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Competition scrutiny of PAEs "provides a valuable service"

At the recent FTC/DoJ one day conference on patent assertion entities and their potential impact on innovation in the US, one of the opening speakers was Colleen Chien, Assistant Professor of Law, Santa Clara University School of Law. Chen is a high-profile and influential commentator on PAEs, whose views on them are taken seriously in industry and, I believe, also in governemt. Following the conference she has put together a few thoughts on the issues for IAM:

Two other periods in US patent history that were marked by rapid surges in patent enforcement by non-practicing entities concerned agrarian design patents and railroad utility patents in the turn of the 19th century, which I have studied and written about by reading primary materials and relying on the skillful work of historians Gerard Magliocca and Steve Usselman. While we do need to be careful about historical comparisons (the much talked about Sewing Machine patent wars, for example, resolved in an agreement involving 4 members and 9 patents making it hard to compare to the numbers of patents and patentholders covering complex technologies like smartphones), as in present times, these periods brought great distress primarily for certain industries but resistance to changes in the law from other industries where patent law seemed to be working just fine. 

Each of these episodes was "resolved" without significant intervention from competition authorities. In the case of the agrarian design patents, according to historic accounts, the PTO and Congress tweaked the standards of patentability, and 30 years after "creating" functional design patents, got rid of them. In the railroad patent era, the courts and private sector - coordinating their actions through industry associations - really took the lead, building upon the public record developed through Congressional and other hearings. Unfortunately, because these events took place more than 100 years ago, we don't have a good understanding of the ways in which the market for patents was further developed nor do we know whether or not innovation was actually impacted by lawsuits. But, in neither cases did the sky fall, and nor did the patent "crises" last indefinitely - they each eventually resolved, though on different timeframes and trajectories. And in the case of the railroad patent crisis, the competition authorities had some role - they did not outlaw the actions of industry associations that, for their work coordinating defenses among companies, were accused by patent lawyers of engaging in anticompetitive behavior. 

As I said at the FTC/DOJ hearings, in recent years, PAEs have presented a disruptive and innovative business model that has made patent enforcement much cheaper, less risky, and easier to use to tap into the value of patents, giving holders of valuable patents that were once shut out of the licensing market new access. As we write our own patent history, it should be no surprise that many sectors of the innovation ecosystem - from competition authorities, to the courts, to Congress, to the investment community, to companies large and small - are engaged in contemplating and formulating their appropriate responses to this new business model. Exposing the potential efficiencies and harms of the PAE business model, as the FTC/DOJ hearings did, provides a valuable service in moving us towards a steady state in the patent monetization industry that is still some years away. 

This blog has also published other views on the conference:

Reports from inside yesterday's FTC/DoJ conference on patent assertion entities

FTC hearing on patent assertion entities "absolutely terrifying"

 


Joff Wild
IAM Magazine
24 December 2012

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Licensing, IP politics, IP litigation, Patents, IP business

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