Competitive pressures and rent-seeking behaviors have motivated companies and investors to develop indirect techniques for beneficially exploiting third-party intellectual property rights (IPRs) that qualitatively depart from the slate of direct exploitation tools whose usage has been honed during the past 30 years of the pro-patent era. Companies have increasingly realized that they do not need to create IPRs themselves to exploit them beneficially, which has been the conventional usage pattern. Among other things, because of a growing IPR market, companies can exploit IPRs beyond those arising from their own research and development (R&D) activities; they can simply purchase IPRs previously obtained by others. Similarly, a company defending itself in an IPR litigation may bring counterclaims against the plaintiff using not only its own IPRs but also market-acquired IPRs. These third-party purchases can be very helpful when the company holds no pertinent IPRs of its own. In a further development to this indirection trend, which is the subject of this thesis, companies have further realized that not only do they not need to create IPRs in order to exploit them beneficially, companies have also realized that they do not even need to own IPRs in order to consequently benefit from their exploitation by others. This phenomenon is labeled here as “IP privateering” because of its similarities to a method of waging war on the high seas that was banned by international treaty some 150 years ago.
This thesis comprises a descriptive portion followed by a normative portion. After recounting the increasing IPR competition and rent seeking of the past 30 years, the descriptive portion identifies IP privateering as a strategy among the set of IPR litigations and licensing assertions. This behavior is classified as a specie of aggressive non-practicing entities (NPEs), with the distinction being that an aggressive NPE has no sponsor and is solely motivated by maximizing revenue from IPR assertions while an IP privateer has a sponsor who seeks consequential benefits from IPR assertions against specific target companies. The parameters of this newly identified strategy are probed using a variety of methods. Because of the sponsor’s needs to keep this strategy secret, the strategy has likely spread slowly among a small set of operating companies. The apparent evolution of this indirect IPR exploitation strategy is traced among these companies. Techniques for uncovering hidden information about NPEs are discussed and employed as tools for locating IP privateering cases among the aggressive NPEs. The limitations of this method for discovering sponsors are discussed. Electronic detection of indirect IPR exploitation is also discussed along with some highly granular results. Possibilities for future methodological developments are discussed, and it is also noted that specific government agencies, such as the Securities and Exchange Commission (SEC) and the Antitrust Division of the US Department of Justice (DOJ), have at their disposal tools that are not available to the academic community that could be used to gauge the breadth and depth of IP privateering, especially among the population of investors, and for curtailing the behavior where it is clearly illegal.
A typology for IP privateering is provided that identifies the key variables associated with this strategy. Examples of privateering, both actual and hypothetical are also discussed. The identified privateering scenarios, while small in number, have amounted to well over $3 billion USD in rent collections and have possibly saved sponsoring companies an order of magnitude more in avoided revenue losses. Limitations on the strategy are explored by examining the negative consequences that could arise for the privateering sponsor. The risk of losing business reputation is discussed along with the various counterclaims that a target might potentially bring against a sponsor discovered in litigation. Corporate formalisms and lack of public disclosure regarding corporate ownership and control are discussed as tools that may prohibit targets from even being aware of IP privateering so that they could formulate counterclaims. The descriptive section discusses the infrastructure that supports privateering and concludes with a discussion of how a possible patent oversupply may facilitate this strategy.
The normative portion observes that existing law may possibly be used to curtail anticompetitive and market manipulative privateering but further observes that effective curtailment may require the intervention of the SEC as well as the DOJ’s Antitrust Division, as private actors may be unable to defend themselves adequately. A review of those forms of privateering that are not clearly anticompetitive or market manipulative concludes that they will likely continue in the short-to-medium term and may require the intervention of the legislator if their curtailment is desired. The social utility of these legal forms of privateering is examined from various points of view including corporate, SME, investor, and inventor. Further questions are posed regarding IP privateering and aggressive NPEs (observing that both actors are likely supported financially by participants operating in the investment capital market), the need for ownership transparency in the innovation system, and whether the legislator should more explicitly design an innovation system that includes boundaries for various IPR strategies. The thesis concludes with an outline for further analysis and the additional tools that may need to be developed to support further studies.