Is the FTC Study on Patent Trolls Going to Happen?

As we’ve noted, the FTC Chairwoman Edith Ramirez recently proposed doing a 6(b) study on the patent assertion entity business model. The proposed study has the potential to get us information about how patent trolls operate that would be nearly impossible to get without litigation.

MLex is reporting (subscription required) that FTC Commissioner Maureen Ohlhausen indicated last week after a speech at the Chamber of Commerce that she believes that a 6(b) study to examine the patent troll industry would be “appropriate.” It takes three votes to initiate the study, though.

One Commissioner who hasn’t said anything publicly about a 6(b) study on patent trolls is Commissioner Julie Brill.

Well, we may learn her views soon enough. This Wednesday (7/31), there’s a panel discussion sponsored by the American Constitution Society entitled “Patent Assertion Entities: Helping or Hurting Innovation?”

Commissioner Brill is one of the panel speakers, along with Rebecca Kelly Slaughter from Senator Schumer’s office and David Balto, a regular contributor here at Patent Progress.

I have no doubt that the subject of an FTC study will come up. If there’s news to report, we’ll let you know.

Stop the Secondary Market for Patents From Running Wild

In this post, I want to address the notion that the secondary market for patents is too valuable to risk regulating. Patent trolls and their defenders often argue that a “vibrant” secondary market benefits inventors, which implies that any restrictions on patent transfers harms inventors. One recent op-ed in the Seattle Times caught my eye.  This argument has also been made by prominent patent assertion entities like Intellectual Ventures, patent lawyers, and groups representing PAEs.

Describing the secondary market for patents as somehow helping companies and inventors recoup their investments sounds perfectly legitimate. But that’s not what’s going on at all — as I’ve written before, the value of patents on the secondary market is typically determined by how likely it is that the patent can be used to extract money from various victims. An unregulated secondary market for patents inevitably leads to patent trolls, and we all pay that cost.

To illustrate, let me offer up a fictional example:

The town of Wackoville has come up with an idea to raise money. It will sell the right to enforce its regulations! The town will sell certificates that authorize the holder to enforce some specific rule or ordinance. The certificates sell well, and the town is flush with cash. Everyone assumes that there won’t be much abuse – the initial sales are all to Wackoville residents, so the rights are kept in the town.

You moved to Wackoville a few years ago. One day, you get a notice in the mail. The notice is threatening to sue you for violating a regulation about the appearance of your house. Apparently, there’s a rule against walkways from the driveway to the front door that have an angle less than 90 degrees. (The Acute Walkway Ordinance was pushed by a local eccentric group, the Society for the Obtuse.) Your walkway has a sharp turn in it, which might be less than 90 degrees, although you can’t be sure.

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The FTC Chairwoman Calls Out Patent Assertion Entities

Another day and another volley fired against patent assertion entities (PAEs). Today, it’s the FTC joining the fray.

At an event co-sponsored by CCIA, FTC Chairwoman Edith Ramirez announced that she would be asking the Commission to institute a Section 6(b) investigation of the patent troll business model. Senator Leahy also sent Chairwoman Ramirez a letter today, encouraging the FTC use its powers “to prevent unfair and deceptive trade practices in patent infringement allegations.”

This announcement is recognition by the FTC that patent trolls have become a serious problem for the U.S. economy. Typically, the FTC uses Section 6(b) studies to gather information about an industry or about particular industry practices, such as the accuracy of credit reports, whether voluntary guideline to reducing advertising alcoholic beverages to minors work, and the market for generic drugs.

A Section 6(b) study on the patent troll economic model, which CCIA proposed, has the potential to pull back the curtain (if you’ll pardon the cliché) on the entire patent troll industry. For years, patent trolls have hidden behind layers upon layers of shell companies and confidential agreements. Except for a few instances where details came out during litigation (such as Intellectual Ventures’ deal with patent troll Oasis Research), we still know very little about how trolls really operate.

While Chairwoman Ramirez did not give any details of the proposed study, her statements show that she gets the nature of the problem. Here are a few quotes from Chairwoman Ramirez’s keynote:

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Event Today Featuring FTC Chair Edith Ramirez

FTC Chairwoman Edith Ramirez

CCIA and The American Antitrust Institute are hosting a panel, Competition Law & Patent Assertion Entities: What Antitrust Enforcers Can Do. This is a big event at the National Press Club today at noon, with FTC Chair Edith Ramirez scheduled to speak. The NY Times reports that Chairwoman Ramirez may make some major announcements as well:

Ms. Ramirez is expected to discuss her recommendation [to address the patent troll problem] on Thursday at a patent law workshop sponsored by the American Antitrust Institute and the Computer & Communications Industry Association, a trade group. A spokesman for the F.T.C. declined to comment on the topic of her speech.

Hope to see you there! But even if you can’t join us in person, you can watch a livestream of the event. The hashtag for today’s event will be #PAEantitrust.

Troll Economics: The White House Weighs In

Last week, the White House released its agenda of legislative priorities and executive actions on high-tech patent issues.  It was accompanied by a report, Patent Assertion and U.S. Innovation, that builds on recent research and makes the case for the agenda.  The agenda is attributed to the White House Task Force on High-Tech Patent Issues, while the report is a joint product of the Council of Economic Advisers (CEA), the National Economic Council (NEC), and the Office of Science & Technology Policy (OSTP).  Like the various proposals brewing in Congress, it is directed at patent assertion entities (PAEs), more commonly known as trolls.  But with seven legislative measures, five executive actions, and the report, the White House agenda is distinctly ambitious.

It is quite unusual for the White House to assume leadership on patent reform.  To my memory, the only comparable initiative was the President’s Commission on the Patent System of 1965-1966.  At President Johnson’s request, the Commission took a broad look at the patent system in a time of technological change and issued its report as “‘To Promote the Progress of …Useful Arts’ in an Era of Exploding Technology.”  The report made 35 thoughtful recommendations (including recommending against software patents) but got little political traction beyond the administration.  As noted by Commission member James Birkenstock (IBM):

The commission members were greatly pleased that the Johnson administration accepted all of its recommendations. Regrettably, only a few were enacted into law due to the highly influential Patent Law Bar that opposed most of the recommendations.

The Obama administration’s initiative is narrower, more targeted, and well-documented.  The report not only examines the troll problem in depth but links it to fundamental problems of functional claiming in software, uncertainty in the face of massive patenting, and the overshadowing of R&D by strategic patent acquisition and assertion.  The report recognizes that it is not just a problem of restraining and sanctioning a few bad actors.

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