Bloomberg BNA’s Patent Trademark & Copyright Law Daily™is the IP industry’s premier news service, offering objective, timely,and reliable daily news coverage and commentary from leading IP law...
By Tony Dutra
Sept. 30 --The Federal Trade Commission announced on Sept. 27 its intention to collect non-public data on the corporate structure and patent holdings of so-called patent trolls, or patent assertion entities (PAEs).
The commission and the Antitrust Division of the Justice Department have been investigating competition issues related to PAEs' litigation and pre-litigation assertion tactics since a Dec. 10, 2012, workshop in Washington. The current development builds on the results of that workshop and subsequent public commentary.
Investors who don't invent things themselves have been buying up patents as a business, licensing them or aggressively suing people and firms that may be infringing their intellectual property. They are known as patent assertion entities (PAEs) and are often referred to pejoratively as patent trolls. In the past, the FTC expressed concern that PAEs may discourage follow-on innovation, prevent competition, and raise prices through unnecessary licensing and litigation.
The commissioners voted 4-0 to exercise the FTC's authority under Section 6(b) of the FTC Act, 15 U.S.C. §46(b), to gather the information. A Federal Register notice, to be published during the week of Sept. 30, asks the public to comment on proposed questions that a selection of PAEs in the wireless communications sector must answer. Other firms in that industry, including operating companies holding patents, will be asked a subset of the questions for comparison purposes.
“The FTC is conducting the study in order to further one of the agency's key missions--to examine cutting-edge competition and consumer protection topics that may have a significant effect on the U.S. economy,” according to the announcement.
The public will be given 60 days from the date the notice is posted to weigh in on the kinds of information--such as licensing agreements, patent acquisition information, and cost and revenue data--that will allow the FTC “to examine how PAEs do business and develop a better understanding of how they impact innovation and competition.”
After the comments are processed, the FTC will distribute the questionnaire and gather the information from about 25 PAEs, defined as “firms with a business model based primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technologies.” The questionnaire will also be sent to “15 other entities asserting patents in the wireless communications sector, including manufacturing firms and other non-practicing entities and organizations engaged in licensing.”
The proposed questions listed are extensive, covering multiple pages of text in the Federal Register notice. The announcement categorized the information sought as follows:
• How do PAEs organize their corporate legal structure, including parent and subsidiary entities?
• What types of patents do PAEs hold, and how do they organize their holdings?
• How do PAEs acquire patents, and how do they compensate prior patent owners?
• How do PAEs engage in assertion activity (i.e. demand, litigation, and licensing behavior)?
• What does assertion activity cost PAEs?
• What do PAEs earn through assertion activity?
The per-patent information to be requested covers a range of issues, including not only public information but identification of the real parties in interest, whether the patent is essential to any standard and whether it is the subject of a demand letter sent by the patent owner. The notice includes a separate section that would request information on portfolios of aggregated patents, including the owners' “reasons or business strategy for organizing the Patent(s) into Portfolio(s).”
The path forward for the FTC and the DOJ on antitrust grounds was unclear after the December 2012 workshop, and the information collection is an attempt to identify whether there are options for moving ahead.
The workshop featured a debate between those who contended that PAE behavior has had anticompetitive effects and those who said they are simply taking advantage of weaknesses in the patent system. Some suggest that PAE conduct should be addressed by fixing the flaws in the patent system rather than through antitrust enforcement curtailing PAE activities. Some were skeptical that Sherman Act Sections 1 and 2 of the Sherman Act or Section 5 of the FTC Act could be used to enforce particular kinds of behavior.
A March 7, 2011 report--The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition--acknowledged that both the patent system and federal antitrust law “share the fundamental goals of enhancing consumer welfare and promoting innovation.” Its proposed remedies were directed to improving patent quality, though.
Subsequently, FTC Chairman Edith Ramirez gave a speech in which she said that “problematic [patent assertion entities] activity may not lend itself to an antitrust or a consumer protection law enforcement solution,” but she nevertheless confirmed her agency's commitment to ensure that the FTC “uses its enforcement power in this area where appropriate.”
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)