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IAM Magazine Tom Ewing Privateering Article

IAM Magazine Tom Ewing Privateering Article

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Published by Gina Smith
IP attorney coined the term patent privateer in this article -- IAM Magazine -- full text -- uploaded for aNewDomain.net
IP attorney coined the term patent privateer in this article -- IAM Magazine -- full text -- uploaded for aNewDomain.net

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Published by: Gina Smith on Apr 11, 2013
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The changing face of IP management at GEHow to build brands fit for the 21st century Licensing challenges in complex marketsWhy it pays to invest in strategic portfolio creationInside the new pharma patent dynamic
Issue 45
January/February 2011
Intellectual AssetManagement
How operating companies are using NPEsto make money and shape markets
Intellectual Asset Management
January/February 2011
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 of Ericsson, 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 theirrights at low cost, but can alsoallow them to shape theircompetitive environments.No wonder privateering is provingincreasingly popular
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 of arrangements.” 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 howdoes 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 
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32Intellectual 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 of 1654, 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 CrustyLitigator carrying the sack of gold coins thathe earned in service to the crown.
Privateering objective
The 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 1
King 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.

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