[1]: 5 Privateering provides a way for companies to assert intellectual property against their competitors with a significantly reduced risk of retaliation and as a means for altering their competitive landscape.
[2]: 44 In April 2013, a group of technology companies asked the U.S. Department of Justice and the Federal Trade Commission to investigate the privateering strategy as an impediment to competition.
[1]: 14 The benefit to the privateer arises in the form of direct financial compensation, either licensing royalties, litigation settlements, or damage awards.
The benefits to the sponsors can range from financial gain from licensing to an improved competitive landscape that facilitates increased sales revenue.
Intellectual property privateering has been formally defined as: The strategy, in part, relies upon the lack of transparency of ownership and motivation permitted in the IP system.
Companies have increasingly employed intellectual property rights as competitive tools since the early 1980s,[6] frequently with the goal of extracting value directly from their own IPRs whether from licensing revenue or litigation rewards.
IP privateering, one technique among these indirect strategies, concerns the exploitation of third-party IPRs as tools for achieving larger competitive goals.
During the pro-patent era which began in 1980, competitive pressures stimulated increasing interest in IPRs and consequently strategies related to their deployment.
[11] The privateer, a specialized form of non-practicing entity (NPE), asserts the IPRs against target companies selected by the sponsor.
[citation needed] Google, Red Hat, Earthlink and BlackBerry have written to the US Federal Trade Commission and Department of Justice asking them to investigate patent privateering, which they say "poses numerous perils to competition, consumers and innovation".
Outsourcing patent litigation, one branch of privateering, allows companies to shape their competitive environments and in some instances monetize their IP rights at extremely low cost.
Potential sponsor legal liability may give rise to causes of action ranging from tortious interference in business relations to patent misuse, as well as possible market manipulation charges and antitrust problems.
For example, IP privateering only thwarts the "mutually assured destruction" paradigm of defensive patenting so long as the operating company sponsor's identity remains hidden.
[20] IP privateering resembles an historic method of waging war so effective that it had to be abolished by a treaty, the Paris Declaration Respecting Maritime Law (1856).