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FTC's Wright: Back off 'patent trolls'

by William McConnell | Published April 18, 2013 at 9:54 AM

Federal Trade Commission member Joshua Wright said Wednesday that the government should not rush to judge so-called patent assertion entities until there is more evidence of how their practices affect consumers.

Patent assertion entities, or PAEs, are companies or investment funds that buy up patents to gain the rights to negotiate licensing fees and litigate against patent users that refuse to make deals.

PAEs are derisively known as "patent trolls" by their critics.

But Wright, in a speech before Dechert LLP's annual antitrust seminar in Philadelphia, said a compelling case can be made for the benefits of PAEs and regulators should not clamp down on their practices until there is more evidence of the ultimate impact on consumers.

"The key issue from an antitrust perspective is the extent to which PAE activity contributes to innovation," said Wright, who joined the commission in January. "At this point the available evidence doesn't allow us to draw much of a confident conclusion."

Google Inc., BlackBerry maker Research in Motion Ltd., EarthLink Inc. and Red Hat Inc. last week asked the FTC and Department of Justice to investigate PAEs such as Lodsys Group LLC and Intellectual Ventures Fund 83 LLC. Many Silicon Valley manufacturers argue that PAEs are abusing the patent process by using the threat of litigation to extort financial payments from makers of technology products. The costs to consumers and industry totals $80 billion in direct and indirect costs, they said.

The PAEs counter that they promote innovation by allowing inventors, particularly smaller startups, to immediately monetize their patents and reinvest the proceeds into new research. PAEs say they are in a better position to defend patent rights from encroachers because they can litigate more cost effectively than research-focused companies can.

Wright said it is not obvious whether PAEs even raise antitrust issues and suggested that contract law -- to the extent PAEs violate previous commitments to negotiate licensing rights on fair and reasonable terms -- and patent law might be more appropriate avenues for addressing complaints about the entities' practices.

A study by the Government Accountability Office examining PAE practices is under way. Wright said that among the evidence antitrust regulators must have in hand before addressing complaints about PAEs is the total costs that PAE claims are imposing on technology manufacturers and service providers and how much of those costs are passed on to consumers or go back to inventors.

"Is it stimulating innovation or not, and to what extent do PAEs reduce innovation by practicing entities?" he asked. He said better data is also needed on the success rate of PAE assertion claims, the size of damages, how frequently they issue demand letters to patent users and how those recipients respond.

"Without better empirical data, there's not much of a basis upon which to discriminate between the duelling theories of PAEs, much less ascertain their effects," Wright said.

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FTC's Wright: Back off 'patent trolls'

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