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Patent Privateers Sail the Legal Waters Against Apple, Google

To harry other nations without attacking them, monarchs like England’s Elizabeth I commissioned ship captains to plunder merchant vessels, creating a type of pirate known as a privateer.

The term is used today to describe businesses that obtain patents from technology companies and then file infringement lawsuits against the sellers’ competitors. Tech companies use privateers to distract their adversaries or collect royalties on the patents without provoking retaliatory litigation, said Ron Laurie, managing director of Inflexion Point Strategy LLC in Palo Alto, California.

Nokia Oyj (NOK), Microsoft Corp. (MSFT) and Alcatel-Lucent are among companies connected with these licensing firms. Companies that would, in the past, assert their patents in lawsuits only to protect their property now say they work with privateers because they’re obligated to make money from past research.

“The moral stigma of being associated with patent assertion isn’t what it used to be,” said Laurie, who advises companies on intellectual-property purchases. “The whole patent-assertion business is becoming more and more legitimized through these privateering operations.”

The practice of selling patents and retaining the rights to share in lawsuit proceeds probably will grow as early innovators in mobile-phone development, such as Nokia and Ericsson AB, lose market share to the likes of Apple and Samsung Electronics Co.

It can also make it hard to figure out who actually owns a patent. The U.S. Patent and Trademark Office plans at a meeting today to discuss possible rules requiring more disclosure about the “real party in interest” in patents and applications.

Litigation Strategies

“Every large company is selling patents today,” said Ron Epstein, chief executive officer of patent brokerage Epicenter IP Group LLC.

“When they are selling, they are looking for the best possible price,” he said. “Does an intelligent manager of a resource called a patent have a responsibility of getting the highest possible return for these assets, or do they have to worry about how it will harm competitors?”

Yesterday, a Nevada licensing company, Unwired Planet Inc. (UPIP), said Ericsson had sold it 2,185 phone-related patents and applications in return for “certain ongoing rights in future revenues.”

MobileMedia Ideas LLC, a licensing company holding former Nokia patents, last month won a jury verdict against Apple Inc. (AAPL), which has an agreement allowing use of different patents Nokia owns. BT Group Plc (BT/A) and Alcatel-Lucent also have transferred patent rights to entities filing infringement suits, and are entitled to share their licensing proceeds.

MobileMedia is “solely responsible for their own licensing and litigation strategies,” said Mark Durrant, a spokesman for the Finnish handset maker.

Fewer Risks

Companies that sell patents don’t face the costs of litigation or the possibility of a countersuit against their products, Laurie said.

When Nokia sued Apple in 2009, the iPhone maker lodged infringement claims against Nokia. The companies, which could have faced limits on sales of their products if they lost, negotiated an agreement two years later.

Five years ago, any connections with patent-assertion companies reflected poorly, Laurie said. “Now that’s kind of history and everyone’s singing ‘How can I get in on this action?’” he said.

Patent Pool

MobileMedia owns patents that originated with Nokia, Sony Corp. and MPEG LA, the licensing administrator for a pool of patents used by consumer-electronics makers. Those three retained a stake in MobileMedia, according to a June 21, 2010, filing in the Apple case.

A federal jury in Delaware found on Dec. 13 that Apple’s iPhone infringed three patents held by MobileMedia. A second trial will be held to determine how much Cupertino, California- based Apple should pay.

Research in Motion Ltd., which makes the BlackBerry phone, lost a Swedish arbitration court case in November challenging MobileMedia’s right to sue. RIM and Nokia announced a licensing deal Dec. 21 that resolves other litigation. The MobileMedia case is continuing.

Paris-based Alcatel-Lucent set up a fund called MultiMedia Patent Trust to hold Lucent patents. A jury on Dec. 13 cleared Apple and LG Electronics Inc. of the trust’s infringement claims.

Redmond, Washington-based Microsoft and Nokia will get a share of licensing proceeds from Nokia patents transferred to a Canadian firm, Mosaid Technologies Inc. Google Inc. (GOOG) filed a complaint with European regulators in June saying the Mosaid agreement improperly thwarts competition.

Nokia’s Reasons

“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,” said Paul Melin, Nokia’s chief intellectual property officer. “Divestments of patents have become a very important channel for us to monetize and realize the value of our research and development.”

Melin said the company has transferred patents more than 20 times over the past five years, many going to companies whose main business is to derive licensing revenue.

David Cuddy, a Microsoft spokesman, and Mary Ward, an Alcatel-Lucent spokeswoman, had no comment.

Blurred Connections

The changing ownership of a patent can make it hard to determine who benefits from a lawsuit.

In a case against Google and AOL Inc. (AOL) in Alexandria, Virginia, a judge confronted what he called the “increasingly common but always vexing” question of who has “all substantial rights” to a patent. That information is needed, District Judge T.S. Ellis said, to make sure the firm that brought the case, Suffolk Technologies LLC, had standing to sue.

Suffolk Technologies is owned by a group that includes Goldman Sachs Group Inc., General Atlantic Partners LP and Boston Consulting Group Inc., the judge said. The patents originated with BT’s British Telecom, which transferred them with an agreement it would get at least half the proceeds from the patent, according to the judge’s Dec. 7 opinion.

Laurie said he’s heard speculation that some patent owners create offshore companies to blur connections to licensing firms.

“It sounds like a spy novel,” Laurie said. “All sorts of creative models are being designed for this.”

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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