Indirect Exploitation of Intellectual Property Rights

Tom Ewing & Robin Feldman · Volume 3, Issue 1 (2011)

Tom Ewing and Robin Feldman coined the term “IP privateering” in this article, drawing an analogy to the historical practice of governments commissioning private ships to attack enemy vessels. In the patent world, the equivalent is a corporation transferring patents to a third-party entity — often a shell company — which then asserts those patents against the corporation’s competitors.

The Privateering Model

The mechanism is straightforward but legally complex. A large technology company holds patents it does not wish to enforce directly, perhaps because doing so would invite retaliation or antitrust scrutiny. Instead, it sells or licenses those patents to a non-practicing entity (NPE), which has no products of its own to be counter-sued over. The NPE then files infringement lawsuits against the original company’s competitors, sharing the proceeds through pre-arranged licensing agreements.

Why It Matters

Ewing and Feldman demonstrated that this practice was far more widespread than previously understood. They documented specific examples of patent transfers from major technology companies to NPEs that subsequently filed suit against those companies’ direct competitors. The practice raises questions about antitrust law, patent misuse doctrine, and the proper role of the patent system in promoting innovation.

Policy Impact

This paper directly influenced the debate around patent reform legislation in the U.S. Congress. The concept of IP privateering was cited in congressional hearings, referenced by the Federal Trade Commission, and discussed in subsequent Supreme Court decisions addressing patent assertion entities. Professor Feldman’s ongoing research at UC Hastings has continued to build on the framework established here.

The Broader Context

The article sits at the intersection of intellectual property law, corporate strategy, and antitrust regulation. For practitioners advising technology companies on patent portfolio management, it provides essential background on the legal risks and strategic considerations involved in patent transfers and licensing arrangements.

Developments Since Publication

The Supreme Court's decisions in Alice Corp. v. CLS Bank (2014) and TC Heartland v. Kraft Foods (2017) significantly altered the patent litigation landscape, making it harder for NPEs to assert broad software patents and limiting the forums available for patent suits. These developments reduced some forms of privateering but did not eliminate the practice. The rise of patent assertion entities backed by litigation finance has introduced new variations on the model Ewing and Feldman described.

More recently, the intersection of standard-essential patents (SEPs) and fair, reasonable, and non-discriminatory (FRAND) licensing commitments has created new arenas for strategic patent deployment that share characteristics with the privateering model. The framework established in this article continues to inform analysis of these evolving practices.

Frequently Asked Questions

What is IP privateering?

IP privateering is the practice of a corporation transferring patents to a third-party entity, typically a non-practicing entity (NPE), which then asserts those patents against the corporation's competitors. The term was coined by Ewing and Feldman in this 2011 article.

What is a patent troll?

A patent troll, or non-practicing entity (NPE), is a company that owns patents but does not manufacture products or provide services. Instead, it generates revenue by licensing patents or filing infringement lawsuits. Not all NPEs are patent trolls; universities and research institutions also hold patents without practicing them.

How does IP privateering affect innovation?

Critics argue that IP privateering allows large corporations to weaponize patents indirectly, imposing costs on competitors without the risk of counter-suits. This can deter innovation by increasing the legal risk and cost of bringing new products to market, particularly for smaller companies with limited resources to defend against patent litigation.