FTC to Examine Patent Assertion Entity Impact on Innovation
|Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: September 29, 2013 @ 9:00 am
EDITORIAL NOTE: The black colored text below is taken from an FTC Press Release. I also provide my thoughts and comments in the format of comments from the peanut gallery, or perhaps as a patent law equivalent to Mystery Science Theater 3000. In order to differentiate my thoughts/comments from the FTC statement, my comments are italicized, colored, indented and tagged with the IPWatchdog logo.
The Federal Trade Commission voted to seek public comments on a proposal to gather information from approximately 25 companies that are in the business of buying and asserting patents, known as Patent Assertion Entities (“PAEs”). The FTC intends to use this information to examine how PAEs do business and develop a better understanding of how they impact innovation and competition.
After considering the public comments, the FTC will submit a request to the Office of Management and Budget (OMB) in compliance with Paperwork Reduction Act, seeking clearance of the FTC’s proposal to issue compulsory process orders seeking information from the PAEs.
MY TAKE: What if the public comments received suggest that there is no reason to for the FTC to move forward? Will the FTC still subpoena records from PAEs? There is something fundamentally wrong about the FTC saying that they will consider the public comments and then they will go ahead regardless and subpoena records. This conjures up images of the wild west. Crowd yells: “Hang him!” Sheriff responds: “First we will give him a fair trial and then we will hang him!”
PAEs are firms with a business model based primarily onpurchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technologies. 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.
MY TAKE: I guess it wasn’t enough that the non-partisan Government Accountability Office report showing that there is not a non-practicing entity (NPE) problem isn’t enough when the White House and some members of Congress want to take action. I guess that is just how Washington works. If at first you don’t get the report you like try, try again! This time there will be no impartial GAO, but rather a branch of government on which authority from on high can be asserted. I wonder what they will conclude? For more on the GAO report see GAO Report Finds No NPE Litigation Crisis and GAO Report Unmasks Mythical Patent Troll Problem.
In December 2012, the FTC and the Antitrust Division of the United States Department of Justice (DOJ) jointly sponsored a workshop to explore the impact of PAE activity on innovation and competition. The FTC and DOJ also received public comments in conjunction with the workshop. While workshop panelists and commenters identified potential harms and efficiencies of PAE activity, they noted a lack of empirical data in this area, and recommended that FTC use its authority under Section 6(b) of the Federal Trade Commission Act. Responding to these requests, and recognizing its own role in competition policy and advocacy, the Commission proposes a Section 6(b) study that will provide a better understanding of PAE activity and its costs and benefits.
MY TAKE: Interestingly, one of the largest PAEs was not invited to participate in this FTC workshop. Acacia Technologies is not only one of the leading companies in this space, but they are also a publicly traded company that is required by laws and SEC rules to disclose volumes of information about their activities. Not inviting Acacia to attend is in my opinion akin to having a patent roundtable to discuss changing patent prosecution rules and not inviting IBM to attend. Perhaps there was nothing to Acacia not being invited, but if I were really trying to figure out how the industry works I would definitely have a seat at the table for them.
“Patents are key to innovation and competition, so it’s important for us to get a better understanding of how PAEs operate,” said FTC Chairwoman Edith Ramirez. “We want to use our 6(b) authority to expand the empirical picture on the costs and benefits of PAE activity. What we learn will support informed policy decisions.”
The proposed study would add significantly to the existing literature and evidence on PAE behavior. Earlier studies have focused primarily on publicly available litigation data and concluded that PAE litigation activity is on the rise. The Commission, however, has unique Congressional authority to collect nonpublic information, such as licensing agreements, patent acquisition information, and cost and revenue data, which will provide a more complete picture of PAE activity.
MY TAKE: The statement about previous studies concluding that PAE litigation activity is on the rise is terribly misleading. As anyone who understands the industry could have predicted, as a direct result of the America Invents Act (AIA) more patent infringement litigations are being filed. Perhaps Congress and Regulators in Washington, DC, didn’t understand that would be the implication of the AIA, but that would be only because they didn’t understand what they were doing. The AIA makes it quite difficult (if not impossible, depending on the district court) to bring a patent infringement action against numerous defendants in a single case. Thus, it was incredibly predictable that upon enactment of the AIA the number of patent litigations would rise. This was by design! It is also exactly what the aforementioned GAO report concluded.
Because the Commission believes a broader study will enhance the quality of the policy debate surrounding PAE activity, it proposes information requests directed to the following questions:
- 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?; and
- What do PAEs earn through assertion activity?
To understand how PAE behavior compares with patent assertion activity by other patent owners in a particular industry or sector, the FTC also proposes sending information requests to approximately 15 other entities asserting patents in the wireless communications sector, including manufacturing firms and other non-practicing entities and organizations engaged in licensing.
The Commission vote to approve and publish the Federal Register Notice soliciting public comment on the proposal was 4-0. The Commission is authorized to issue Orders To File Special Reports by Section 6(b) of the FTC Act. The proposal will be published in the Federal Register shortly. Public comments on the proposal can be submitted electronically and will be accepted until 60 days after the Notice is published. Written comments should be sent to: FTC Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.
MY TAKE: Things are going to get extremely interesting. With the FTC taking this step now I don’t know how Congress can move forward with patent reform legislation that purports to address the so-called patent troll problem. Perhaps they will move forward, but at a time when the Congress has so many issues to deal with is patent reform prior to yet another in-depth government report really where times should be spent? As of the writing of this article we do not have a budget for FY 2014, or even a continuing resolution and the debt ceiling debate looms in the backdrop. Perhaps Congress and the FTC should be spending time fixing other problems rather than tinkering with an issue the GAO says doesn’t need to be fixed.
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Posted in: Federal Trade Commission, Gene Quinn, IP News, IPWatchdog.com Articles, Patent Fools™, Patent Litigation, Patent Trolls
About the Author
Gene Quinn is a US Patent Attorney, law professor and the founder of IPWatchdog.com. He is also a principal lecturer in the top patent bar review course in the nation, which helps aspiring patent attorneys and patent agents prepare themselves to pass the patent bar exam. Gene started the widely popular intellectual property website IPWatchdog.com in 1999, and since that time the site has had many millions of unique visitors. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, USA Today, CNN Money, NPR and various other newspapers and magazines worldwide. He represents individuals, small businesses and start-up corporations. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.