Posts Tagged: "patent assertion entities"

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.

Yahoo’s proposed auction of the Excalibur portfolio is likely to be the largest sale of computer-related patents since the Alice Corp. v. CLS Bank Int’l ruling in June of 2014. Alice may reduce the number of overly-broad patents in existence in the long run, but (ironically) in the short term the decision may have skewed patent value calculations in a way that encourages the kinds of behaviors it was supposed to negate. A sale of the Excalibur patents will provide an important test of Alice’s effects in the short term.

Another incursion into research university governance and operations is now underway. And this time all research universities are affected. Led by the DC Based Electronic Frontier Foundation, a leftist anti-patent activist coalition that has initiated a 50-state legislative campaign to shrink research university patent licensing rights at the state level. (See) The measure’s purported objective is to prevent publicly funded university research patents from being licensed to so-called “Patent Assertion Entities” (PAEs, also known by the pejorative term “patent trolls”). The draft legislation is imprecise, making it even more dangerous than first appears.

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 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.

Regulators face a twofold challenge: First, they need to balance the legitimate interests of patent holders and licensees in order to determine which activities and contracts the law will enforce, or otherwise recognize as creating legal rights. Second, they need to establish rules that minimize both the costs of assessing a given case, and the costs of taking wrong decisions. One traditional approach has been to use antitrust law.

“Patent troll,” the term employed by leading newspapers, magazines and online publications to describe how some patents are owned and used, provides a prejudicial impression of patent licensing that unfairly influences attitudes towards disputes. This is among the findings of the research conducted by Illinois Institute of Technology – Chicago-Kent College of Law Professor, Edward Lee.

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.

Pre-litigation review of cases to weed out instances of patent trolling sounds like a great idea, but what more weeding out do the authors want? Since the Supreme Court decided Alice v. CLS Bank nearly 70% of all software patents have been invalidated by district courts as being patent ineligible, which is almost always done at the motion to dismiss stage. Furthermore, the Patent Trial and Appeal Board (PTAB) institutes 80% of the challenges to patents they receive. Indeed, it seems that over the past 5 years with nearly every court decision and piece of legislation more rights are taken away from patent owners, patents are no longer presumed valid and district courts are disposing of an alarmingly high number of patent infringement cases on motions to dismiss. It is enormously ignorant to suggest changes to “U.S. IP policy” that would make it more difficult for patent owners. Only those unfamiliar with industry reality could make such a recklessly suggestion. Of course, familiarity with the industry is unfortunately not a prerequisite for academics hell-bent on reaching the wrong conclusion.

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 Subcommittee is Chaired by Congressman Darrell Issa (R-CA), who has been an outspoken advocate for the need for more patent reform in order to provide relief from those he believes are abusing the patent litigation system — those sometimes called patent trolls. Indeed, from the start of the Thursday’s hearing, the debate regarding patent infringement at the ITC was couched in the language of the patent troll debate. For example, during his opening statement Congressman Issa rather imperiously stated: “for purposes of my opening statement ‘plaintiff’ and ‘troll’ will be interchangeable.” Issa, himself a patent owner, was forced to litigate against companies that pirated technology covered by his patents. As a patent owner forced to sue at numerous infringers, it would seem that Congressman Issa believes that patent owner and inventor Issa was a patent troll.

On Tuesday, March 22, 2016, IAM will host NPE 2016: The Business of Responsible Licensing in New York City. This all day event will feature moderator-led panel discussions on all thins NPE. I will be moderating a panel on opportunities beyond the United States, which will focus primarily on Europe and China. Other panels on the program will discuss the mechanics of running an NPE, licensing negotiations, IP commercialization and moving into new sectors.