FTC Seeks OMB Permission for Patent Assertion Entity Study

FTC building, Washington, DC.

Earlier today the Federal Trade Commission issued a second Federal Register Notice containing the revised information requests for its study on patent assertion entities (PAEs). The Commission vote approving the second Federal Register Notice was 5-0. The Notice is styled as a submission to the Office of Management and Budget (OMB) because under federal law federal agencies must obtain approval from OMB for each collection of information they conduct or sponsor.

The second Notice also calls for additional public comments. As explained more fully in the Notice, the FTC proposes to collect information about Patent Assertion Entity (“PAE”) organization, structure, economic relationships, and activity, including acquisition, assertion, litigation, and licensing practices.

The study is designed to develop a better understanding of how PAEs may impact innovation and competition. PAEs are firms with a business model based primarily on buying patents and then attempting to generate revenue by asserting them against businesses that are already practicing the patented technologies. The FTC says it is conducting the study in order to further one of the agency’s key missions, which is to examine cutting-edge competition and consumer protection topics that may have a significant effect on the U.S. economy.

Hopefully the FTC will keep in mind that by the very nature of the right granted by the Federal Government, a patent offers the patent owner the right to exclude others from making, using, selling, offering for sale and importing infringing products or services. In fact, it is this strict, strong exclusivity that is at the heart of the reason why patents foster innovation, a point that critics seem to simply refuse to acknowledge and seem wholly incapable of understanding.

In any event, the original study undertaken by the FTC was first announced on September 27, 2013.The FTC previously received 70 comments in response to an initial Federal Register notice seeking public input on the usefulness and burden of the proposed information collection requests.

According to the FTC, the majority of commenters expressed support for the study, but some commenters recommended revisions to the study’s scope. Some commenters suggested revisions to reduce the burden on the businesses that would be asked to provide information. No commenter opposed the study, according to the FTC, which seems at least a little odd. Perhaps those who do oppose the study and feel that the study is going to produce nothing less than a partisan, ideological, argument against the patent system simply choose not to respond.


I, for example, have questions the impartiality of the FTC investigation to date, for among other reasons, due to the failure to invite Acacia Research (NASDAQ: ACTG) to participate in open forum discussions. If the FTC is at all serious about truly understanding the patent monetization market what is the justification for leaving out the largest publicly traded company in the space? Unlike many of the other actors, as a publicly traded company Acacia already has an obligation to report volumes of information to the Securities and Exchange Commission (SEC). So if the FTC is truly looking for information versus simply conducting a slanted investigation that reports what the White House and Google want to hear, they will talk openly and publicly with Acaica.

Notwithstanding, the Federal Register Notice explains that the FTC proposes information requests directed to answering the following questions:

  • How do PAEs organize their corporate legal structure, including parents, subsidiaries, and affiliates?
  • What types of patents do PAEs hold and how do they organize their holdings?
  • How do PAEs acquire patents; who are the prior patent owners; and how do they compensate prior patent owners?
  • How do PAEs engage in assertion activity (i.e., how do they behave with respect to demands, litigation, and licensing)?
  • What does assertion activity cost PAEs?
  • What do PAEs earn through assertion activity? and
  • How does PAE patent assertion behavior compare to that of other entities that assert patents?

FTC says that it considered and implemented many of these suggestions it did receive in order to sharpen the focus of the study and reduce its likely burden on study respondents. Frankly, I see little evidence that the burden on the responding PAEs has been reduced to anything that approximates a reasonable level. The information that the FTC will seek from 25 different PAEs is extraordinarily detailed and it will be onerous to produce, if it can even be produced.

The first of two questions contains 17 sub-parts, some of the sub-parts further broken down into sub-parts. The questions seek detailed information about each patent owned by the PAE. In one case a seemingly simple question asks the PAE to for every patent they own identify the patent’s “priority date,” which is a term not defined in the Notice. Asking this question in and of itself presents an objectionable burden in my opinion.

What exactly is the FTC looking for when it asks for the “priority date” for each patent owned? If they are looking for the earliest priority filing date that might be easy enough to provide, but that can’t be what they are looking for because the next question on the list requires the PAE to provide “the application to which the Patent claims earliest priority.” Thus, this subsequent question is asking for the earliest priority filing date. That means that when the FTC asks for the “priority date” for each patent they have to be asking for something different.

Perhaps it will come as a shock to the FTC, but patents don’t really come with an single “priority date.” Until March 16, 2013, the United States was a “first to invent” country, which means that priority could be established by conception coupled with diligence and some eventual reduction to practice, which could be either constructive or actual. Under the first to invent regime establishing priority in a contest with another applicant or patent, or establishing priority in order to overcome a rejection, was not necessarily about a filing date.

Indeed, if a patent examiner issued a rejection and the applicant could demonstrate an earlier date of conception they merely had to file a Rule 1.131 affidavit to swear behind that reference being used to support the rejection and capture that earlier date of conception. It will be objectively an unacceptable burden to come up with this information because at no time during the filing or subsequent prosecution of a patent is it necessary, or required, to assert a date of conception. You only do that if and when it is necessary, and you would never assert a date specific, but would rather prove that conception occurred at least before a certain date. With patents changing owners and the availability of invention records a serious question for all patents in a portfolio, this seemingly simple question is going to present real challenges.

But let’s assume for a moment that such an onerous research project would be within the power of the FTC to require. The reality is that most inventions do not have a single date of conception. Conception for anything other than a simple invention is continuous and ongoing.  One aspect or embodiment of an invention can easily have a different conception date than more advanced or refined embodiments. This trouble is compounded with multiple filings that build upon each other. So a patent can and typically does have numerous priority dates, and providing the kind of information that the FTC seems to want for every patent owned would take an extremely detailed research project and would become cost prohibitive.

Of course, by asserting a priority date to the FTC this would also have ramifications if and when the patent would ever need to be litigated. Thus, answering questions and providing the information requested comes with a significant downside which could taint the underlying assets even if an honest mistake were made.

The FTC will accept public comments on this second Federal Register Notice until 30 days after the Federal Register Notice is published. Comments on the proposed study can be submitted electronically. This second Notice in the Federal Register will be published shortly, and the deadline for submitting comments will only be thirty days from the official publication date of the Notice in the Federal Register. The Office of Management and Budget (OMB) has 60 days to act on the request for clearance after the FTC officially submits its request to the agency, but cannot take action before the 30-day comment period expires. With this in mind, if you want to comment to the FTC and/or to OMB now would be the time to take action.

Written comments to OMB should be addressed to: Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for the Federal Trade Commission, New Executive Office Building, Docket Library, Room 10102, 725 17th Street, NW, Washington, D.C. 20503. Because comments sent via postal mail are subject to delays due to heightened security precautions OMB suggests comments instead be sent by facsimile to (202) 395-5167.


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