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Now that the US government is able to reopen, the Federal Trade Commission – which has been closed for the duration of the shutdown – will presumably be in a position to begin work on its proposed investigation into “Patent Assertion Entities and Their Impact on Innovation, Competition”. The FTC has stated that the aim of the investigation – which will focus on 25 PAEs – is “to examine how PAEs do business and develop a better understanding of how they impact innovation and competition”.
In theory, such a study is a good idea. As the FTC acknowledges the data on PAE/NPE/troll activity is pretty thin on the ground. Much of what we do have is not exactly convincing – being either deeply flawed, or perhaps not telling us exactly what its authors think it does. However, what worries me is just how robust the FTC is going to be and just how disinterested an approach it will take. When I look at the following paragraph in the notice announcing the investigation, I see assumptions and misconceptions that should concern anyone who is looking for a neutral approach:
PAEs are firms with a business model based primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technologies. The FTC is conducting the study in order to further one of the agency’s key missions—to examine cutting-edge competition and consumer protection topics that may have a significant effect on the U.S. economy.
As far as I can make out, under the definition of PAE that the FTC provides, a firm such as RoundRock – which purchased its patent portfolio from Micron for a still undisclosed sum – would be considered a PAE; a firm such as Rockstar – which had its patents assigned to it by the winning consortium in the Nortel auction – would not be. Surely that cannot be right.
Then there is the idea that the PAE business model is actively to go looking for opportunities to launch lawsuits against persons who are already “practicing the patented technologies”. For some, no doubt, it is; but, in fact, many PAEs would argue that their business model is actually focused on developing a marketplace in which operating companies can license patents without having to go through the time and expense of R&D. They would argue that should such a market ever develop operating companies would end up saving themselves a lot of time and money. They would also argue that it is not developing because many operating companies refuse to engage with them in that way and would instead prefer to pay nothing for patents they know that they are infringing.
Another way of looking at the PAE business model is that they work with inventors that lack the funds and/or the expertise to generate the licensing revenues that their endeavours deserve. Without PAEs such inventors would not recoup anything for the time, effort and money they have expended on creating the patents that they have either sold or licensed to the PAEs. Likewise, by buying up the IP of bankrupt businesses, PAEs are allowing their investors to get some return when otherwise they would get none.
What’s more, aren’t people who are “practicing the patented technology” without authorisation actually infringing it?
Now people may quibble with a few of the things I have said in the previous paragraphs and that is fair enough, they are my views, based on my reading of the marketplace. But I am not a federal agency setting out to discover the “truth” in order to affect decision-making that could lead to profound changes to the US patent system. It seems to me that what the FTC has written is thoroughly loaded and indicative of a certain predisposition of thought – PAEs are “bad”. Those from the commission who do the investigating are going to have to work hard to reassure folk that this is not the case.
More broadly, for the study to be really informative I would argue that it needs to go beyond the activities of 25 PAEs, and 15 other players in the wireless industry, to look in detail at the wider IP market: the aggregators, the many kinds of intermediary, the operating companies, the variety of investors now getting involved both as shareholders and financiers, and the relationships they all have with each other. As things stand, the focus is very much on PAEs; but, for example, what about the operating companies that work with PAEs, or invest in them, or set them up? What are their motives, what do they get out of it? And what about the operating companies which buy up IP and assert it without ever intending to practise on it; is that OK? And is it really OK to assert patents you do not practise on if you have created them? If that is so, why does it all of a sudden become potentially very wrong as soon as you outsource the licensing to a third-party?
Back in 2008, Ray Millien and Ron Laurie provided a great overview for IAM of how the IP market was developing. That was five years ago and it was pretty complex then. Believe me; it has not got any simpler since. The bottom line remains the same though: PAEs/NPEs/trolls do not exist in a vacuum, they are part of a much larger eco-system, encompassing all kinds of entity, doing all kinds of thing. The strategies PAEs/NPEs/trolls follow, the business models they employ reflect this eco-system and what drives it. In the IP market, everyone is interconnected; decisions taken about one category of organisation are going to have a big impact on everyone else. That could be bad, it could be good. We don’t know. Sadly, as the FTC investigation is currently envisaged, we will be none the wiser once it is finished. What a wasted opportunity.
Licensing, IP politics, Patents, IP business
It's very bad news except for those who continue to seek to skew the IP advantage in their direction to the detriment of legitimate NPEs. When a practicing entities patent becomes more "worthy" than that of an NPE we could see a significant negative impact on innovation.
The FTC should, if at all, be looking at the WHOLE patent eco-system if they are truly interested in understanding how abuse of the patent system is costing the US it's future.
Virtually ALL IP pundits have been blinded by this Troll debate. Boo! It's the Gorilla's they are behind you!
I saw an interesting statistic they other day on BBC Panorama. 60% of ALL European patents are owned by 50 companies! Think about that.Nicholas White, Tangible IP on 17 Oct 2013 @ 17:02