offset by the incremental bottom-line licensing cost to the likes of Google, HTC, Huawei, and Samsung.

We’re astounded that anyone who works in the business world would find something wrong with a company preferring to “maximize its patent monetization income” over “optimizing efficiency.” Companies invest tons of money in R&D because they hope to generate a return on their investment. What on earth is the point of a business being “efficient” if it means it is leaving money on the table?

Patents are valuable assets. Mueller and others who deride “patent privateering” seem to believe that companies should not be overly aggressive about maximizing income from this valuable asset. But that makes no sense: why should patents be treated differently than any other asset? Why should it be acceptable to maximize return on investment from the investment in a factory, but it’s not acceptable to maximize return on investment from a patent?

The Bloomberg article explains why some companies choose to outsource patent monetization. The article quotes Paul Melin, Nokia’s chief intellectual property officer:

Often we do not have the resources or otherwise are not best positioned ourselves to exploit those inventions, either through our own products or through our own licensing activities. Divestments of patents have become a very important channel for us to monetize and realize the value of our research and development.

When divesting an asset, any sensible businessperson seeks the best deal he can get. Often the company best positioned to generate revenue from patents – and therefore willing to pay the highest price – is a patent assertion entity.

“Patent privateering” is simply outsourcing. Why do companies choose to outsource? Someone else can perform a particular business function better / cheaper than doing it internally. Why are so many “American” products (including iconic products such as the iPhone) manufactured by Chinese companies? It’s because the American company has determined that outsourcing will generate a better return on the shareholders’ investment. Outsourcing patent monetization is actually better for the economy than outsourcing manufacturing – no jobs are shipped offshore in the process.

Similar to “patent troll,” “patent privateer” is a divisive and inaccurate term. We prefer to call “privateering” what it really is. “Outsourcing.” And in most cases, a smart business decision.

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