FTC Subpoena of Data Brokers May Be Good Model for FTC Study of PAEs

On December 18, the Federal Trade Commission announced that it has issued subpoenas to nine “Data Brokers” to provide the agency with information about how they collect and use data about consumers.  Generally speaking, Data Brokers collect personally sensitive information about consumers from both public and non-public resources, and then sell this data to companies.  The FTC plans to use this information to better understand the business models of these companies, and to analyze their privacy practices with respect to consumer data.

Unlike other agencies, the FTC has the power to use subpoenas to secure information from companies to conduct studies.  As the FTC Office of General Counsel explains, “Section 6(b) [of the FTC Act] empowers the Commission to require the filing of ‘annual or special * * * [sic] reports or answers in writing to specific questions’ for the purpose of obtaining information about ‘the organization, business, conduct, practices, management, and relation to other corporations, partnerships, and individuals.’”  Congress gave the FTC this power 98 years ago because it hoped the FTC would serve as a key investigator to illuminate competitive practices.

The Data Broker subpoena demonstrates one of the most powerful tools available to the FTC, and could provide a roadmap for investigatory efforts concerning the opaque business models of PAEs.  The subpoena requires the nine companies to produce a “Special Report” which must answer a series of probing questions under oath.  The FTC informs the companies that any confidential information received will be treated appropriately, and that any report or analysis that results from the Special Reports will be reported on an aggregate or anonymous basis.  The subpoena requests information about nine categories:  Report Author, Company Profile, Products and Services, Other Collection of Data, Customers, Consumers, Policies, Promotional Materials and Advertisements, and Complaints and Inquiries.  This demonstrates both the scope and the depth of the information the FTC can demand when collecting information as part of a 6(b) Special Report.

One of the reasons the FTC cited in its press release concerning the need to conduct this study is a “lack of transparency” and the current lack of laws to regulate this industry adequately.

Addressing the lack of transparency in the patent marketplace could be a vital project for the FTC, as we have observed on Patent Progress.  Others have also discussed this, such as Colleen Chien, who pointed out, “A lack of transparency in the marketplace serves sellers as well as buyers. The anonymity of the marketplace allows companies to transact with partners with whom they may not want to be publicly associated.  However, the opacity of the market creates information asymmetries and opportunities for arbitrage.”  Much like with Data Brokers, the paucity of information concerning PAEs makes it difficult for anyone to truly gauge their business activities and impact on consumers.  The FTC-DOJ PAE Workshop made it clear that more information is needed.

We support the FTC conducting a similar study on PAEs, complete with a comprehensive questionnaire and a sworn statement by company officials.  This will provide the information needed to determine whether PAEs are the efficient market clearing entities they claim to be, or the abusive extortion artists many of their licensees make them out to be.