OCTOBER 4, 2013
This alert provides only general
information and should not be
relied upon as legal advice.
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SCOTT CHAMBERS, PH.D.
PattonBoggs.com Client Alert: FTC Announces Study of “Patent Assertion Entities” 1
INTELLECTUAL PROPERTY CLIENT ALERT
FTC ANNOUNCES STUDY OF “PATENT
The Federal Trade Commission (FTC) announced on September 27, 2013 that it
would begin an investigation of so-called “patent assertion entities” (PAE). Its
first step was to seek public comment on a lengthy series of questions that the
commission plans to submit to 25 PAEs and 15 other entities asserting patents
in the wireless communications sector, including manufacturers and licensing
organizations. The Notice and Request for Comments (Notice) was published in
the Federal Register on October 3 (here).
The FTC describes PAEs as “firms with a business model based primarily on
purchasing patents and then attempting to generate revenue by asserting the
intellectual property against persons who are already practicing the patented
technology.” It expressly excludes from the definition universities, research
entities and design firms.
The FTC study is not a surprise. On December 10, 2012, the FTC and the
Antitrust Division of the Department of Justice (DOJ) jointly sponsored a
workshop and requested comments on the impact of PAE activity on innovation
and competition. Workshop panelists and commenters noted a lack of empirical
data in this area, and recommended that the FTC use its authority under § 6(b)
of the Federal Trade Commission Act, 15 U.S.C. § 46(b), to collect information
on PAE acquisition, litigation, and licensing practices. Members of Congress also
called for a § 6(b) study of PAE activity. In June 2013, FTC Chair Edith Ramirez
gave a speech (here) in which she said: “Given the developments in PAE activity
and the need for more evidence to inform appropriate policy responses, I believe
that the Commission should use its 6(b) authority to study the costs and benefits
of PAE activity.”
Under § 6(b), the FTC may order persons and entities to provide sworn, written
answers to specific questions as well as “such information as it may require as to
the organization, business, conduct, practices, management, and relation to other
corporations, partnerships, and individuals….” The FTC has long used § 6(b)
PattonBoggs.com Client Alert: Enter Title Here 2
special reports for adjudicatory proceedings pending before the commission. See, e.g., In the Matter of Exxon Corp, et al.,
98 F.T.C. 107 (1981).
Here, the study will seek detailed information regarding licensing agreements, patent acquisition information, and cost
and revenue data, which will provide a more complete picture of PAE activity. The information sought by the Notice
includes the following:
→ How do PAEs organize their corporate legal structure, including parent and subsidiary entities?
→ What types of patents do PAEs hold, and how do they organize their holdings?
→ How do PAEs acquire patents, and how do they compensate prior patent owners?
→ How do PAEs engage in assertion activity (i.e., demand, litigation, and licensing behavior)?
→ What does assertion activity cost PAEs?
→ What do PAEs earn through assertion activity?
The Notice includes 11 pages of detailed information and requests that all 25 PAEs selected for the study will have to
answer. The 15 other entities will have to answer a subset of those requests.
Answering the questions will undoubtedly require the production of confidential commercial and trade secret
information. Responding companies may have some protection under § 6(f) of the FTC Act, which prohibits the FTC
from publicly releasing “any trade secret or any commercial or financial information which is obtained from any
person and which is privileged or confidential….” See also 16 C.F.R. § 4.10(a)(2) (“Trade secrets and commercial or
financial information obtained from a person and privileged or confidential” are not subject to disclosure under the
Freedom of Information Act). The FTC may, however, disclose the information to other governmental agencies for
law enforcement purposes, provided that confidentiality is maintained. Moreover, any data gathered for the FTC study
could be the subject of a document request or subpoena by an adverse party in litigation.
Under the Paperwork Reduction Act, the FTC must obtain approval from the Office of Management and Budget
(OMB) before it can collect the information. The Notice states that it will provide an opportunity for public comment
before requesting that OMB approve the PAE study. Specifically, the FTC will seek comments on: “(1) whether the
proposed collection of information is necessary for the proper performance of the functions of the FTC, including
whether the information will have practical utility; (2) the accuracy of the FTC’s estimate of the burden of the
proposed collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be
collected; and (4) ways to minimize the burden of collecting information.” The deadline for comments is December 2.