Structuring a Privateering Contract

By Dennis Crouch 

The world of patent deals and monetization schemes are difficult to report on because the details of most deals (and often all aspects of the deals) are kept secretly buried under binding confidentiality clauses. Patrick Anderson recently wrote about US Patent 6,081,835 and its unique ownership setup. The information on the patent ownership is now public through an interesting decision by Judge Ellis.   Download SuffolkTech.EllisDecisionThe patent is being asserted by Suffolk Tech against Google, and Google challenged Suffolk's standing to sue – claiming that the company did not hold complete rights to the patent. With that defense in mind, Judge Ellis explored the ownership structure.

It turns out that the patent was originally owned by British Telecom based upon an underlying UK invention. BT transferred its ownership interest to IPValue who immediately transferred rights to Suffolk Tech as part of the deal. It was already known that IPValue is a joint venture of Goldman Sachs, General Atlantic Partners and Boston Consulting Group.

In the invest-to-sue market, patent buyers rarely pay cash. Rather, in these deals the majority of compensation to the seller is at the back-end — after the purchaser has successfully licensed the patent rights. In this case, BT sold the patent (transferring title), but and received as compensation a contract right to "50% of the Adjusted Gross Proceeds derived from exploitation of the '835 Patent" with the additional caveat that IPValue's sale of the patent (other than to Suffolk) within one-year of the BT-IPValue deal would result in 90% of the proceeds going to BT. The contract also includes restrictions on fees to contingency counsel; a $10 buy-back clause if IPValue fails to bring in sufficient revenue; and a non-exclusive license-back to BT.

On the standing point, Judge Ellis found that the deal left Suffolk Tech with title, core rights to practice and enforce the patent, and "all other substantial rights" in the patent. "As a result of the assignments, BT retained only a non-exclusive license to practice the patent and the right to share in revenue from the exploitation of the patent." As such, Suffolk Tech can properly assert the patent without joining BT or IPValue as co-plaintiffs.

Joff Wild at iam has some interesting thoughts on the case as well:

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 [Intellectual Ventures]) 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.

The last line of Joff's statement will continue to raise interest in upcoming years.

52 thoughts on “Structuring a Privateering Contract

  1. anon, MM makes perfect sense, as usual.

    Your argument, reduced to its essentials,

    Ned, you could not be more wrong in either statement if you were paid to post propaganda. Well, even then.

    Also, see the government brief about the danger of taking something down to its essentials… (aside from the fact that your ‘reduction’ is blatantly incorrect)

    Also revisit any of my posts discussing when/how to apply 101, especially in the context of my (perpetual) correcting you on the “categorically/as a category” discussions.

  2. anon, MM makes perfect sense, as usual.

    Your argument, reduced to its essentials, is that information, and methods of producing new information, are eligible for patent protection.

    Malcolm gets it. But you … you constantly try to paint that horse a different color in order to disguise the what you advocate, just like Rich once did. According to you and to Rich, while information is not eligible, information produced by a computer is, because after all, a computer is a machine.

    ?

  3. anon, but, if a new machine is produced by running software, then the claims in Benson should have been patentable.  Ditto State Street Bank.  Ditto Bilski.

    Since your "test" would render patent eligible so many claims that have been determined to be unpatentable by the Supreme Court, you are essentially saying that you are right and the Supreme Court is wrong.

  4. to be permanently resident

    Another ad-hoc legal position – Ned, we should number your fallacies to make it easier for both of us.

  5. This is your central failure, anon, on this issue.

    You are mistaken. This is a feature, not a bug.

    using a GP digital computer to run software

    Another thing we covered long ago – “to run” doesn’t happen unless the software is part of the machine.

    You are trying so very hard to make a difference where none exists.

    We both know why that is so.

  6. I might add, that in an appropriate case, the courts might also conclude that an accused infringer who purchase the right to receive income from licensing the patent, including any cause of action against itself, has essentially purchased a kind of license or beneficial ownership in the patent, like a silent partner in a partnership.

  7. IANAE, if Big Corp retains, let us say, 50% if the upside, that 50% can be assigned to the sued infringer in settlement of the retaliation suit, somewhat reducing the exposure of the infringer.  But that might not end it, as Big Corp  might end up spending big additional bucks to settle the retaliation suit, in addition to its litigation expenses.  This kind of exposure to retaliation should give any insider decision makers pause when they sell their patents for profit.  In the end, they are exposing themselves when they give up all control over who can be sued.  This exposure can be catastrophic, which make the whole idea foolhardy at best.

    Under the law, Big Corp cannot retain control over who is sued without retaining title.  Thus they have to divest control.  But this very act makes their divestiture the height of s t ^ p i d i t y.  

    The only people who have any upside are the "pirates" themselves, and, of course, their litigation firms.  They make big bucks no matter the damage to Big Corp.

    Whoever sold Big Corp on the very idea of exploiting Rembrandts in the actic, treating patents as real property, are also a problem.  The issues are far more complicated than they let out.  Only drivil^ng id^ ots would fall for their snake oil pablum.

     

     

  8. Insiders of “big corp” must recognize that when they retain income interests from the “sale” of the patents, they invite retaliation just as much as if they did not “sell” the patents but simply sued on them themselves.

    Suppose BigCorp sells the patents and you get sued by the buyer.

    You decide you’re going to “retaliate” by suing BigCorp.

    Here’s the problem as I see it. BigCorp has no control over the buyer’s litigation activities, and can’t settle on the buyer’s behalf. BigCorp can’t even promise you the money back from your settlement with the buyer, because BigCorp only gets a fraction of it. And you can’t settle both litigations (yes, now you have two) with a cross-license, because BigCorp can’t do that either.

    Now what?

  9. 1. Apparatus comprising:

    means for doing step A; and

    means for doing step B.

    Where the corresponding structure described is a GP digital computer and a program having a flow chart.  The claim do not limit the program to be permanently resident.

  10. Alun, the problem Elizabeth faces with privateering contracts is that the Spanish knew who was behind them, and they came after her big time.

    Insiders of “big corp” must recognize that when they retain income interests from the “sale” of the patents, they invite retaliation just as much as if they did not “sell” the patents but simply sued on them themselves.

  11. But in both cases, the claims to each are identical.

    This is where you’re losing me, Ned. Can you give me an example of one of these claims that reads on both a new computer and on using an unmodified general-purpose computer to run software?

  12. “is programmed….”

    When I ask you to tell me what you mean by this, I find you nowhere to be found. You will not answer.

    Will you ever acknowledge the fact that there is a difference between a computer where the programming is part of the computer, and using a computer to execute a program? This is your central failure, anon, on this issue.

    When a program is part of the computer, we do have a new computer. It no longer is a GP digital computer at all.

    But, using a GP digital computer to run software? The machine itself is unmodified.

    But in both cases, the claims to each are identical. What I suggest to the powers that be is that the PTO and or the courts demand that distinctions be made in the claims to delineate the two categories.

  13. The topic is a programmed GP digital computer where the computer is unmodified in operation and the program is manually executed, i.e., is not part of the machine.

    Thanks for the oxymoron – but if your computer is programmed, it is neither a GP digital computer anymore, nor is the program not a part of the machine.

    Ned,

    We have hashed through this many times before, and I have often asked for the legal support for your extra-legal insertions. Now that it is fully understood that you post for a cause, should I bother trying to rebut your propaganda by asking for things you have never seemed able to provide in the past anyway?

  14. It’s funny that you are calling me a denier, when I am the one offering a quote (again) and you act like the quote simply does not exist.

    Well, actually, it’s not that funny, and given your financial incentive to not understand (even to obfuscate…?), it really is quite sad.

  15. You, of course.  But we start from context.  The topic is a programmed GP digital computer where the computer is unmodified in operation and the program is manually executed, i.e., is not part of the machine.

    In such, the programmed GP digital computer is simply used as a tool, like a hammer in a the process of driving a nail.  The SC in Benson fairly well said this kind of software is unpatentable.  

  16. anon, your problem is that you refuse to accept what Benson did hold. You, anon, in this are a denier — yeah, like those who literally interpret sacred texts to deny reality even if someone rubs their nose in it. 

    Programmed GP digital computers are not special machines unless the programs are part of the machine and modify the operation of the machine.   A programmed computer can be used in a system, however.  That was the situation in the Alappat regarding the hypothetical equivalent.

  17. MM–

    This is another of those absolute POS claims that are granted by the POS civil servants staffing the PTO.

    While it alone is insufficient evidence to conclude that the entire patent system is a joke (a point with which I wholeheartedly agree and have expressed many times), it is sufficient evidence to conclude that all PTO staff substantively involved in its allowance and issuance are incompetent, fraudulent, or both, or under the authority and direction of a superior who is incompetent, fraudulent, or both.

    It is the public sector that is the joke, MM. The PTO because it grants crxp like this, and the judicial system because it actually provides a reasonable expectation that such crxp will be held valid and infringed. BOTH of those things provide the essential basis for the instant litigation–the claim on which to sue, and an expectation of a favorable ruling.

  18. I don’t know if I’d label it “obsequious” and “banal”, but I would definitely label it “tedious”.

  19. Re: “With software, the how to make it and how to make it work for its intended purpose is [b]ridiculously self evident.[/b]”

    Is that all software, or just “pure” software? What makes software pure?

    This is clearly over-generalized, like everything posted in online forums always is.

    Re: “Using computers to actually do [b]something physical[/b] in a new way is another matter, and could involve invention, because one still must build the apparatus and see if it works.”

    What non-physical things can computers do?

  20. Information processing is complicated and hard. It is backed by a science and implemented with engineering.

    It is wonderous. Information processing is leading to machines that are better at information processing than we are. The basic circuits only enable these methods.

    Information processing has captivated the greatest minds to ever exist. Jonny von Neumann for one.

    Frankly, MM, if you want to be fair, try to characterize any field as you have information processing. Just be honest with yourself. Any field can be reduced to abstractions that make it sound simple. Information processing is not easy. It is funny that I have noticed that many people now speak of information processing as you simply make the computer do X. And, that somehow making it do X is straighforward. People have in their minds “magical box” perform X. This is simple they seem to think. And, yes, many babies of the field now have vast libraries and 4th generation language that enable them to perform tasks that were very difficult 30 years ago.

    The physical computer is only an enabler. Pick up a real book and try to read it. You will find a field that is as hard to understand as any and a field that is replete with scientific and engineering challenges.

  21. You do know, right, that privateers were originally pirates who were paid by the English crown to raid Spanish shipping. Captain Morgan was the best known, but I suppose most people just think of him as a brand of rum?

  22. “(1) processing information is what computers do and (2) the nature of the encoded information is irrelevant to the computer and therefore should be irrelevant to patentability (i.e., changing the “meaning” of the information is per se obvious).

    versus

    most of these patents are obvious applications of known methods.

    Maybe there is less daylight between our respective positions than previously thought. I don’t know. I’m not convinced that there is a fundamental (or even a substantially gray) distinction to be drawn between

    (1) methods of processing different kinds of information with a computer to make the processing of that kind of information proceed more quickly/efficiently

    versus

    (2) methods of improving the rate of information processing by a computer by instructing the computer how to process specific kinds of information more quickly.

    There is certainly something more compelling about the latter class of invention but it still seems just as absurd to use the patent system to promote “progress” in that area as it does to use the patent system to promote “progress” in, e.g., winning the World Series.

    I recognize that money is inherent to the functioning of the system. I’m wondering why we as a society are “choosing” to funnel resources towards promoting “progress” in areas where at best it’s completely unnecessary to do so and at worst it’s counterproductive (unless, of course, you’re a lawyer or one of the lucky winners of the patent lottery).

    I understand that the state of the art of circuit design and manufacture limits the maximum speeds attainable by digital computers. That’s where the focus should be. Granting patents on instructions for the computer is like granting patents on methods of driving a car as fast as possible. A patent on this latter method sounds ridiculous but I’ll bet there are more such patents pending now than ever before, for the same reason that there are more patents on methods of advertising (truly the oldest profession) now than ever before.

  23. The SC in Benson could only push its B$ dicta so far and Judge Rich knew it – that is why you have so much disdain for him.

    Of course, with you, we have established that this is a commercial view of “yours,” and any attempt at reasoning with this in either law of fact is guaranteed to go nowhere.

    Remember this quote from Benson: ?

    It is said that the decision precludes a patent for any program servicing a computer. We do not so hold.

    Your agenda is a sham Ned. To the point that you agree with MM, that is a shameless.

  24. agree with you, now more than ever. Keep it up. You are convincing people.

    He is convincing no one who does not already believe in his elitist invention must involve the spark of genius crowd – (remember that little conversation, Ned, and how Congress expressly disagreed with that “policy?”)

  25. Look at your posts MM – you speak only of Quo and who that belongs to (the public), totally forgetting the quid (and more importantly, who that belongs to.

    You say you never said otherwise – that is a lie. Lying is not only done with words said, it is done with words omitted.

    I need not define “a little money” because (as usual) you quite miss the point.

  26. the world was NEVER SOLELY about [promoting progress in the useful arts].

    I never said otherwise. In fact, I said the opposite. Once again, we are left to wonder: who are you arguing with? Are your fillings sending you messages again?

    your elitest (and false-ego) disgust for those wanting to earn a little money.

    LOL! Define “a little money”, please.

  27. Malcolm, I am not so sure all NPEs are abusers — at least to the extent they represent real inventors or startups with real inventions.

    I have been listening to you for several years now. On the point of software as patentable subject matter, you seem to think that pure software related inventions are not the stuff of the patent system because they do not involve real invention. Real invention is not simply conception, but involves the hard work of figuring out how to make something and make it work for its intended purpose. With software, the how to make it and how to make it work for its intended purpose is ridiculously self evident. Such cannot be the stuff of the patent system unless we have totally lost it.

    Using computers to actually do something physical in a new way is another matter, and could involve invention, because one still must build the apparatus and see if it works. But that is not what you talk about when you gripe.

    I agree with you, now more than ever. Keep it up. You are convincing people.

    We need to stop, stop in its tracks, the patenting of software qua software. The SC in Benson should have been just a little more emphatic. IMHO, it is high time that the SC put it foot down for good.

  28. Your point is obsequious and banal.

    “Quo Pro Quo” just doesn’t have the same ring as “Quid Pro Quo.”

    It is not so much that “At some point in its existence, at least, there was an idea about “promoting progress in the useful arts“, as this is very much still there – but rather, the world was NEVER SOLELY about this.

    There was ALWAYS someone else involved in the equation.

    Try to remember that and to put away your elitest (and false-ego) disgust for those wanting to earn a little money.

  29. Your attitude is part of the problem. This is the nutshell of your arguments:

    “(1) processing information is what computers do and (2) the nature of the encoded information is irrelevant to the computer and therefore should be irrelevant to patentability (i.e., changing the “meaning” of the information is per se obvious).

    The problem is that this isn’t true. What is true is that most of these patents are obvious applications of known methods. The problem is that the PTO has never figured out how to apply one level of abstraction up to render obvious patents that apply know techniques. Your attitude just makes things worse.

    I think the problem is that the PTO got off to a bad start with a bad attitude that they would get the courts to make it so they didn’t have to examine these applications.

  30. You must have missed the part of patent law wherein patents for improvements in machines are perfectly legal.

    No, I didn’t miss that. You must have missed the part where an old machines that stores information isn’t “improved” simply because someone gives the information a new name.

    Meet anon, Captain of the USS Titanic! Don’t worry about the icebergs, folks. See those deck chairs? If anything happens, Captain Anon will just call those deck chairs “lifeboats” and the situation will be improved. Just like that! If things get really desperate, we might even re-arrange them. But this ship will never sink. No sir.

  31. You must have missed the part of patent law wherein patents for improvements in machines are perfectly legal.

    It matters (and more than just a little).

  32. I am thinking of a file system involving manual files that we might see in any corporation or law firm, or even in a library, or for that matter in any police station. Pick any of these and tell us how in the past this file retrieval process worked.

    I get a request for a file. I look at the request to determine if some information is in the request. If the information is not in the request, I don’t provide the file.

    Done.

  33. Novell probably did this.

    Again, billions of people “did this” exact same thing, except they used their brains instead of a computer. Unlike, say, the Examiner who granted this nonsense.

    But it’s really just the same sort of baloney that the PTO is shovelling out by the record reams every Tuesday morning, isn’t it? A bunch of handwavey “look at X, if X includes Y, then “file” X under Z” without any consideration whatsoever of the fact that (1) processing information is what computers do and (2) the nature of the encoded information is irrelevant to the computer and therefore should be irrelevant to patentability (i.e., changing the “meaning” of the information is per se obvious).

    Of course, our resident “experts” will pretend that they “don’t understand” and/or remind us that the greatness of America rises and falls depending on the amount of this sort of cr-p that is rubber stamped by the lazy, listless, crony-serving USPTO. Software patents are too big to fail, we’ll be told! And thus we have our ongoing intellectual “bailout.”

    It’s impossible to imagine the arguments that somehow keep these patents afloat from applying in any other context. Someone invents a new MegaCheetoh that is so dense it requires a diesel shovel to move it around. Then some other genius decides to re-patent the diesel shovel “wherein if the diesel shovel comes across a MegaCheetoh, it is capable of carrying said MegaCheetoh.” If the USPTO Examiner should happen to inhale a few oxygen molecules and dares to suggest that the diesel shovel is the same old diesel shovel no matter what it should happen across, the Applicant can simply pound the table and repeat “BUT THIS CLAIM RECITES A MEGACHEETOH!” over and over and appeal the case until the claim finally grants. Meanwhile, the Applicant can do the super clever thing: file a continuation and rewrite the claim with a bunch more words including (and especially) the least informative terms for a MegaCheetoh that one can devise.

    Diesel shovels are for digging and carrying things. Computers are for processing and storing information. Those facts have been widely known for about the same length of time but every week the USPTO pretends that the computer was just invented yesterday. Why? Because that’s what Goldman Sachs wants. Nobody could have predicted.

  34. MM,I’m intrigued by your statement that the process is old outside the context of computers. I am thinking of a file system involving manual files that we might see in any corporation or law firm, or even in a library, or for that matter in any police station. Pick any of these and tell us how in the past this file retrieval process worked.

  35. Novell probably did this. I guess it would cost a few million to prove it, but seems to me that the Novell file systems of the mid-1990′s did this.

  36. Dennis, I must applaud your use of the term “privateering.” I was think of an analogy to what BT did here, and it was Elizabeth I’s hiring privateers to raid the Spanish main.

    But of course, the Spanish knew who was behind all pirating, and came after Elizabeth with an Armada. Only by luck, and the skill of Drake, was Elizabeth spared her fate.

  37. My point is that the “sole purpose” of our patent system is not to generate profits for users/abusers of the system. I agree that money is part of the picture and I’m not objecting to that. At some point in its existence, at least, there was an idea about “promoting progress in the useful arts”, which somehow seems different than “increasing the wealth of wealthy people by granting patents on whatever subject matter the wealthy people think is most profitable.”

  38. Note that the claim literally covers the process of receiving a request for a file, analyzing the request, and doing nothing.

    Yes, but it’s what you think about before doing nothing that makes all the diff… oh.

  39. Try to believe this total piece of cr-p.

    1. A method of operating a file server, said method comprising the steps of:

    receiving a request for a file;

    determining if the request includes a received identification signal identifying an originating file from which said request originated;

    comparing any said received identification signal with one or more predetermined identification signals; and

    deciding which file, if any, is to be supplied in dependence upon said determining and comparing steps, and if in the deciding step it is decided that a file is to be supplied, supplying said file.

    Note that the claim literally covers the process of receiving a request for a file, analyzing the request, and doing nothing. Really impressive stuff. Abstract much?

    In non-computer contexts, virtually indistinguishable processes had been carried out for years prior to the filing of this application. How could this cr-p have possible been deemed inventive??? Is there some unexpected result here?

    As usual, the only art cited is 6 patents and a few references, all related to computers. Because it’s all so “technical.”

    Our patent system is a joke.

  40. Dang, somehow I thought it was for promoting progress in the useful arts.

    It is that, but it’s supposed to promote progress in the useful arts by giving people an economic interest in making their inventions available to the public, by inflating the price at which they can sell them.

    Sure, we scale it back when it turns out people are getting too much profit in exchange for too little “useful”, or if they’re gaming the system to obstruct the use of basic technology decades after it was invented, but we still can’t forget that if there’s no money in it at all, the system doesn’t work.

  41. this is one system that exists for the sole purpose of being exploited for profit.

    Dang, somehow I thought it was for promoting progress in the useful arts. I guess that explains why I’m still not receiving ads based on my mobile device based on my computer-calculated imported product appreciation index factor. Maybe next year.

  42. Nobody “benefits” other than the parties exploiting the system.

    To be fair, this is one system that exists for the sole purpose of being exploited for profit.

  43. From Patrick’s article:

    A workshop held on December 10 discussed the potential benefits and harms of specialized patent assertion companies and privateering.

    Nobody “benefits” other than the parties exploiting the system. There, that part was easy.

  44. Anyone want to hazard a guess as to how many skimmers people were involved in bringing this suit to court?

    Ah, nothing like the stunning “efficiency” of the “free” market.

  45. MM, I can only hope that Google counter-sues with a boatload of patents and that in response the folks at BT that set this up get their carreers handed to them.

  46. BT sold the patent (transferring title), but and received as compensation a contract right to “50% of the Adjusted Gross Proceeds derived from exploitation of the ’835 Patent” with the additional caveat that IPValue’s sale of the patent (other than to Suffolk) within one-year of the BT-IPValue deal would result in 90% of the proceeds going to BT. The contract also includes restrictions on fees to contingency counsel; a $10 buy-back clause if IPValue fails to bring in sufficient revenue; and a non-exclusive license-back to BT.

    The idea that these particular “contracts” do not constitute “ownership rights” in the patent is a rather sad joke indeed.

    Goldman Sachs gambling on patent rights at the Great Casino. I’m shocked. But I’m sure all that money will trickle right down into the pockets of every ordinary American. Remember when people actually believed that incredible BS? Good times.

  47. It was already known that IPValue is a joint venture of Goldman Sachs, General Atlantic Partners and Boston Consulting Group.

    Promote the progress! These guys are super smart and the more power we put into their hands the better off everyone will be!!!!

    /patent t–b—ger off

  48. What doesn’t make sense is why Google doesn’t simply sue BT for infringement of a Google patent just as if BT were suing Google itself. Even though BT does not have title, it “could” still assign its interest in the income from the Google suit to Google itself. A lawsuit against Google would provide that incentive.

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