In the May 19, 2014 Federal Register, the Federal Trade Commission published a Notice and Request for Comments concerning its proposal ”to collect information about Patent Assertion Entity (‘‘PAE’’) organization, structure, economic relationships, and activity, including acquisition, assertion, litigation, and licensing practices.” Written comments on the proposed FTC PAE study are due by June 18, 2014.
Background on the Study
The FTC long has shown an interest in regulating the activities of PAEs, and supported the USPTO’s proposal to require disclosure of attributable ownership/real party-in-interest information in U.S. patent and patent applications. This study may be aimed at giving the FTC information it needs to lay the groundwork for regulating PAEs.
According to the Federal Register Notice, “PAEs are firms with a business model based primarily on purchasing patents and then attempting to generate revenue by litigating against, or licensing to, persons who are already practicing the patented technology.” Also according to the Notice, “PAE activity is a growing issue for the United States” and “may have ‘a negative impact on innovation and economic growth.’’’ Because publicly available information on PAE activity is limited, the FTC claims that it needs to undertake this study to generate an “empirical record addressing non-public PAE activity.”
Purpose of the Study
According to the Notice, “[t]he proposed study will add significantly to the existing literature and evidence about PAE form, structure, organization, and behavior” by going beyond publicly available data and requiring detailed information from 25 PAEs. In particular, the study aims to obtain information pertaining to at least the following aspects of PAE activity:
Talk about a fishing expedition!
The FTC proposes to send information requests to approximately 25 PAEs that use different organizational models and assertion strategies, and also obtain information from 15 non-practicing entities (NPEs) and manufacturers.
Scope of the Study
The study would dig deeply into the inner workings of the PAEs, and would require the selected PAEs to disclose detailed information dating back to January 1, 2009, pertaining to:
The Notice also seeks detailed information on patent acquisition, licensing, transfer, and assertion, and reveals a special interest in PAEs that operate in the area of wireless communications.
Concerns About the Study
Companies that are the target of this study may be concerned about several issues, including:
Can They do This?
According to the Notice, several U.S. Senators have urged the FTC to conduct a study of PAEs. Congressional urging is not the same as legal authority, however. The FTC cites to § 6 of the FTC Act (15 USC § 46) for its authority to conduct this study. That statute is a catch-all provision permitting the FTC to request information, and inquiries under that statute are subject to judicial review. It is difficult to believe that a study of this breadth falls within the normal scope of § 6 inquiries, and it is likely that at least some target PAEs would challenge the FTC’s authority to compel their confidential business information for the simple purpose of “provid[ing] a better understanding of the organizational structure and economic relationships of PAEs, as well as their activity and associated costs and benefits.”
Many thanks to Alan Rutenberg, partner and chair of the Antitrust Practice at Foley & Lardner LLP, for sharing his insights into FTC practices.