PAEs and IP Groups Urge Narrower FTC Patent Assertion Study

The FTC voted in September to begin exploring a proposed PAE study, which it would launch using its authority under Section 6(b) of the FTC Act (CED Sept 30 p8). InterDigital said it doesn’t believe it’s a PAE as the FTC defined it in its study proposal, though many of the company’s critics have defined it as one. The FTC defined PAEs as “firms with a business model based primarily on purchasing patents and then attempting to generate revenue” by asserting their intellectual property rights “against persons who are already practicing the patented technologies.” Intellectual property groups and other companies often defined as PAEs also expressed significant concerns with the proposed study.

InterDigital said there “could be value in a study that more narrowly focuses on particular practices that might harm competition,” but the broadness of the proposed study makes it “unlikely to yield data that policy makers can manage efficiently to assess the competitive harms associated with specific practices.” The proposed study’s breadth “risks imposing extremely heavy burdens, especially on firms like InterDigital,” which shouldn’t be the focus of the study, InterDigital said. The FTC should “clarify that it is interested in the costs and benefits of PAE activity to innovation and competition,” InterDigital said. “Many comments about PAE activity have focused only on the costs that PAEs may impose on practicing entities, and not on the ultimate impact of such activity on innovation or competition."

Intellectual Ventures, another company that critics often refer to as a PAE, said the FTC should significantly modify the study’s scope to better achieve the commission’s goals. “Because the Commission will not look at all PAE activity and proposes to look at only a narrow slice of patent acquisition and enforcement activity by operating companies, the study as designed does not appear likely to yield meaningful results,” Intellectual Ventures said. “We believe that any evaluation of the effects of PAE activity must be made in a broader context” (http://1.usa.gov/1gIxH3k).

The FTC should design the study to “generate statistically valid or generalizable conclusions about the effect of PAE activity as compared to enforcement and acquisition activity by non-PAEs,” Intellectual Ventures said. The study will need to “sample a significant portion of PAEs and operating entities” to explain how much PAEs are actually increasing their assertion activities, Intellectual Ventures said. The proposed study won’t be able to provide “meaningful” information on other issues, including whether limiting PAE activity would limit innovation or alternatives to PAE assertion, Intellectual Ventures said. The FTC’s proposal will also be burdensome for PAEs under scrutiny, because each PAE will need to spend far more than the 400 hours the FTC suggests they'll spend collecting and producing requested documents, Intellectual Ventures said. The PAE suggested the FTC significantly revise its proposed information requests “to expand the universe of respondents and narrow the breadth of the specifications, both to limit the burden on respondents and to ensure that the Commission obtains information that is of practical utility and that is not unnecessarily duplicative of information otherwise available."

The American Intellectual Property Law Association said it’s concerned the FTC’s definition of PAEs may be “over-inclusive” and that the commission should “carefully direct its questions to entities that most tend to bear some indicia of the alleged misconduct that has given rise to the policy concerns of both the FTC and Congress. That conduct involves abusive practices during infringement litigation as well as demand notices from patent owners.” AIPLA is also concerned that the questions the FTC wants to ask PAEs are “intrusive and burdensome.” Some questions could “require considerable legal analysis that will far exceed the estimated burden of response,” while some of the requested documents will contain “highly sensitive” information, AIPLA said. The FTC should provide a contact who would “help respondents navigate unanticipated ambiguities and determine whether extensions of time are appropriate,” AIPLA said. “We also suggest that consideration be given to requesting information in stages to allow for a more deliberate and potentially more tailored and less burdensome approach” (http://1.usa.gov/1gIza9P).

The Intellectual Property Owners Association is “concerned that some of the proposed information requests may place an undue burden on intellectual property owners” because it underestimates the “the time and resources necessary for compliance.” The current information request will “likely return millions of documents that will offer little practical utility” or are publicly available, IPO said. Requests for information on the research and development cost of each patent “will often be nearly impossible for a single patent, much less thousands of them,” IPO said. “Similarly, the proposal seeks cost and revenue at so fine a level of detail that many companies will find difficult, if not impossible, to comply with the request.” The collection burden will likely affect many departments within a PAE, meaning the resources “devoted to collecting information for the study will be unavailable for further innovation,” IPO said. The group urged the FTC to “ensure that all of its proposed information requests are necessary and narrowly tailored” and to explain why it wants information dating back to 2008 (http://1.usa.gov/JLIcoI).

Verizon Communications said it’s “encouraged that the FTC is undertaking this important study. Developing the full scope of the information requested in the FTC’s draft questions is likely to enable important research into the effects of PAE activity; examining the entire time period covered by the draft questions is also important to discern trends.” The FTC should expand its scope to look at the effects of PAEs on wireline companies as well as wireless companies, Verizon said. The telco also suggested the FTC examine PAEs’ relationships with individual inventors and the advisers from other PAEs (http://1.usa.gov/1kmom1d).

Microsoft suggested the FTC study “should more closely examine PAE practices that involve asserting patent(s) or patent portfolios for amounts far greater than the acquisition cost of those patents, with a particular focus on assertions that exceed pre-merger reporting thresholds.” The company also suggested the FTC “include other participants in the secondary patent market that currently are not included in the proposed requests.” Microsoft said it had significant concerns with the FTC’s plans to make information requests to manufacturing firms, saying it thinks patent assertion from those firms is a “poor benchmark” to compare against assertion from PAEs (http://1.usa.gov/1dpdtq1).

Qualcomm said that, as a manufacturing firm that would be included in the study, it was concerned the information FTC plans to request “is likely to impose significant, undue burdens on responding firms. This potential exists because, as currently contemplated, the Information Requests, even as limited for non-PAEs, will involve enormous effort, costs, and time.” The FTC should narrow its information requests to “more precisely target the type of information and documents sought from manufacturing companies and patent assertion firms other than properly defined PAEs,” Qualcomm said. The requests should “only require production of information and documents from those subsidiaries and affiliates with which a firm has agreements or which play a direct and primary role in the activities under review, the company said. The FTC should also not request information that is publicly available and should establish privacy protocols for requesting and producing confidential documents, Qualcomm said (http://1.usa.gov/1kmrZnI).

Apple said the information the FTC has proposed to collect would be helpful, but suggested a narrower study would better determine the current scope of PAE effects given that “the PAE phenomenon” and work to address it on Capitol Hill and through the courts are “are evolving so quickly.” A broader study is helpful but risks “that the landscape will change before all of the important details can be sketched” (http://1.usa.gov/18BfUIz). Intel said it supports the proposed study and believes “that the Commission’s information requests are reasonable and are necessary to inform public policy regarding PAE activity (http://1.usa.gov/1dpx4GC).

Nokia said it believes the proposed information requests “would impose substantial and unnecessary burden and expense upon companies receiving the proposed requests.” The requests “as currently drafted, seek wide-ranging and often redundant information that is highly confidential and, in some instances, legally privileged,” Nokia said. The company said it believes if the study is to proceed the proposed requests should be narrowed and focused, should expressly carve out any privileged materials or information, and should include adequate protections for highly-sensitive commercial information if recipients are to be required to produce such sensitive information (http://1.usa.gov/1fJ6lqE).

CEA said the proposed information requests “are a necessary first step into quantifying the costs and benefits of PAE activity and only through the considered examination of PAEs’ and others’ data can the true negative effects of many PAEs’ activities be understood properly.” The study will “enable the FTC (and other stakeholders, like Congress) to assess the ramifications of PAE conduct on competition as a whole,” which will “undoubtedly help the FTC in performance of its core function to enforce the antitrust and competition laws” (http://1.usa.gov/IYCori).

Other industry groups were supportive of the proposed FTC study. USTelecom said it believes the proposed FTC study “will provide a better understanding of the substantial and detrimental costs associated with PAE activity” (http://1.usa.gov/19frLfZ). The Computer & Communications Industry Association said it “strongly supports” the proposed study and believes “the set of questions that the FTC has prepared are thorough and properly directed towards information that should shed light on the heretofore-mysterious PAE business model” (http://1.usa.gov/1i4tgQS). The Internet Association said the FTC study’s current scope and proposed information requests “are essential to the Commission’s mission of protecting competition and consumers.” The group also recommended the FTC “should clarify certain requests and direct its 6(b) orders to firms most likely to have information relevant” to potentially damaging PAE conduct in areas like patent privateering (http://1.usa.gov/1kmuBln). The Internet Commerce Coalition said it supports “the Commission’s inquiry into patent assertion entity (PAE) activity and urge[s] the Commission to undertake a comprehensive analysis of the often murky world of PAE activity in order to shed light on its effects on competition and innovation” (http://1.usa.gov/1kmSxFw). The Application Developers Alliance believes “this investigation will reveal widespread unfair and anticompetitive practices. If we are correct, the FTC is also uniquely positioned to use its enforcement power to put a stop to them” (http://1.usa.gov/1cUuABL).