May 28, 2015
Guest blog post by Frédéric Bourguet, a french lawyer specialized in IT questions.
Behind these terms, with almost pleasant connotations, hides a worrying development of the economics of patents.
Certain sectors, where innovation is law (notably telecommunications) seek to manage their large portfolios of patents more effectively, requiring surveillance, validity checks, market strategies, as well as, at the centre of these portfolios, a number of non-essential patents remain undeveloped, forgotten or simply hidden amongst the competition.
Patent-trolling has also allowed owners to delegate to a third party (NPEs ) the task of managing these patents, through forcing licensing under the threat of legal action. This phenomenon is legal, as it is based on the legally obtained titles, but stays under the unending vigilance of competition authorities, which are suspicious of temptations to distort the competition and to deflect from the original idea of patent law, in order to promote innovation.
The practice of patent-trolling is radicalized, due to the reluctance of stakeholders to accept licenses on poorly identified, irrelevant or weak patent packets, but above all the attempts of owners to free themselves from certain deals or agreements which require them to charge “reasonable” royalties, especially on patents in technological standards.
Thus the “patent privateer” has been created, a derivation of patent troll. In the terms of a confidential agreement, the license holder entrusts a third party, the privateer, which is responsible for managing its patents in a more aggressive manner than a classic NPE, by using legal action against competitors from the sponsor, the privateer sometimes even being made to transfer ownership of the patents.
Certain big brands, like Nokia, have been accused of using privateers to indirectly attack their competitors in the shadows, whilst on the surface respecting the agreements or cross-licensing often made with the same competitors.
The Privateer, which doesn’t innovate, exploit and generally doesn’t accumulate assets, has, in this legal frame, freer hands to resist the usually raised defences. It especially has more freedom to demand higher royalties than those provided for in licenses or agreements binding its discreet sponsor, and generating, on the shoulders of target companies, expenses and risks which unbalance normal competition.
Unlike conventional operating NPEs forcing the licensing, the privateer strategy can only be envisaged for a limited number of patents of recognized strength however, the sponsor does not want to incur certain levels of risk (cancellation, market loss, exposure…).
These offensive strategies allow their initiators to revive dormant titles, but above all in the “patent war”, to ensure a financial windfall for themselves at the expense of competitors, which can result in a new investment in R&D, therefore distorting the market.
After what happened in the United States, European competition authorities worry that this phenomenon, which no longer uses the patent as a tool for innovation, but as a legal, financial and anticompetitive weapon, is leading to bypassing established and wholesome practices and is artificially slowing down weak competitors, by forcing them to redistribute their defence budgets initially planned for their innovations.
Patent-trolls have appeared since a few years in Europe, through diverse litigations and the creation, by governments, of entities or resources dedicated to the active defence of patent economy, such as France Brevet and the recent FSPI , in France. After the USA, the « patent privateers » phenomenon has also started to spread in European countries, especially in Germany. While the US system has a huge ability to generate these offensive practices on a realistic pragmatic legal-economic background, this is not the case for Europe. Therefore, it is important that the means entrusted to the European economy and to the Europeans legislation meet the challenges, since the strict legal principles guiding “the spirit of patent law” are obviously not robust enough under such market conditions.Blogactiv Team