Some Quick Reactions to the PAE Workshop

Market participants, regulators, lawyers, and patent professionals gathered at the FTC yesterday for a very informative Workshop on Patent Assertion Entities (PAEs).  We will be posting more this week about specific takeaways and action items for enacting true reform in this space, but I wanted to share some themes and reactions from the event:

  • More Information is Needed about PAEs – One distinctive theme running through all of the panels yesterday was that opacity in ownership and limited data samples frustrate either a quantitative or a qualitative analysis of the PAE phenomenon.  Colleen Chien’s presentation emphasized the need for more research and data.  Former Deputy Assistant Attorney General for Economics Carl Shapiro explained that he finds the current data difficult to interpret, and invoked Woodward and Bernstein by saying that we need to follow the money.  Perhaps most notably, FTC Chairman Jon Leibowitz proclaimed: “Now I am just a government lawyer, but let me ask you this: why is there no disclosure of real-party-in-interest information for all patents and patent applications?”  This is a real concern and a constructive discussion of PAEs needs to be informed by the facts.  Antitrust authorities need to know who is behind transfers to PAEs (for example, are competitors working in conjunction to raise rivals costs?), the structure of the contracts, and the incentives motivating PAE activity if regulators hope to determine if and how antitrust laws can be applied.
  • Systemic Problems with Patents Exacerbate the Issue – Another theme from the workshop was the “inevitability” of the PAE situation arising.  Carl Shapiro put this well, explaining that the combination of thickets, clever actors, and an “ironic legacy of defensive patents” populated the market with monetization tools looking for a home.  Additionally, the persistent problem of hold-up through injunction threats, a pattern of excessive damages, and a rise in “nuisance suits” further equips PAEs.
  • There is Still a Tacit Assumption that PAEs are Only a High-Tech Problem – Despite Cisco’s participation and discussion about how it is taking steps to protect its customers from PAEs, the majority of the discussions focused purely on relationships between high-tech firms and PAEs.  This limited dialogue threatens to understate the severity of the impact caused by PAEs on the economy as whole.  Most of the discussion seemed premised on PAE assertion against the “first user” of the technology.  But PAEs also sue the end users of the products being produced.  These suits against end users are particularly pernicious since these are businesses who are not well positioned to defend patent litigation.
  • Antitrust Modeling Continues to Ignore Impact on Small Competitors – The Workshop concluded with a panel comprising some of the most celebrated antitrust attorneys in the country discussing aloud three “scenarios” discussing acquisitions and enforcement by PAEs.  Two things stood out.  First, as one commentator in the audience proclaimed, there was a significant lack of harmony between the panelists.  Some of this was due to the vague nature of the question, but some of this also can be attributed to the uncertainty regarding antitrust enforcement in this field.  That notwithstanding, it is also noteworthy that the panel did not discuss the impact of any of the scenarios on potential market entrants – they focused entirely on how PAE transactions might harm other competitors.  The phenomenon of PAEs as a barrier to entry (and innovation) is an important and under-represented area of the competitive analysis that needs to garner more attention.

David Balto

David Balto

David Balto is a public interest antitrust lawyer in Washington, DC.  He has over 15 years of government antitrust experience as a trial attorney in the Antitrust Division of the Department of Justice and in several senior level positions at the Federal Trade Commission. David was the Policy Director of the Bureau of Competition of the Federal Trade Commission (1998-2001) and attorney advisor to Chairman Robert Pitofsky (1995-1997). He was a senior advisor in all aspects of the FTC’s merger and non- merger enforcement program and helped litigate the challenges to the Staples/Office Depot, Drug Wholesalers, and Heinz/Beechnut mergers, the Intel monopolization case, and the challenges to anticompetitive conduct by several pharmaceutical companies.