Patent Assertion Entities Under FTC, Justice Department Microscope

The FTC already has “a number of tools in our arsenal” to address PAE activities, Leibowitz said. The commission can bring enforcement actions based on violations of antitrust laws; if a PAE engages in misrepresentation, the FTC can use its authority to stop unfair practices, he said. The FTC also has policy and advocacy tools it can use to address PAE activity, Leibowitz said. The commission can continue to recommend improvements to the patent notice process, he said. “We also have rulemaking authority on the antitrust side to require more disclosures of patent ownership, although we have not exercised this authority in a number of years."

PAE activities are beginning to get attention from Congress, Leibowitz said. The America Invents Act (AIA) directed the GAO to study the tax benefits and consequences of PAE litigation and recommend ways to minimize their negative impacts, he said. The GAO has one year from the AIA’s implementation on Sept. 16 to issue the report, the USPTO said. “Like many of you, we are eagerly awaiting the results,” Leibowitz said.

Contributors to the GAO report have found that PAE lawsuits are rising -- patent monetizers filed 22 percent of all patent infringement cases in the U.S. five years ago, and now account for 40 percent of cases, Leibowitz said. Suits brought by PAEs are also generally settled out of court, which he said “makes you wonder whether we are witnessing a developing sort of combination of plaintiff attorneys and a new assertion of patent rights that may drive us off a patent cliff.” Leibowitz said another recent study found that PAEs lose in 92 percent of lawsuits that proceed to merit judgment.

Intellectual property rights need to work within the current framework of competition “to ensure that we are not creating and supporting an environment that unnecessarily undermines economic activity,” said Stuart Graham, the USPTO’s chief economist. The office, courts, Congress and other agencies should work together to ensure innovators are “rewarded fairly, but not so to unnecessarily undermine economic activity,” he said. The USPTO has worked to reduce uncertainty in the innovation market by implementing reforms over the last four years, and will continue to do so under the provisions of AIA, Graham said. The agency has reduced its patent approval backlog from 750,000 at the start of the Obama administration to just over 600,000, he said. Along with faster processing, the USPTO has also focused on strengthening its patent examination process, Graham said. The AIA gives the agency additional tools to improve that process, including three new patent challenge procedures that can be used after a patent has been granted, he said. These procedures may give companies an option that’s less expensive and time-consuming than taking a patent infringement claim to court, Graham said. The USPTO is also interested in working to identify the owners and interest in patents over a patent’s lifetime, he said. The agency plans a public roundtable on the issue Jan. 11 at its Alexandria, Va., headquarters, Graham said.

Hewlett-Packard is a defendant in 50 patent cases in the U.S., and additional three cases in which it is a plaintiff, said Cynthia Bright, HP associate general counsel of intellectual property litigation. Of those 50 cases, 60 percent involve a PAE, she said. All of the litigation Cisco faces come from PAE lawsuits, said Neal Rubin, Cisco vice president of litigation. “We're spending twice as much money defending these cases as we are prosecuting and filing the 1,000-plus patents we have across the globe.” Research In Motion has seen the share of litigation involving PAEs rise, and increased attorney hiring to handle PAE litigation, said Sarah Guichard, RIM vice president of patents and standards strategy. “I guess it’s good for lawyers. All of these activities are good for lawyers."

Nokia takes a more balanced view of the role of PAEs, said Paul Melin, its chief intellectual property officer. Nokia has been targeted frequently by PAEs, and has been sued nearly 100 times since 2007, he said. The company also decided to sell 2,000 of its patents to Mosaid, a technology company that over time has shifted toward intellectual property management, Melin said. Nokia holds another 30,000 patents worldwide that are valued at nearly $50 billion, he said. “We often don’t have the resources” to effectively monetize those patents, so Mosaid was a good option, Melin said. Mosaid keeps about a third of the revenue generated from those patents, while the rest returns to Nokia, he said.

PAEs are vilified because of the actions of a few “bad actors,” said Peter Detkin, founder of Intellectual Ventures -- “a company that invests in inventions.” Every market and industry has bad actors that exploit flaws in the system, he said, arguing that it’s important to focus on flaws in the patent system that have allowed bad actors to flourish. PAEs can have a positive role in the market, Detkin said. “I can tell you about inventors that could never be paid without this."

Justice and the FTC are accepting public comments on PAE activities, Justice said. Comments should be emailed to ATR.LPS-PAEPublicComments@usdoj.gov and are due March 10. Justice and the FTC will each publish the comments on their websites.