Throughout history, there's been a fine line between being categorized as a pirate or a privateer, but it usually came down to whether the government is getting a cut of the booty. Indeed, the U.S. Constitution lists issuing letters of marque and reprisal -- essentially the hiring of pirates to serve as privateers -- as one of the enumerated powers of Congress, and throughout the Civil War they were used with great effect on both sides.
While subsequent international treaties eventually outlawed the practice, there's a modern-day version being used to harry corporations over intellectual property. Colorful characters like Captain Kidd were gibbeted over the River Thames as a warning to others against acting as privateers, but today major corporations such as Microsoft and Nokia (NYSE:NOK) are employing them to attack their rivals and gain through the courts what they couldn't win in the marketplace.
A recent Reuters story highlights the growing practice of intellectual-property privateering. Since there's great risk and cost associated with waging a protracted battle against an Apple or Samsung, rivals are hiring others to do the dirty work for them, with an agreement to split the proceeds afterwards.
Nokia, for example, transferred the rights to certain patents to MobileMedia Ideas, which then sued Apple, Research In Motion (NASDAQ:BBRY), and HTC for violating them. Had Nokia chosen to get its hands dirty itself, it may have resulted in a similar situation as occurred previously, when Apple countersued the handset maker. By having an intermediary launch the attack, Nokia is once removed from responsibility, even though it may share in the proceeds down the road.
The licensing company also owns patents transferred from Sony and a company that is the license administrator for a patent pool, MPEG LA. Nokia, Sony, and MPEG all have a stake in MobileMedia. It may very well have been that Nokia's experience in going up against Apple several years ago was what launched the current wave of privateers plying the world's IP oceans.
Alcatel-Lucent (NYSE:ALU) formed MultiMedia Patent Trust to harass rivals such as Apple and LG Electronics, though a jury sided with the defense last month. Mosaid Technologies flies the Jolly Roger on behalf of Nokia and Microsoft, while Suffolk Technologies' black flag was hoisted on behalf of Goldman Sachs, P/E firm Atlantic General, and consulting shop Boston Consulting using patents from British Telecom.
To coin a phrase
The value of patents, which has always been important, took on a new dimension after a consortium of companies bought IP from the portfolio of bankrupt Nortel Networks, followed by Google's acquisition of Motorola Mobility for $12.5 billion. It seemed anyone with a substantial stock of patents was suddenly in play. InterDigital, VirnetX Holdings, and even Eastman Kodak thought their IP treasure trove would be worth a king's ransom.
That none panned out suggests that while valuable patents are not the end-all, be-all once thought. Kodak was even driven into bankruptcy after no one wanted to fork over the billions it sought and had to sell a passel of them for a song merely to secure exit financing.
One wonders whether sound specialist Dolby Labs (NYSE:DLB) might want to engage in some privateering on its own, as it faces questions over the expiration of some of its key patents. It operates Via Licensing, a licensing pool similar to MPEG LA. Where the latter holds key patents covering important digital video standards like MPEG 2 and MPEG-4, the former administers patent pools for mandated, de facto, and emerging standards in the audio, broadcast, wireless, and automotive markets.
Patent enforcement is a tricky business these days, particularly because the U.S. Patent Office has made a mess of things by issuing patents for things that probably shouldn't be patented. I like to point to Amazon.com's one-click checkout and MercExchange's wrangling $35 million out of eBay for its "Buy It Now" feature.
Then you have the patent trolls out there who merely exist to hold on to patents without ever working to develop them -- and sue anyone who comes along and does. Now you have corporations employing hired guns to do the blood work for them.
Obviously, we've come a long way from the perhaps apocryphal quote by patent office commissioner Charles Duell, who reportedly said, "Everything that can be invented has been invented," and there is some utility in granting protection to ideas. Yet when we muddle the waters by obscuring who owns what and whether those bringing actions actually have standing, it becomes clear the time for patent reform is essential.
Fool contributor Rich Duprey owns shares of Apple, Alcatel-Lucent, and Dolby Laboratories. The Motley Fool recommends Amazon.com, Apple, Dolby Laboratories, eBay, Goldman Sachs, and Google; owns shares of Amazon.com, Apple, eBay, Google, and Microsoft; and is short Sony. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.