PublishedJune 20, 2013

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:

“[T]o the extent that privateering and other hybrid PAE strategies rely on lack of transparency to reduce competition, this of course adds to the cost of PAE activities.”

“We know that most PAE lawsuits allege infringement of software patents, which often include broad functional claims.”

“[T]he limited evidence we have today tends to support the Commission’s concern that PAEs may do more to distort than improve incentives to invent.”

“In particular, I would like the Commission to help develop a better understanding of the PAE business model, which would inform many of the cost-benefit questions associated with PAE conduct.”

“Flaws in the patent system are likely fueling much of the real cost associated with PAE activities. PAEs are good at monetizing patents. But effective monetization of low-quality patents imposes a de facto tax on productive economic activity, with little or no offsetting benefits for consumers.”

I’m definitely encouraged. As we’ve written before, a Section 6(b) study is critical to understanding and exposing the way that patent trolls operate. And it’s great that the Chair of the FTC sees the problem.

I don’t expect that Intellectual Ventures and its trollish brethren are all that happy today. (I heard IV had people in the audience.)

Which is just icing on the cake…

Matt Levy

Previously, Matt was patent counsel at the Computer & Communications Industry Association

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