What Does the FTC Study of Patent Trolls Mean?


On Friday afternoon, the Federal Trade Commission announced its intention to launch a study of Patent Assertion Entities, commonly referred to as “patent trolls.” While a host of interesting research on the patent system has surfaced over the summer, the FTC’s involvement could lead to the evaluation of brand new information that will aid legislative efforts.

While patent reform was passed in 2011 with the America Invents Act, many in the innovation community have called the changes incomplete -- not going far enough to protect against overbroad patents and predatory patent litigation. Concern has swelled in 2013 as litigation has targeted a wide range of business activities including retail, podcasting, and banking. Voices from these businesses and communities have grabbed Washington’s attention and, in a year where legislators haven’t tackled much, multiple proposals for reform have circulated from members of both parties.

At the same time, academics and researchers have been taking a deeper look at the dynamics of patent litigation to try and better understand how the landscape has changed. Colleen Chien, professor of law at Santa Clara University and recent appointee to the Office of Science and Technology Policy at the White House, released a study last month finding that 75 percent of venture capitalists and 20 percent of venture-backed startups with patent experience had faced demands from Non-practicing Entities (also called “NPEs”, another euphemism for patent trolls). The Government Accountability Office also released a report on the patent system in August highlighting the increase of patent lawsuits by a third from 2010 to 2011. Both Chien and the GAO emphasize the role of over-broad software patents as a key contributor to the influx of litigation and discontent over the patent system. On Tuesday, we also told you about a Progressive Policy Institute policy brief that highlights the inherent broadness of patents contributing to the “perfect storm” for increasing patent litigation.

With Congress tackling the problem, and researchers digging into the nature of patent litigation, what value does an FTC study add?

Chairwoman Edith Ramirez laid out the rationale for launching a study in January, emphasizing the important role the agency could play in understanding the costs and benefits of PAE activity. The nature of the patent troll business model makes it nearly impossible to get a comprehensive picture of their activities and economic impact. As Commissioner Joshua D. Wright highlighted in an April speech, the consensus is that more empirical evidence is needed to understand the impact of PAE activity. So, using its authority, the FTC is asking tough questions about the costs of, and earnings from, patent assertion activities; corporate legal structure; and prior patent owner compensation. This new information could serve as the basis for a deeper investigation into PAE business activities that harm competition and consumers.

This study may yield interesting findings, but the commission’s powers are narrowly tailored and may not provide the ideal tool to ease the legal pressures facing innovative businesses and individuals confronted by patent suits. At a workshop co-hosted by the FTC and Justice Department in December 2012, many experts expressed skepticism about the ability of antitrust authorities to effectively address the patent troll business model under existing antitrust law.

Still, the findings of the commission’s study will ultimately influence the actions regulators take. As the White House’s June report on patent assertion and innovation demonstrated, strong research and an information-led approach fuels and informs decision-making over future legislation and regulation.