Posts Tagged: "FTC"

The Federal Trade Commission’s (FTC) recently released report on patent assertion entities (PAEs) includes a number of key findings made by the agency on the business model of such companies. The FTC identified two different business models employed by PAEs which differ in terms of litigation and licensing activity. Most of the FTC’s recommendations are legislative in scope but the report does include some advice for the country’s judicial system. For example, the report also includes a number of recommendations to deter what the FTC calls “nuisance litigation.”

Basing policy recommendations on no evidence, or at best anecdotal evidence, has great potential to do more harm than good…especially when some of the missing evidence is the other side of the equation – the benefits afforded by patent licensing activity… Instead of seizing the opportunity to survey the patent licensing landscape and shed light on behavior that otherwise is invisible to the public, the FTC squandered the chance and instead developed two arbitrary categories of PAEs, determined that one of these categories was not good, and developed a set of policy recommendations because of “nuisance” litigation. By making recommendations without gathering or using the very facts that were supposed to be the public benefit of this PAE study, the FTC’s report is undoubtedly going to do more harm than good.

Why should the costs of the tortfeasing infringer be relevant in determining whether the extracted value from a settlement is fair? The fact that law firms charge a lot of money to defend patent infringement cases, and don’t particularly have any incentive to settle cases early, somehow translates into certain settlements being for nuisance value without any consideration of whether the settlement is a fair value for the rights trampled upon by the infringer? The FTC has quite a lot of explaining to do, because it seems they picked an arbitrary number that is a function of what attorneys ordinarily charge infringing defendants through discovery. I don’t see how that is a function of the value of the innovation, or how it says anything about the merits of the infringement case, the damages case, or the tactics of the patent owner. In fact, it seems as if the $300,000 figure is completely irrelevant.

Simply stated, Fortune is wrong. The FTC report did not have harsh words for patent trolls. In fact, the FTC had harsh words for those who use the term “patent troll” to vilify patent owners! At the risk of upsetting the predetermined narrative obviously favored by Fortune, allow us to interject some facts into this discussion… Perhaps Fortune confined their coverage of the FTC report to the press release accompanying the report, which conspicuously leaves out any mention of patent trolls, or that they view the term “patent troll” as being unhelpful and prejudicial. Seriously, if you are going to cover a report shouldn’t you at least read all of Chapter One?

Despite what many thought were the intentions of the FTC going into this project, the FTC did acknowledge the important role patent enforcement plays within the patent system, specifically and directly acknowledging in the press release issued today that “infringement litigation plays an important role in protecting patent rights.” It is also particularly noteworthy that the FTC recognized that the term patent troll is unhelpful because it inappropriately prejudices the patent owner from the start, without any consideration of business model or the legitimate and rightful attempts to enforce property rights. All-in-all, probably a much better report than most in the patent owner community had anticipated.

The FTC filed a complaint against Warner Bros. for violating provisions of the Federal Trade Commission Act by making payments to prominent members of YouTube for positive reviews of its video game without publicly disclosing those payments. The FTC focused on the activities of an advertising agency known as Plaid Social Labs which was contracted by Warner Bros. in 2014 to coordinate a YouTube influencer campaign which marketed Shadow of Mordor. The FTC complaint listed two counts against Warner Bros., specifically one count for false claims of independent reviews and another count for deceptive failure to disclose material connection between endorsers and sellers.

The validity of secondary markets for a variety of goods and services is never questioned. Securities are sold and resold many times after their initial offering, homes and buildings and built and resold many times, as are automobiles. A quick review of the products listed an eBay leaves little doubt that a robust secondary market exists for many goods and services across the American economy. However, not everyone is in agreement that a secondary patent market is beneficial. For some reason, many people villainize companies that practice patent licensing. Even resorting to the use of pejorative terms such as “patent troll” to describe these businesses. These detractors fail to account for the fact that inventors may not be the most efficient licensors. In addition, they don’t take into account that, just as a builder generates revenue to build more buildings by selling their current ones, companies that sell or license patents help fund further R&D with the proceeds.

The information the FTC has been collecting regarding patent assertion entities is extensive. Along with standard corporate information, the FTC is making a survey of each patent in PAE portfolios going back to 2008 to investigate the date of patent acquisition, the patent’s maintenance fee status as well as the assertion history for all patents upon which the PAE has attempted to enforce its rights. Firms are also being asked to describe their business model, the methods used to organize their patent portfolios and the aggregate costs of patent acquisition and assertion. The FTC has sent information requests to 25 PAEs in order to build its evidence.

The IP Licensing Guidelines, which state the agencies’ antitrust enforcement policy with respect to the licensing of intellectual property protected by patent, copyright, and trade secret law and of know-how, were issued in 1995 and are now being updated. In the agencies’ view, the IP Licensing Guidelines remain soundly grounded, as a matter of antitrust law and economics. Nevertheless, the agencies have determined that some revisions are in order because the IP Licensing Guidelines should accurately reflect intervening changes in statutory and case law.

The reason why net neutrality came up in the American political discourse in late 2014 has much to do with paid prioritization. Paid prioritization is an agreement in which a broadband service provider negotiates an arrangement with a content provider that results in the content provider being given priority access at congested Internet nodes. The Obama administration came out strongly on the topic of paid prioritization, calling for it to be explicitly banned by the FCC. The White House also called for rules preventing ISPs from blocking content or intentionally throttling any kind of data transmission. By the end of September 2014, the FCC had received 3.7 million public comments on the subject of net neutrality.

The patent trolling by MPHJ and owner, Texas lawyer Jay Mac Rust, are well known. But now the SEC is going after Jay Mac Rust in federal court for fraud. The SEC’s complaint maintains that Atlantic had “no ability or intention to obtain these loans.” Rather, of the money the two collected, the SEC alleges that Rust took $662,000 from client funds for personal pay and risky securities investments; Brenner himself took $595,000, and both made investments claiming that the money was personally theirs and not from the client funds. Investigations at a brokerage firm where these trades were taking place led the SEC to discover the fraudulent activities.

The set of questions asked will also naturally curb the conclusions that can be drawn from the study. This is true of any survey, but it is worth noting the particular constraints of the 6(b) PAE study. First, the questionnaires have been sent to licensors only; no licensees were surveyed. This is a significant limitation, as a study of patent litigation necessarily restricts the analysis to failed negotiations between two parties, potential licensors and potential licensees. The 6(b) study conducts a survey only of parties on one side of patent negotiations and therefore cannot generate a full dataset for understanding the conduct of the parties in patent license negotiation or the reasons for the failure of negotiations. Second, as the study is designed to elicit information from distinct types of patent-holders – PAEs and a limited set of practicing and non-practicing wireless chipset companies – it will by design not elicit information relevant to the full range of patent owners.

It’s very unlikely that obtaining data from just 25 PAEs will provide a representative sampling of PAEs given that the universe of PAEs is largely unknown and probably very diverse… The problem is that in my experience both lawmakers and regulators routinely ignore important statistical limitations of federal studies. I say this with the experience of having worked for over 20 years as a federal government statistician. All too often policymakers use federal studies in ways beyond their intended purposes, with the result that legislation or regulation may be based on a flimsy and potentially inaccurate understanding of the underlying problem or the costs or benefits of proposed government action.

First, the definition of PAE used by the FTC characterizes all PAEs as the same. But in treating patent licensing firms as a homogenous category, the FTC fails to recognize there is a wide spectrum of business models that exist under the licensing umbrella. Second, and related to the first, there are serious methodological questions that undermine any conclusions that could be drawn from the FTC’s data.

The FTC’s complaint alleges that Endo paid the first generic companies that filed for FDA approval – Impax Laboratories, Inc. and Watson Laboratories, Inc. – to eliminate the risk of competition for Opana ER and Lidoderm, in violation of the Federal Trade Commission Act. The FTC is asking the district court to declare that the defendants’ conduct violates the antitrust laws, and further seeking an order that the companies disgorge their ill-gotten gains. Of course, the FTC asks for a permanent bar to prevent the companies from engaging in similar anticompetitive behavior in the future.