FTC Study on Patent Assertion Entity Activity

Image result for FTCThe FTC has released its long awaited study on Patent Assertion Entity Activity. [FTC Report]   Using its subpoena power, the agency obtained data on more than 2000 patent holding companies, a minority of which have asserted their patent rights in court.

The report offers important insight into PAE business models – primarily identifying two categories: Litigation PAEs and Portfolio PAEs.  The FTC found that Litigation PAE licensies are “typically … less than the lower bounds of early stage litigation costs” and thus seen by the FTC as consistent with “nuisance litigation.”  The report suggests a variety of litigation reforms to help alleviate potential abusive litigation tactics by patent owners.

The 269 page report will be a catalyst for patent reform measures and thus should be considered carefully.

 

71 thoughts on “FTC Study on Patent Assertion Entity Activity

  1. 6

    Dennis makes a good point that: “The 269 page report will be a catalyst for patent reform measures and thus should be considered carefully.” On some previous occasions over the years FTC staff have had influence with Congress on legislation in which they have an interest, and that can carry more weight than normal lobbying. Thus, FTC patent reform legislation suggestions should be treated more seriously than most of those from the usual sources. Also, once the FTC establishes objectives like this it tends to be long term persistent.
    One also gets the clear impression from these FTC statistics and their two class distinctions that the kind of PAE the FTC would be most likely to go after is the kind they already did go after once already. Namely, those PAEs making money from large numbers of small [much less-than-litigation-costs] licenses – too small an amount for individual defendants to justify the costs of litigating. [Which, perhaps not coincidentally, seems to include those PAEs threatening large numbers of small businesses unless they pay up, already of particular concern to some members of Congress.] Filing patent infringement suits is very cheap, defending against them can be very expensive.
    Of course if major corporation product suppliers could or would do more to help their own small customers being threatened or sued by patent owners deliberately suing only customers, some of the latter concerns could be greatly reduced. Better companies at least file IPRs.

      1. 6.1.1

        Anon, it is a rare pleasure to have something on which we can so thoroughly agree, albeit historical. Even some FTC staff subsequently admitted that requiring a compulsory patent license settlement to be so broad that it applied to Japanese companies was not something it would do again.

      2. 6.1.2

        How would you instead obtain for the product supplier a declaratory judgement suit against the patent owner, or intervention in the PAE patent owner’s suit against the customer, when the PAE has assiduously avoided ever threatening the product supplier, and the product supplier is not contractually obligated to defend the customer, given the current case law?
        [Even if that made fiscal business sense in view of the vastly greater cost as compared to an IPR or CBM.]

    1. 6.2

      IIRC, was not the FTC involved (to the detriment of the US economy) in the early days of the photocopier business (driving a huge chunk of that business – along with the profits) to Japan?

  2. 5

    At this point does anyone believe a thing the government says? Let’s fact it. This report was likely funded by Google.

    We need to go to the heart of the rot in this country which is Citizens’ United.

  3. 4

    Although the Paris Convention (Art. 5) does allow nations to have a working requirement as part of their patent law:

    “(2) Each country of the Union shall have the right to take legislative measures providing for thegrant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusiverights conferred by the patent, for example, failure to work.

    “(3) Forfeiture of the patent shall not be provided for except in cases where the grant of compulsory licenses would not have been sufficient to prevent the said abuses. No proceedings for the forfeiture or revocation of a patent may be instituted before the expiration of two years from the grant of the first compulsory license.

    “(4) A compulsory license may not be applied for on the ground of failure to work or insufficient working before the expiration of a period of four years from the date of filing of the patent application or three years from the date of the grant of the patent, whichever period expires last; it shall be refused if the patentee justifies his inaction by legitimate reasons. Such a compulsory license shall be non-exclusive and shall not be transferable, even in the form of the grant of a sub-license, except with that part of the enterprise or goodwill which exploits such license.”

    U.S. patent law does not have such a requirement and the experience of countries that do show that is very rarely used. Now, it would seem that the FTC has joined the bandwagon in asserting that “Patent Assertion Entities”, i.e. patent owners who, without working the invention themeselves, attempt to assert their patents via either licensing or litigation for patent infringement should be treated differently than other patent owners.

    Clearly frivolous enforcement of patents (by anyone) known to be invalid or noninfringed should be stopped, but perhaps if the FTC had actually focused on percentages of such asserted patents that have been determined to be actually invalid or non-infringed, instead of the licensing/litigation practices themselves or the amount of dollars involved, they might have a point that the behavior is abusive. But patent owners, whether they work their invention or not, are entitled to the same treatment under US patent law and are permitted to seek patent licences and enforce the patents they own against infringers on the same basis as every other patent owner. Until U.S. law is changed to require some form of working requirement, that will remain the case.

    1. 4.1

      Does the FTC have any such authority to create something that does not itself exist in US patent law (and thus is not a part of the patent law issue before the FTC?

      Last I checked, creating such law was not a power of the executive branch, to which the agency of the FTC belongs (but I have not read the charter of that particular agency).

      1. 4.1.1

        As far as I know, the FTC doesn’t have such power; any such disperate treatment would be inconsistent with or contrary to law. It would require legislation on the part of Congress. The FTC report has a number of legislative recommendations that the agency is making. Many of these are addressed in pending bills (e.g. HR3309 and S1013), that will presumably be renewed in some form in the next Congress. One would be to raise the threshold for initiating infringement litigation and the specificity of the pleadings, and also address extensive discovery requests, to prevent litigation from becoming a fishing expedition. These apply to everyone equally and, as such, may indeed be a good idea. But the bulk of the report singles out non-practicing patent owners without much substantive evidence that their cases are indeed frivolous nuisances.

    2. 4.2

      A so called “working” requirement is troublesome in some regards. I have a neighbor that has a patent, but obviously no means to really make/use/sell it on any commercial scale. His best option (and what he did) was to find a manufacturer interested in the patent, and sell it for whatever price he could get. That was how he monetized his patent. We should encourage that type of activity.

      1. 4.2.1

        As I have noted previously, the US system (“and any improvement thereof“> is geared to NOT have a working requirement.

        Improvement patents, of which the majority of patents are, are predicated that one can improve someone else’s things – even thing’s still under patent and for which the improver has NO right to “work.”

  4. 3

    75% of the patents asserted by PAE’s were software patents. (Study at 5)

    Who could’ve guessed?

        1. 3.1.1.1

          To be honest, anon, Benson already all but killed software patents just as Bilski all but killed business method patents. There has to be something more than just using generic computers to process data in a claim. Processing data is essentially mathematical/logical.

          An example of something more, to me, is that of an operating system. Operating systems are really part of the machine. They certainly improve the utility of a computer.

          Ditto, claims directed to databases as in Enfish. Databases are only used with computers and they provide increased utility of the computer itself.

          1. 3.1.1.1.2

            Actually, every piece of software you add to a computer improves the utility of a computer. Adding snowplow control software makes the computer more useful because now it can control snowplows!

            So ‘increasing the utility’ of a computer is not quite the right phrase.

            In fact, if you just add ‘Enfish database software’ to a computer, the ‘utility’ of the computer is unchanged. If there is no software which uses the database, then you cannot see any difference when you press the buttons. ( It is actually slightly less useful since the software takes up space).

            1. 3.1.1.1.2.1

              My database has a cell that refers to a another cell in the database that refers to some information about the location of a snowplow that can be remote controlled.

              Can I haz patent now? Because anybody can write the bug-free code now that I’ve spent so much brainpower writing down the idea.

              This is what the Framers wanted! That’s why they made East Texas the capitol of the country.

              1. 3.1.1.1.2.1.1

                Are you trying to patent an Enfish database and a snow plow control program in the same patent? Surely the patent office will complain that you can’t advance the snowplow control arts and the database arts at the same time. You must file 2 patents and pay the horribly increased fee twice 🙂

              2. 3.1.1.1.2.1.2

                I think everyone on the board agrees with MM and anon because they are both correct.

                anon sez – The patent statutes clearly allow for patenting the idea of snowplow control software running on a general purpose computer. It is unarguably a machine producing a useful result. None of the arguments about how it is not a machine producing a useful result are convincing because everyone can look and see: There is a machine producing a useful result.

                MM sez – Allowing the patenting of the idea of snowplow control software means you can patent everything that computers can be used for. There is no practical limit. This would eventually mean the end of the patent system since successfully patenting too much software would lead to congress shutting the whole thing down as the US economy grinds to a halt in a thicket in East Texas.

                MM talks about the practical effects and ‘what the system was intended for’.

                anon talks about what the statute actually says and the ‘word of congress’

                I think anon and MM should switch and each advocate for the opposite position for a while. I suspect they are both trained advocates and should have no trouble arguing the opposite position with zeal and vigor! It will be very interesting….

                1. None of the arguments about how it is not a machine producing a useful result are convincing

                  Nobody is making that argument.

                2. ..and your willful obtuseness regarding anthropomorphication IS you “making that argument” even if you do not realize it.

                3. I suspect they are both trained advocates and should have no trouble arguing the opposite position with zeal and vigor!

                  “anon’s” problem is not that “anon” is failing to make the best argument in defense of software patents.

                  “anon’s” problem is that his best argument is a really, really mediocre argument. That’s why he needs to resort to pounding strawman like “programmed computers are useful!”. Nobody’s saying that programmed computers aren’t useful. That isn’t the issue. It’s a sideshow.

                4. anon sez – The patent statutes clearly allow for patenting the idea of snowplow control software running on a general purpose computer.

                  LOL – that is not what “anon sez”

                  Maybe you want to pay attention or – gasp – understand the law first, son….

                5. …and all Malcolm is doing is pretending that his particular desired end is (not only) the only end, but is the end dictated by “the law.”

                  It’s one thing to have an opinion (those are easy and free). It is quite another to have an informed opinion that actually is substantiated by what the law is and by what facts are.

                  All he has is his table to pound on.

                6. Just as with your stated view that the separation of powers is absolute, the concept that the utility and expressive aspects of a given technology experience can be cleanly separated is a non-starter in the real world.

                  MM, myself, and others are constantly referring to cases and offering quotes, links, etc. You are steady in issuing a stream of judgement without engagement. It’s not ad-hominem to observe this longstanding pattern.

                  Slashdot Reader thought an inversion of roles between you and MM could be fruitful to finding compromise or maybe an interesting angle. I don’t see it.

                  As always, I invite you to challenge my proposal with some kind of coherent argument. Saying I misunderstand this and that, without example, is meaningless.

                  What is it about utility that I don’t understand?

                  Which aspects of patent law and history prevent “process” from being judicially construed to require an identified result in order to meet both eligibility requirements and the 112 requirement that one invention must be described per patent?

                  Which part of the patent law directs a 103 inquiry toward the knowledge of a PHOSITA in a computing field v. the field that a computer may be modeling, simulating, or controlling? Which part of a 103 inquiry integrates the views of multiple involved PHOSITA?

                  I know what mush will come forth to these questions already.

                7. The mush is already riddled through your paper – and I have been clear as to why: you don’t know and don’t care to know or understand the law.

                  I tried getting through your paper once, but after finding twenty critical errors in your abstract alone, figured that it was simply not worth the effort. The best advice for you (from anyone) would be for you to separate your own personal “tragedy” and actually learn about the law and its history (without the filter that warps your perceptions).

                  You have shown so far no ability or desire to do this.

                  You have started with a desired ends and seek to warp all means so that the end you reach is the ends that you have started out with.

                  That – simply put – is not how wisdom is gained.

                8. Just as with your stated view that the separation of powers is absolute

                  You’ve gotten this wrong twice now.

                  Pay attention son.

                  I have told you that it is not absolute – and even shared part of the law as written by Congress and how power over statuory law can be shared between the branches.

                  But your “opposite” view IS wrong.

                  And clearly – and without a doubt – so.

                  Again, your unwillingness to bother understanding the terrain upon which you want to do battle is your undoing. Your “flights of fancy” and alternative realities do not apply when you so haphazardly skip the basics.

                9. The duration and nuance of this argument week in and week out are fascinating; amplified by large real world stakes. That’s why thread after thread just turns itself toward the positions Slashdot Reader summarizes.

                  However, the false equivalence between MM and anon breaks down at the slightest review. MM is a man on a mission to see reform, by whatever reasonable means get it done, while anon is on a mission of self-indulgence.

                  MM just ignores the holes in his side of the argument, while anon can’t make a coherent argument because it’s all holes; we know lawmaking is a fuzzy process between the branches, and the more complex and arcane the law, the more the division of labor.

                  We all know what the words of the law say, but it’s plainly evident that there is a dysfunctional working consensus as to what they mean, both in the proof of the undeniable existence of the racket and the divergent writings of so many judges and commentators. Non for anon: the 1952 act was perfect and can only be unconstitutionally changed.

                  There is a working consensus that an answer is to be found somewhere in concepts of identifying and classifying abstractions, because patents have always stood for things, rather than ideas. Eligibility is where the long-developed judicial exception for abstract ideas was applied, but many people believe 101 eligibility was expanded as a policy choice.

                  Yet the Alice/Mayo test can’t just be a hyper-abbreviated 102/103/112 inquiry because you can’t think about eligibility without some thought of how a purported invention relates to prior art and the knowledge of PHOSITA.

                  MM won’t talk about the fact that so many people intuit that new, useful inventions can happen in software and so should eligible, and at the same time those same people intuit that plenty of expressive novelty and usefulness can occur in software, sans invention or appropriateness for patenting.

                  But there is yet no consensus framework to identify which should be eligible and which should not.

                   I propose one here

                10. However, the false equivalence between MM and anon breaks down at the slightest review. MM is a man on a mission to see reform, by whatever reasonable means

                  …and that is where your own bias intrudes and “breaks down.”

                  YOU deem the means “reasonable” and thus clench tight your eyes to the actual means already proscribed.

                  As noted, this type of “Ends justify the Means” is especially dangerous when dealing with law.

                  I will direct you again Mr. Snyder to refresh your memory concerning Sir Thomas More, as you would mow down the law and then stand before the Devil.

                11. Further,

                  Your own bias has your views flipped.

                  My views are in accord with the law – and you don’t like that so you state that my view is “full of holes.”

                  That is just not so.

                  And further, my view is the opposite of being self-indulgent. YOU and Malcolm are being the self-indulgent ones by dictating almost by fiat that your own personal views – as untethered as they are from the law, from any understanding of the law or its history, or any factual basis of the particular Art that “offends you,” that somehow YOUR philosophy/thoughts/opinions simply must “reign supreme” and must be better than what the law has because “you know better.”

                  Quite frankly, this is a total B$ view that YOU have.

                  I point out (quite correctly) that different sets of IP law exist for different aspects of a singular thing (copyright for expressive aspects and patent law for utilitarian aspects), and all you can do in response is mutter some lame and off-point ad hominem.

            2. 3.1.1.1.2.2

              Re: “Actually, every piece of software you add to a computer improves the utility of a computer.”

              Have you installed Windows 10 yet?

          2. 3.1.1.1.3

            So, you have a phone. That phone needs to connect to a base station for you to send and receive data. Instead of sending your data “in the clear”, the phone manufacturer/cell service provider decides to encrypt your data. They develop a new algorithm for that (let’s say it’s faster to do, harder to break, etc.). If they attempt to patent the algorithm using a “computer” (which your phone is), all they’re doing is taking data in (the data you want to send and do not want others to be able to “read”) and getting data out. That’s just “mathematical/logical”. Yet this is a new and useful idea and very important for the functioning of cellular systems. On the other hand, it really does not improve the actually cell phone. Why is this not patentable?

            Now, draft a claim to the system, including the cell service provider and the phone. Then you can argue that the system is improved, as it’s more secure, faster, etc., which has benefits. If this claim to the system is patentable due to an improvement in the system, why is a claim to the cell phone itself (only doing “math”) not patentable?

            Does that make sense to anyone (who is not MM)? It doesn’t make sense to me or maybe 1/3 of the Examiners I’m dealing with (and the other 2/3 think the cell phone is patentable — shows you how no one understands Alice).

            1. 3.1.1.1.3.1

              I have put to Malcolm (as has Mr. Snyder by the way) the concept of encryption and asked for his legal view on the matter.

              He
              Ran
              Away

              1. 3.1.1.1.3.1.1

                (btw, the “Amish” jab at Malcolm originated in his refusal to acknowledge and integrate the point put on the table of discussion of this very type of innovation)

            2. 3.1.1.1.3.2

              Your wording is a little fuzzy.

              Data in this case refers to information (or knowledge) residing in a computer (or cell phone). Encryption algorithms do not work with the data as information, they do not care what the information in the data is.

              Encryption algorithms work with the bytes in which the data is stored. The algorithms have things like

              read 64 bytes
              swap byte 1 with byte 8
              swap byte 8 with byte 16
              etc

              So rather than claiming math, you could claim the manipulation of bytes in memory, which sounds very technical and non abstract. (Since a byte is a fairly concrete abstraction in computer science, it maps pretty directly to hardware.)

            1. 3.1.2.1.1.1

              Your question to Ned is not clear enough – and Ned is well known to jump on any lack of clarity in your questions to NOT give you a straight answer.

              (Just trying to help you out, Les)

        1. 3.1.2.2

          Les, no one has really defined “software,” let alone a “software patent.”

          I am wary of those who use as examples of “software patents” inventions that relate to improvements in machines or conventional processes, when it is transparently obvious that their real objective is to promote the patenting of business methods and the like.

          1. 3.1.2.2.2

            Where are you on that Animation Patent?

            Is that a business method or the like? Is it a Software Patent?

            1. 3.1.2.2.2.1

              Business Method.

              The process of creating animated mouths in movies has hundreds of steps. In the past all of these steps were done by hand. (see Mickey Mouse).

              One of the steps is making the shape of the mouth match the sound of the voice (e.g. ‘ooooo’ sounds should match to round lips).

              Clearly we can not claim:
              ‘Use a computer to make ‘ooooo’ sounds should match to round lips.’

              So why should we get to claim this innovation:
              ‘Use a computer to match any sound to the appropriate lip shape by using a set of rules’

              The Animation patent used the correct technical lingo to describe lip shapes (‘morph weights’) and sounds (‘phonemes’) , and was technically very complete.

              But the only content was ‘Use a computer to match any sound to the appropriate lip shape by using a set of rules’

              1. 3.1.2.2.2.1.1

                You are mistaken. The characteristics of the rule were recited in the claims in quite some detail. Which is way the latest court to look at them found them eligible, or at least not ineligible.

    1. 3.2

      Don’t forget, each of “innovators” behind those awesome software PAE’s are busy right now laboriously writing code and debugging it! Thousands and thousands of pages of code, all of it totally original.

      But they never copy anybody else. That’s only what the lazy anti-software patent coders, do.

      So it is in the bizarre fantasy world of the logic patent luvver.

  5. 2

    PAE licensies are typically less than the lower bounds of early stage litigation costs and thus seen by the FTC as consistent with ‘nuisance litigation.’”

    Well, that’s the most profitable point isn’t it? [internal quotations and ellipsis omitted]

    Hm, I am not sure of that. Imagine I have a patent of whose validity I am robustly confident. I might well demand more in license fees that are low multiples of early stage litigation costs. This would, as you suggest, tempt a few people to go to court instead of paying my demanded royalties, but I would feel confident that I would make an example of the first one or two that tried that approach. After those first few, everyone else would fall in line and pay rather than throw good money after bad by spending on both litigation costs and royalties.

    In other words, one should not dismiss the evidence of royalty rates as uninformative. I agree that the royalty rates are not dispositive, but they are suggestive of an abuse of the system.

  6. 1

    ” The FTC found that Litigation PAE licensies are “typically … less than the lower bounds of early stage litigation costs” and thus seen by the FTC as consistent with “nuisance litigation.””

    Well, that’s the most profitable point isn’t it? If the license fees were above litigation costs, far more licensees would litigate and any collected license fees would go toward litigation. This is as true for “High Quality” patents as it is for “low quality” patents.

    Since “High Quality” seems to mean narrow, if license fees were high, infringers would spend money to work around the claims thereby avoiding the need for a license.

    1. 1.1

      PAE licensies are typically less than the lower bounds of early stage litigation costs and thus seen by the FTC as consistent with ‘nuisance litigation.’” [internal quotations and ellipsis omitted]

      Well, that’s the most profitable point isn’t it?

      Hm, I am not sure of that. Imagine I have a patent of whose validity I am robustly confident. I might well demand license fees that amount to low multiples of early stage litigation costs. This would, as you suggest, tempt a few people to go to court instead of paying my demanded royalties, but I would feel confident that I would make an example of the first one or two that tried that approach. After those first few, everyone else would fall in line and pay rather than throw good money after bad by spending on both litigation costs and royalties.

      In other words, one should not dismiss the evidence of royalty rates as uninformative. I agree that the royalty rates are not dispositive, but they are suggestive of an abuse of the system.

        1. 1.1.1.1

          The “cost of fighting with people” has a higher societal cost outside of the court system.

          Do you have an alternative in mind, 6?

        2. 1.1.1.2

          the costs of fighting with people add up fast.

          Sure, and that is why drug lords and mafiosi do not try to kill all their enemies and competitors. It would not be profitable to run the enterprise if it were necessary to wage “war” on that scale. Rather, they kill a small percentage of their enemies in particularly public and humiliating ways, confident in the knowledge that once the message from these few incidents gets out, they will not need to engage in much if any future violence.

          Similarly, it is not a crazy business model for the owner of a truly valuable patent to say “I will litigate this thing all the way to the furthest extent necessary once or twice, and once my potential infringers see that people lose when they take me on, the rest of the would-be infringers will know that they are better off taking my license offer.”

          In other words, if someone is demanding royalties that are more costly than litigation, it is evidence that this person is confident in the strength of his/her legal position.

          The reverse is not necessarily true. That is to say, the fact that a person is offering a royalty rate that is less than the cost of even early stages of litigation does not prove that s/he is not confident of the strength of the patent, but it is at least consistent with the not-confident hypothesis.

          1. 1.1.1.2.1

            Thanks Greg,

            What’s interesting about such “behavior” anecdotes is that the examples can also include the evolution of the NPE model, in which the typical war-chest Big Corp “mafioso” style “negotiation” (cross license war for the big boys, and crush the little guys) was negated when the “little guys” came out with a different model: an entity that could not be held hostage to a war chest.

            Of course, that is when Big Corp launched its propaganda campaign, coined the term “Patent Tr011” and bought into the scorched earth policies that have been running rampant the last few years.

            1. 1.1.1.2.1.1

              Probably a good time to take the toys away.

              Oh but wait! The firm chair’s wife needs the upholstery repaired in the vacation home. Ah, heck, let’s just let the farce continue for a little longer.

          2. 1.1.1.2.2

            Greg assumes that the patentee has the $$ to fund a couple of big litigations all the way to the end (conceivably to Scotus, land of the patent eaters). Let’s say that is, what, $6 million. As a garage inventor you must have a pretty nice garage to swing that kind of second mortgage.

            1. 1.1.1.2.2.1

              Maybe we should just return to the “good old days” when patents were only for the “sport of kings” and let’s get rid of all these peons (by getting rid of the single most accessible form of innovation: software). “Bah, there’s just too many patents anyway.”

              (Yes, the “S” sign is being held up high here)

      1. 1.1.2

        I think that “abuse” is the key word that Les was aiming for – it is rather like presumed guilty until proven innocent for a mere choice (and you make a good case for one of the choices; albeit, the business mode remains a choice).

        I also think that you “prove his point” by jumping to that very “but it is an indication of abuse, so there must be abuse inherent in the choice itself” line of thought.

        Then again, Les could have meant something completely different.

        1. 1.1.2.1

          it is rather like presumed guilty until proven innocent

          But totally not like the presumption that if you think software patents are a bad idea then you’re a lazy copyist.

          1. 1.1.2.1.1

            As already explained Malcolm, there is a huge difference between having an opinion or feeling that software patents are a bad idea and pretending for legal and factual items to be different than what they are in order to obtain a desired end.

            Have all the opinions and feelings you want.

            Just be inte11ectually honest on the points of discussion.

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