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Patent Privateering - Patents as weapons

    In the late 16th century, Queen Elizabeth I of England commissioned Francis Drake to sail for America. The Queen asked him to plunder Spanish vessels on his way there. Francis Drake became a pirate commissioned by the crown. This type of "legal" pirate was called a "privateer." They allowed nations to attack one another without the risk to be counter-attacked, because the identity and the nationality of these pirates’ employer were kept secret. Today, the spirit of those pirates is reborn. Called "patent trolls", they now act for high-tech companies by "patent privateering" others.

    1. What is a patent troll? A quick overview

    A patent troll is a company that does not practice patents and is principally in the business of collecting money from others that practice them[1]. They are also called Patent Assertion Entities (“PAEs”) because they do not produce any goods or services outside of the patent world. 

    Specialists keep arguing about whether patent trolls are the devil-incarnate or a necessary evil. While they disagree with each other, the numbers keep growing. For instance, patent trolls activities cost $29 billion in the USA in 2011 only[2]. That represents an increase of 400% since 2005. 

    The legal legitimacy of these patent trolls cannot be discussed in its principle[3]. However, some "strategies" they use are prohibited under the scope of antitrust law. There can be some "patent ambushes", or some "patent privateering." 

    2. What is "patent privateering"? Its legal scheme 

    Contrary to what we can read, patent privateering is not a distinct concept from patent trolling, but a strategy conducted by patent trolls (here acting as a privateer). 

    Patent privateering is a strategy where a company - a patent troll - acquires/buys patents to its original holder and then engages in a lawsuit against companies, in most cases the rivals of the original holder. The troll and the original holder then share the booty. This booty could be in the form of licensing royalties, litigation settlements or damage award and there are many variations of this scheme. Sometimes, patent trolls only finance the trial without buying a patent (parties transfer them under many forms). On other occasions, patent trolls just threaten to introduce a lawsuit and then settle the case. However, in many cases, the original patent holder and the patent troll maintain relationships so the original patent holder can target its rivals.

    3. Evaluation of the risks for consumers created by patent privateering

    As of today, the literature on patent privateering is very limited. Depending on who the writers work for, papers mostly emphasis benefits or drawbacks to the existence of patent privateering, without any real balance.

    There are some benefits to the existence of patent privateering. Mostly, it is a way to outsource (and finance) patent litigation to those who know how to handle it. It may also, in some cases, generate royalties or damages that original patent holders can then use to develop innovations.

    However, the drawbacks are very strong. Indeed, by avoiding countersuit and by evading reputational constraints, original holders do not have incentives to cross-license anymore. At the same time, patent privateering allows the evasion of Fair, reasonable, and non-discriminatory ("FRAND") and other licensing commitments. In the case of patent privateering, the original patent holder will maintain its FRAND commitments, while, at the same time, having the patent troll litigate some new license fees that it can share with the original holder. It is one of the most harmful side effects of patent privateering. It is also worth noting that the principal targets of patent privateers are big tech companies which spend billions on R&D. The more they spend, the more they release products and therefore, the more patent privateering will be active against them. Furthermore, because litigation is expensive, they will have fewer available funds to spend in R&D. By raising the costs of the original holders’ rivals with costly litigation, patent privateering is contrary to the process of competition which should reduce costs, prices, and stimulate innovation in order to win market share.


    There are very few studies establishing that the beneficial aspects of patent privateering are greater than its drawbacks. However, it is easy to find that patent privateering accentuates all of the risks created by patent trolls[4]. Indeed, whilst it may be the case that most patent troll strategies are not supported by non-patent troll entities, precisely because they are the targets, the same cannot be said for patent privateering because the original patent holders can target their rivals and therefore benefit from it.

    Patent privateering is costly to consumers. Indeed, by evading FRAND commitments, by eliminating cross-licensing and by targeting their rivals in order to raise their costs, patent privateering contributes to the increase of final prices for goods and services. Some estimate that patent royalties to be paid by smartphone manufacturers at the very least exceed $120 per device. Yes, licenses are mostly pro-consumers, they allow companies to use technologies developed by other companies which are specialists in their own field. However, the development of patent privateering could raise the price of those royalties very quickly, in exchange for no innovation since patent trolls do not produce any goods; ultimately it is the consumer who will pay for it.

    Enforcing patent rights is, as a general rule, an indirect contribution to innovation. However, the situation is much different when some patent trolls use patents in order to get higher license fees by evading FRAND commitments. Also, patent privateering harms consumers by discouraging cross-licenses that allow products to go cheaper on the market since royalties are mutually lowered. 

    Therefore, if most arguments against patent trolls can stand, like the fact they can be used to grant only one license over patent bundles, most of those pro-patent trolls don't stand in the specific case of patent privateering. This is a crucial point. The debate over the necessity of patent privateering is, for that reason, easier to settle than the more general one on patent trolls. Patent privateering mostly harms consumers.

    4. How to fight against patent privateering

    Patent privateering appears to be a new form of misuse of state protection. In other words, patent privateering hinders the free market mechanism. Since free markets involve the free sharing of information, providing all necessary information to consumers in order to deter these practices is essential. So far, sharing information about patent privateering to reveal their practices appears to be the best way to fight against it.

    So, what should we do? Enforcement is a good way to fight against privateering. Articles 101 and 102 of the TFEU, for instance, might be some useful tools. However, if patent trolling is a popular topic, patent privateering is still rather unknown and so far informing consumers remains the priority.

    Patent offices need to be more vigilant before delivering patents because only real economic and antitrust analysis in those agencies will help to prevent some companies from sending or transferring many patents. In other words, solving the “too many patents problem” will be a good way to start fighting against patent abuses, like patent privateering.                                                                                                                                    

    [1]     M. LEMLEY, D. MELAMED, Missing the Forest for the Trolls, Stanford Law and Economics Olin Working Paper No. 443

    [2]     See for instance, J. Bessen, J. Ford, M. Meurer, The Private and Social Costs of Patent Trolls, Boston Univ. School of Law, Law and Economics Research Paper No. 11-45,

    [3]     see FTC Patent Troll Study To Disappoint Some, Wright Says, Law360, 4 September 2014

    [4]     see for instance R. Feldman, T. Ewing and S. Jeruss, The AIA 500 Expanded: The Effects of Patent Monetization Entities, UC Hastings Research Paper No. 45, or Colleen Chien, Patent Trolls by the Numbers, Santa Clara Univ. Legal Studies Research Paper No. 08-13 

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