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The FTC Wants to Help Shut Down Patent Trolls

By Casey C. Sullivan, Esq. on October 14, 2016 | Last updated on March 21, 2019

The Federal Trade Commission released a study of "Patent Assertion Entities" last week, which provides one of the most comprehensive overviews of PAEs, or, as they're popularly known, patent trolls, based on five years of non-public PAE data.

The FTC's study confirms what most of us have long known: patent trolls be trollin'. But the study doesn't just name the problem; the Commission also has recommendations on how to bring patent trolls to heel.

You Say Potato, I Say Patent Troll

The study defines a PAE as "a firm that primarily acquires patents and seeks to generate revenue by asserting them against accused infringers."

The study broke PAEs into two categories: portfolio PAEs and litigation PAEs. Portfolio PAEs tended to own their patents outright and rarely sued alleged infringers before entering into licensing agreements.

Litigation PAEs, however, usually acquired their patents through revenue sharing agreements and almost always filed lawsuits before securing licenses from infringers. Ninety-three percent of licensing agreements held by litigation PAEs were the result of litigation, according to the report. Litigation PAEs also typically earned royalties below $300,000, compared to portfolio PAE royalties, which averaged more than $1 million.

Since $300,000 is just under the costs of discovery when defending against a patent infringement suit, the FTC had no trouble finding that litigation PAE behavior was "consistent with nuisance litigation."

The FTC's Four-Point Plan

The FTC report acknowledged that "infringement litigation plays an important role in protecting patent rights," but contrasted that litigation with nuisance infringement suits, which "can tax judicial resources and divert attention away from productive business behavior."

The Commission made four recommendations for judicial and legislative reform that could help lessen the impact of patent trolls. First, the Commission recommended amending Federal Rule of Civil Procedure 26 to limit discovery, particularly before preliminary motions. "In general, any measures that reduce discovery burden and costs while ensuring discovery of information appropriate to the case should be considered," the FTC wrote.

The Commission also recommended expanding reportable relationships under FRCP 7.1, and encouraged courts to address the "plausibility" of the pleadings in patent cases.

Finally, the Commission recommended that court's stay infringement suits against customers or end-users if there is concurrent litigation against the manufacturer of the allegedly infringing product. Manufacturers are "in a better position to defend against the infringement suit than is a customer or retailer," the report states, and "more likely to have discoverable evidence" as they produce the infringing products.

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