In September 2013, the US Federal Trade Commission (FTC) launched a study of what it calls Patent Assertion Entities (PAEs), which the FTC defines as businesses that acquire patents from third parties and seek to generate revenue by asserting them against alleged infringers. The study originated from a December 2012 joint FTC/Department of Justice Patent Assertion Entity Activities Workshop, in which Conversant participated. Conversant also participated in the FTC study. We’ve previously noted the study’s steady progress here and here.
In October 2016, the FTC released its report on the study, Patent Assertion Entity Activity: An FTC Study. Conversant welcomed the FTC study precisely because, as Commissioner Maureen Ohlhausen recently put it, prior discussions of PAEs “have been light on facts and heavy on aspersions”. Conversant believed that only this kind of deeper analysis by an impartial body would put to rest the “patent troll” label applied to professional patent licensing companies.
Indeed, the FTC study recognized the core distinction in PAE business models between what it terms “Litigation PAEs” and “Portfolio PAEs”. According to the FTC’s definitions, Conversant is characterized as a “Portfolio PAE” that it recognizes may perform an efficient function of patent aggregation and portfolio licensing. As specialized patent licensing companies, Portfolio PAEs are part of the complex and evolving intellectual property development, licensing, and implementation ecosystem that is developing new business models and new markets for intellectual property. Litigation PAEs, on the other hand, typically pursue sue-and-settle behavior. Few Litigation PAE licenses are concluded in the absence of litigation and their relatively early and low-dollar settlements led the FTC to conclude that “the behavior of Litigation PAEs is consistent with nuisance litigation”.
While there would seem to be little objection towards efforts to reduce the burdens associated with “nuisance litigation”, in the pursuit of this worthy goal, we must be careful not to do disproportionate harm to legitimate interests. Any change to the patent litigation system that make patents harder and more expensive to enforce risks devaluing the patent assets that underlie those licenses, and that in turn may have a direct impact on the overall patent licensing industry and the innovative activity that it supports.
You can find our complete comments in the special edition of Public Domain, the newsletter of the American Bar Association, Section of Antitrust Law, Intellectual Property Committee.