FTC Should Investigate PAEs’ Business Practices, Ramirez Says

FTC Chairwoman Edith Ramirez said the commission should use its authority under Section 6(b) of the FTC Act to investigate the business practices of patent assertion entities (PAEs) to examine whether those practices harm competition and consumer interests. 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. Ramirez said at a Thursday joint Computer and Communications Industry Association (CCIA) and American Antitrust Institute (AAI) event that she supports conducting an investigation, but did not say she would formally ask the commission to vote to start one.

A full investigation of PAEs’ business practices would help the FTC develop a better understanding of how those practices affect the market, including the extent to which PAEs are “distorting the incentive to innovate,” Ramirez said. PAE litigation still often targets IT sector companies, but has also expanded to include other industries, including financial services, retailers and small businesses, she said. The FTC received some comments related to a December workshop on PAE activities that urged the FTC to conduct an investigation under Section 6(b), said Lisa Kimmel, FTC attorney advisor for Ramirez’s office. Most of what the FTC and others know about PAE activities is based on studies of litigation-related statistics, she said. There’s “some knowledge of what’s going on outside of the courtroom” -- many targets of PAE litigation settle out of court -- but more is needed, Kimmel said.

The FTC also stands ready to investigate whether PAEs are violating antitrust laws and would use its authority under Section 5 of the FTC Act to protect small businesses against false claims from PAEs meant to extract licensing fees, Ramirez said. “Privateering” -- when an operating company transfers its patents to a non-practicing entity in order to assert those patents against the operating company’s “downstream” competitors -- could raise antitrust issues if the PAE is “effectively acting as a clandestine surrogate for competitors,” she said. These practices are aided by a “lack of transparency in the ownership of patents,” Ramirez said. The White House directed the U.S. Patent and Trademark Office earlier this month to issue rules requiring fuller disclosure of patent ownership information, including the real-party-in-interest for each patent. The White House also directed PTO to take other steps to combat weaknesses in the patent system that PAEs exploit; Congress is also considering possible legislation to address PAE-related issues (CD June 5 p12).

Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., urged the FTC Thursday to use its authority to “more aggressively pursue” PAEs, which he referred to as “patent trolls.” In addition to possible investigation and enforcement actions, Leahy said in a letter to Ramirez that the FTC should create a website that small businesses could use to report PAE abuse. Leahy said he plans to continue to work with House Judiciary Committee Chairman Bob Goodlatte, R-Va., on bipartisan legislation that will address PAE-relate issues, noting his support for Goodlatte’s discussion draft of possible legislation (http://1.usa.gov/11BB0O8).

CCIA President Ed Black called a possible FTC investigation a “welcome step,” though he said “patent trolls” are part of what he sees as systemic problems with the U.S. patent system. Action from policymakers is essential to “rein in” PAE excesses, he said. AAI President Bert Foer said he’s “delighted” to hear that the FTC is seriously considering further action on PAEs.