Joff Wild

Over on the Gametime IP blog Patrick Anderson has uncovered the creation of another patent privateer. This time it is called Suffolk Technologies and it is using patents originally owned by the UK’s British Telecom to sue AOL and Google. “A lawsuit filed in June 2012 explained that the patents originated at British Telecom (BT), and a series of simultaneously recorded assignments shows the patents subsequently assigned to IPValue and then Suffolk,” writes Anderson. Coincidentally (or not) BT’s global innovation and research facilities are located at Adastral Park, which is in the English county of Suffolk.

Anderson uncovered the information in an order that was issued by Judge TS Elliss of the Eastern District of Virginia last week, as part of the litigation:

Judge Ellis also detailed the economic terms of the assignment between BT and IPValue. Specifically, BT is entitled to “50% of the ‘Adjusted Gross Proceeds’ derived from exploitation of the ’835 Patent, except ‘that, where there is a sale of any [patent] during the first twelve (12) months, [BT] will receive 90% of the Adjusted Gross Proceeds received from such a sale.’” In other words, IPValue had a year to try to sell the patent in exchange for a 10% commission on the sale’s profit, or otherwise exploit the patent through licensing. By transferring the patent to a wholly-owned subsidiary (Suffolk) and bringing suit against AOL and Google, IPValue’s choice became evident.

However, Suffolk and IPValue’s ownership of the BT patent is not absolute. An additional measure protects the amount of Adjusted Gross Proceeds from which BT collects its share. Judge Ellis explains that the assignment prohibits IPValue from retaining contingency counsel at rates higher than 20% of recoveries. Further, under certain circumstances, BT obtains an “exclusive option” to re-acquire the patent for $10. According to Judge Ellis’s order, “triggering events include: (i) the failure to meet initial performance requirements [and] (ii) the decision to cease exploiting the patents.” By carefully structuring its contract, BT essentially employed IPValue as a ‘privateer’ to pursue patent enforcement on its own behalf in exchange for half of the profits. The exclusive option clauses enable BT to recover from an inept enforcement campaign and reclaim the patents, allowing the company the option to pursue other monetization efforts.

This is the most detailed overview of the relationship between an operating company and a privateer that I can recall seeing. No doubt it will be of significant interest to quite a few parties. BT originally announced the launch of its action against Google back in December 2011. At the time I wrote: “Had another business which is well known by its initials rather than its full name initiated this action, there would have been uproar. But being called BT and not IV saves you from an awful lot of opprobrium, even though in essence what BT is doing here is pretty similar to what IV does when it goes to court: seeking to extract licensing revenue and, possibly, treble damages from an operating company that it believes has infringed its patents.”

It turns out that BT has decided that it does not want to get its hands dirty directly, so like countless others before it (including IV) it has turned to a third party to do the heavy lifting. That is what the privateer model is all about. It is being used, in one way or another, increasingly frequently by operating companies in the US, which for whatever reason decide they would prefer not to become involved in patent monetisation programmes that may involve aggressive assertion. NPEs that I can think of off the top of my head which have had close relationships with operating companies at some time or another include: Rockstar, RoundRock, Acacia, MOSAID, Intellectual Ventures, Sisvel and IPCom. No doubt readers of this blog can think of many more. From where I sit it is a perfectly legitimate activity, aimed as it is at maximising the value of key corporate assets – which is exactly what companies are supposed to do. At least some, however, are a little coy about their arrangements; while it is becoming increasingly clear that US antitrust authorities, and perhaps those in Europe too, are going to take a much closer look at the whole privateer model. 

BT, of course, got its hands badly stung 10 years ago when its case against Prodigy, relating to patents said to underpin hyperlink technology, was thrown out by a court in New York. Perhaps this time, the company believes the discretion of working through a third party is the better part of valour.