FTC Proposes 6(b) Study on PAEs

"We don’t have enough data to know whether this is a competition problem or a patent problem” or a problem at all, said Ohlhausen at an event sponsored by the Innovation Alliance, which advocates for strong intellectual property rights. The study will bring more information to the debate, and if there’s a problem, “having more data will help make it more clear,” she said. She declined to say whether the FTC would address the issue of demand letters, as figures on both sides of the debate have urged it to do (CD Sept 25 p8). The study’s goal to better understand how companies assert patents could help it decide whether to address the issue, she told us.

The FTC said its 6(b) authority gives it the “unique Congressional authority” to collect nonpublic information, such as licensing agreements, patent acquisition information and cost and revenue data, to “provide a more complete picture of PAE activity.” Advocates for and critics of patent assertion have told us data in the field are insufficient. Advocates have sought a broader understanding of the issue’s scope, while critics have urged a more detailed understanding of the financial interests PAEs sometimes maintain after selling a patent (CD Sept 24 p7). The study aims to address that deficiency of data, the FTC said. It said the study “would add significantly to the existing literature and evidence on PAE behavior.”

Computer & Communications Industry Association President Ed Black praised the FTC for voting to begin the study, calling it “an encouraging sign that the Administration is committed to investigating the practices of patent trolls.” Although previous studies have estimated that PAEs cost the economy $29 billion, a “deeper” investigation is needed, he said in a statement. PAEs “thus far have taken steps to hide their tracks through a maze of hundreds of shell companies, and the FTC’s investigatory powers can finally shine a light on these secretive practices and the cost to consumers, innovators and our economy,” Black said. CCIA was one of the organizations that pushed strongly for the FTC to begin a 6(b) study, so it will certainly participate in the public comment period, said Matt Levy, the group’s patent counsel. “We're looking forward to seeing the study move forward,” he told us.

The Electronic Frontier Foundation “applauds the FTC for looking into the patent troll issue, but ultimately the solution will have to be legislative,” said Adi Kamdar, an EFF staff activist working on patent reform issues. “The problems caused by patent trolls have been very clear and well-documented for a while now,” he told us. “There’s already legislative momentum on the Hill to solve the problem, especially with the release” of the most recent discussion draft of legislation from House Judiciary Committee Chairman Bob Goodlatte, R-Va.

Advocates for stronger IP rights said the lack of empirical data on the subject of patent assertion is troubling. Adam Mossoff, senior scholar at the George Mason University Center for the Protection of Intellectual Property, told the Innovation Alliance event he is concerned that “untrustworthy” studies were being deployed to promote actual policy change, and pointed to methodological issues and unverifiable data in the existing data. Perry Apelbaum, chief counsel to Democrats on the House Judiciary Committee, said anecdotal evidence can also be useful. He said studies exist on nearly any issue that can be spun or interpreted differently by different sides, and most congressional staffers take those facts with a “grain of salt.”

Speakers said current legislative proposals could have a detrimental impact on investment in innovation, and courts are fully capable of addressing issues with patent litigation. “The judiciary knows when there’s misbehavior in a patent case, just as they know when there’s misbehavior in a contract enforcement case,” said Carla Hills, a former U.S. trade representative, whose consulting firm Hills & Co. advises companies on global trade and investment issues. “Yes, there are misbehaviors that the judge needs to rap down. But let’s not kill the golden goose that laid our golden egg.” She was referring to what she called the “strong” U.S. patent system. Several speakers criticized legislative proposals that would expand the covered business method review program initiated by the America Invents Act, which passed Congress in 2011. Several also criticized a “customer stay” provision that would let manufacturers stay suits against downstream customers. “If the reforms overshoot the mark, patents will be weakened and will be less enforceable,” said Paul Michel, a former chief judge at the U.S. Court of Appeals for the Federal Circuit.

"We fundamentally believe you do not achieve litigation reform by devaluing property rights,” said Laurie Self, Qualcomm vice president-government affairs. “It’s bad for the economy, it’s antithetical to our constitution, and what our founders envisioned, and it fundamentally will do great damage to our ability to remain competitive and continue to be the world leader in innovation.” Self said she thought the current round of litigation proposals was an effort by stakeholders to take a “second bite at the apple” following the negotiations over the America Invents Act. Proposals for a litigation revamp were “no doubt well intended,” and purported to address a particular problem in the industry, she said. But she said they were drafted so broadly that they could undermine the enforceability of patent rights generally, which is “obviously very dangerous.”

It’s too soon after the passage of the America Invents Act to fully comprehend how best to address patent reform, said Self and Mossoff. Robert Budens, president of the Patent Office Professional Association and a Patent and Trademark Office patent examiner, said the vast majority of examiners have not yet seen an AIA-applicable patent case. “I don’t think we can even tell you about impacts, because we haven’t even started implementation,” he said. He also advocated fully funding the PTO, an idea for which nearly every other speaker voiced support. No sooner did fees for patent applications increase than the sequester hit the PTO, he said, which “pretty much nullified the benefits of the fee increase."

Ohlhausen and Hills addressed the importance of sending a clear message about IP rights to countries with which the U.S. is negotiating treaties. Other countries are taking notes on what the U.S. does both domestically and internationally on IP, Ohlhausen said. “It’s really incumbent on us to be careful and to be aware of the impacts [our actions] can have on trade and innovation.” She said that in a globalized world, the risks of action are just as amplified as the benefits. “Our trade negotiators are working very hard to get emerging economies to adopt a world standard that is the gold standard, and the gold standard is the U.S. system,” Hills said. “If we begin to create uncertainty, especially where data is insufficient, we're making a huge mistake.” -- Erin Mershon (emershon@warren-news.com), Jimm Phillips