By Joshua Sisco and Ryan Lynch
Long-feared in the tech world for their litigious nature, so-called patent trolls could be about to meet their match in the form of a Federal Trade Commission (FTC) study looking at the 'dark side' of the intellectual property business.
Patent assertion entities (PAEs) monetize patents through litigation and licensing deals but often do not develop the underlying technology. PAEs have been criticized by large manufacturers for impeding economic growth by filing sometimes dubious, if not spurious, lawsuits.
Earlier this month, the FTC entered a consumer protection settlement with MPHJ Technology Investments, which was accused ofsending thousands of misleading “demand letters” to small businesses alleging their infringement of scanning technology.
In the forthcoming study, the FTC is planning to examine commercial issues such as corporate structure, licensing agreements and litigation patterns to determine whether legislative and regulatory action needs to be taken against patent trolls. The commission sent out roughly 40 subpoenas 15 September and responses are due by 21 November.
While PAEs have developed a bad reputation in recent years, an executive with one of the companies subpoenaed by the FTC said he hopes the study will help to weed out bad actors from the industry.
“The rhetoric about our industry is pejorative,” said Marvin Key, a senior vice president with
But according to Key, the entire process will be a “difficult endeavor” because the FTC is looking for information on every single agreement about each transaction the company has made dating back to 2009.
While it may be difficult to comply with the current deadline, the company is trying, Key said. In addition, much of the information the FTC is seeking is highly confidential and the company is still weighing an appeal of certain agency requests.
Despite the bad reputation of PAEs, their business models vary widely. Some assert patents on behalf of the owner while splitting the profits, while others buy their own patent portfolios with a view to extracting money from companies that use the technology. As a result of this diversity in business models, there is likely to be little uniformity in the data the FTC collects, and the agency may struggle to draw clear conclusions, Key said.
Another company that has received a subpoena is IPNav, which has welcomed the opportunity to change how the industry is perceived. IPNav CEO Erich Spangenberg also said that the information requests are far too broad. The FTC is looking for “every document that anyone has ever touched,” he said, making it very difficult to fully comply with the November deadline.
“I’ll answer whatever questions they have,” Spangenberg said, but added that the FTC is likely to get a lot of irrelevant “junk” information.
An attorney at a prominent US technology company expressed concern that the agency lacks the expertise to analyze the information. The FTC may need to develop its internal expertise if the study is to be done “in an appropriate way,” the attorney said.
“I’m a little worried that we’re not hearing the full range of interagency voices on these issues,” the attorney added, noting that it would be helpful to get the input of government departments other than the FTC.
But FTC Commissioner Joshua Wright told PaRR that the agency worked with other agencies such as the Patent and Trademark Office in forming the questions for the study. Also, he did not rule out the possibility of similar collaboration analyzing the data once it has been collected.
In the court of public opinion, patent trolls have been condemned as litigious and anti-consumer. But a careful, unbiased study by the FTC could end up casting them in a more favorable light.
Ryan Lynch is a Regulatory Journalist for PaRR based in Washington DC. He can be reached at ryan.lynch@parr-global.com. Joshua Sisco is a legal affairs reporter based in San Francisco. He can be reached at josh.sisco@parr-global.com.
