A cadre of modern-day privateers is teaming with tech companies to make big money by suing competitors.
WASHINGTON - 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 in Palo Alto, Calif.
Nokia, Microsoft 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, lose market share to the likes of Apple and Samsung Electronics.
It can also make it hard to figure out who actually owns a patent. The U.S. Patent and Trademark Office is discussing possible rules that would require more disclosure about the "real party in interest" in patents and applications.
"Every large company is selling patents today," said Ron Epstein, CEO of patent brokerage Epicenter IP Group.
"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?"
On Sunday a Nevada licensing company, Unwired Planet, said Ericsson had sold it 2,185 phone-related patents and applications in return for "certain ongoing rights in future revenues."
MobileMedia Ideas, a licensing company holding former Nokia patents, last month won a jury verdict against Apple, which has an agreement allowing use of different patents Nokia owns. BT Group Plc 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.
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 on a company, Laurie said. "Now that's kind of history and everyone's singing 'How can I get in on this action?' "
MobileMedia owns patents that originated with Nokia, Sony and MPEG, 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, Calif.-based Apple should pay.
Research in Motion, 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 of the trust's infringement claims.
Redmond, Wash.-based Microsoft and Nokia will get a share of licensing proceeds from Nokia patents transferred to a Canadian firm, Mosaid Technologies. Google filed a complaint with European regulators in June saying the Mosaid agreement improperly thwarts competition.
"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.
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."