Friday 24 October 2014 9:44 am

Curb “patent privateers” to protect intellectual property

Effective intellectual property protections are imperative to maintaining a robust economy and promoting innovation—and patents are an important facet of this regime. Unfortunately, bad actors are exploiting loopholes for personal gain and threatening the health of the current system—one that is generally working well.

Lurking in murky legal waters, “Patent Privateers” are abusing protections and using them as weapons to stifle competition. While “patent trolls” wreak havoc on innovation by filing vague, often frivolous lawsuits for their own gain, privateers’ primary purpose is to hamper competition for larger entities.

Privateers often ‘separate’ themselves from their familial corporate structure in an effort to shield their parent organisation from any potential retaliatory litigation. The opaque nature of the legal structure often leads to a system rife with abuse—making it easy for corporate giants to snipe at each other without fear of reprisal.

But the long-term danger posed by privateers is the weakening of a robust patent system that has helped the United Kingdom become one of the world’s leaders in innovation. London’s technology sector is in an unprecedented boom, with technology firms bringing in more than $1bn in capital investments so far this year.

But economist Keith Boyfield warns that growth could be hampered by privateering. He notes that regulators Europe have yet to do anything about the problem, leaving it to British courts to be the first in Europe to rule on patent privateers. Already there is evidence that tech companies are using privateering to test Britain’s legal waters and see if they can effectively reduce competition.

While common sense reforms may be in order, if not done thoughtfully, the economic gains made by curbing privateers may easily be offset by losses caused by weakened patent protections. Any reform must be carefully carried out with the short-term and long-term implications in mind. And ideally, it would come from self-regulated players in the market, rather than a radical shift on government policy.

One example of this is Apple and Samsung, the two largest smartphone companies. Over the past three years, they have filed more than 40 patent lawsuits against each other. Earlier this year, however, they signed a pact agreeing to stop all of their patent lawsuits against each other. The only nation excepted from this cease-fire is the United States, but the fact that these mega-competitors managed to come to a mutually beneficial agreement in substantial markets like France, Germany, Japan, South Korea, Australia, and of course, the UK could set a precedent for more friendly play in the patent game.

Companies have every right to protect their intellectual property. The problem is when companies recruit privateers for the sole purpose of harassing their competitors.  Instead of employing what should be intellectual property protections, the choice to exploit the current system to the detriment of competitors doesn't just hurt innovation—it threatens the effectiveness of patent protections as a whole.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.