FTC’s Brill Supports Possible Commission Study of Patent Assertion Entities

Commissioner Julie Brill supports having the FTC use its authority under Section 6(b) of the FTC Act to study the business practices of patent assertion entities and examine how such PAE practices affect competition and consumer interests, she said Wednesday. Section 6(b) of the FTC Act gives the agency the authority to do a full investigation of an industry’s business practices, including issuing subpoenas, and report their findings to Congress and the public. Chairwoman Edith Ramirez said in June that the commission should initiate a 6(b) study of PAEs, but didn’t say she would formally ask the commission to vote to start one (CD June 21 p16). Brill told us after an American Constitution Society event that Commissioner Maureen Ohlhausen has also said she supports conducting a 6(b) study. Ohlhausen and fellow Commissioner Joshua Wright did not respond to a request for comment.

Brill said during the event that the FTC is “thinking about this right now.” She told us later she hopes the commission will vote to begin the study before the end of the year. “There could be hangups on the bureaucratic side, not having to do with the substance of it,” she said. Senate Antitrust Subcommittee Chairwoman Amy Klobuchar, D-Minn., said during a hearing Tuesday that she wanted to see the FTC move quickly to start a 6(b) study (CD July 31 p10). “I'm anxious for the study to begin as well,” Brill told us.

A 6(b) study would help the FTC better understand the costs and benefits of PAE activities, Brill said during the event, saying the agency has used its 6(b) authority “very effectively” in other competition areas. Any such study would need to remain cognizant of the potential benefits PAEs bring to the market, as they do have the potential to encourage small companies in the space to innovate and assert their rights against larger businesses, Brill said. A 6(b) study can take years to complete, and doesn’t preclude the agency from taking enforcement actions against individual PAEs, she said.

Brill said she wants the 6(b) study to examine, among other things, how PAE ownership of patents is structured and how transparent a PAE and its subsidiaries are in disclosing ownership information. The U.S. Patent and Trademark Office is creating new rules on disclosure of “real party in interest” ownership information as part of President Obama’s executive order targeting abusive patent litigation (CD June 5 p12). A potential 6(b) study should also examine how often PAEs’ demand letters are successful, how often PAEs actually file a lawsuit after issuing a threat, and how PAEs determine what patents they acquire, Brill said.

Orrick Herrington antitrust lawyer Jay Jurata said the FTC’s consideration of a 6(b) study is a “welcome development” because assumptions about PAEs aren’t always true. The 6(b) study should examine whether “privateering” -- a company’s transfer of its patents to a PAE for the purpose of attacking the company’s rivals -- actually raises rivals’ costs, Jurata said. The study should also examine whether royalty-free cross-licensing of patents is actually the market norm, and whether the sale of a patent to a PAE actually immunizes a company from patent countersuits, he said.

Ex-FTC official David Balto said the 6(b) study should “find out where the money is going.” There is some question about how much of the money that PAEs receive from settlements actually returns to a patent’s inventors and therefore actually encourages further innovation, said Balto, now a lawyer at his own law firm.