Promoting the Development of a Patent Marketplace at the FTC

By now most readers have probably heard that the Chairperson of the Federal Trade Commission, Edith Ramirez, has announced that she is recommending that the agency initiate a 6(b) investigation into the business practices associated with Patent Assertion Entities (PAEs). It is expected that this investigation will provide a detailed look into the methods and monetary results of organizations that attempt to monetize patent assets. The investigation is likely to have a significant impact on future legislation, that might be drafted, to regulate the patent monetization marketplace and, as such could signal the beginning of a major shift in the business of monetizing patent assets. I ordinarily report news items, such as the announcement of the investigation, via my Twitter feed but in this case I actually played a very small part in some of the events that transpired and I thought the readers of this blog would be interested in an inside look at how items like this come to pass. This post discusses the letter I wrote to the FTC, and members of Congress, in March concerning issues I saw with frivolous patent lawsuits, and how I came to write it.

At the beginning of March I was approached by a public affairs firm working on behalf of Google. They were looking for Ohio companies to write to Congress and the FTC to express their opinions on patent trolls. They contacted me based on the recommendation of a friend, who works with TechColumbus, a local supporter of the start-up community here in Central Ohio. During our initial conversation I explained that I wasn’t fond of the term patent troll and, generally speaking, I support patent monetization efforts. I was, however concerned with the increase in frivolous lawsuits that I was observing and felt that baseless litigation would harm the development of a legitimate marketplace for patent rights. I was told that this was not an issue and that Google was interested in having these issues addressed as well. We agreed that, with the help of the public affairs firm, I would write a letter to the FTC expressing my views on the topic.

Having agreed to send a letter, the public affairs firm sent me the following and suggested that I might want to use it for my correspondence:

Dear Chairman Ramirez:

I write today to applaud your review of United States patent law and to strongly support efforts to curb patent trolls which are harmful to our economy and to the patent marketplace.

As someone who has been working in the patent field for the past eighteen years, I am quite familiar with these notorious trolls. Unsuspecting businesses are often caught off guard by trolls who demand large sums as an alternative to even costlier litigation. For those small entrepreneurs with little capital reserves, a patent troll can be crippling.

My company, Patinformatics, LLC , based out of Dublin, Ohio and is an advisory firm established to assist the members of the patinformatics community whether they be individual practitioners, database or tool builders, patent offices, universities or corporations. The term patinformatics was coined in 2002 to provide a recognizable phrase to encompass the various analytical methods used to analyze patent information.

Through my experience in the field, it is clear that we need a robust patent marketplace where both small entrepreneurs and large corporations are protected. The modern patent marketplace has generated enormous value and we should not infringe on the rights of legitimate owners to monetize their inventions. Yet, just as the government has the responsibility to protect the intellectual property, it should also work to protect innocent businesses from costly trolls.

The cost of patent trolls in the United States is staggering. Trolls cost the US economy half a trillion dollars in the last 20 years. Over $320 billion of that $500 billion came in just the last four years. Most of the time, patent trolls target small and medium businesses. Eighty two percent of companies targeted by trolls have annual revenues of less than $100 million.

Additionally, this is a growing problem. In 2012, patent trolls were responsible for filing 61% of all patent litigation in the U.S. Lawsuits filed by patent trolls have increased significantly over a five-year period from 22% of all patent litigation in 2007 to 40% in 2011.

I am encouraged to see that policy makers in Washington, DC are pursuing reforms in patent trolls. Clearly, this is an area of the law that needs improvements. Please continue your efforts to support a strong marketplace while working to limit bad actors. Thank you for your thoughtful consideration.

Clearly, the message that I was pro-patent marketplace came through in the initial draft, but I was concerned with the use of the term patent troll, that I don’t think is helpful or necessary, and I don’t agree with the monetary values about the damages that were provided. These look to be coming from the often discussed James Bessen study on the supposed economic impact of so called patent trolls on the US economy. The assertions of this study have been criticized in several forums so I was not interested in propagating what is likely misinformation. Deciding that several changes needed to be made to the template I proposed the following:

I write today to applaud your review of United States patent law and to strongly support efforts to curb frivolous or nuance patent lawsuits, which are harmful to our economy and to the patent marketplace.

As someone who has been working in the patent field for the past eighteen years, I am quite familiar with efforts by organizations to prey on the uninformed. Unsuspecting businesses are often caught off guard by organizations that demand large sums as an alternative to even costlier litigation. For those small entrepreneurs with little capital reserves, an event of this nature can be crippling.

My company, Patinformatics, LLC, based out of Dublin, Ohio is an advisory firm established to assist the members of the patent analytics community whether they be individual practitioners, database or tool builders, patent offices, universities or corporations. The term patinformatics was coined in 2002 to provide a recognizable phrase to encompass the various analytical methods used to analyze patent information.

Through my experience in the field, it is clear that we need a robust patent marketplace where both small entrepreneurs and large corporations are protected. The modern patent marketplace has generated enormous value and we should not infringe on the rights of legitimate owners to monetize their inventions. Yet, just as the government has the responsibility to protect the intellectual property, it should also work to protect innocent businesses from lawsuits without merit.

It appears clear that some organizations see an opportunity to take advantage of small companies that don’t understand patent rights and what they cover. Since these small companies don’t understand the limitations associated with patent rights it is easy for them to be manipulated into thinking that they are doing something improper or illegal when in reality the organization asserting their patents are misrepresenting their rights.

A similar opportunity to manipulate the legal system was recently seen with a vast increase in false marking patent suits that occurred a few years ago. This problem was adequately addressed through new legislation and the opportunity for abuse corrected itself. This was done while retaining the value of patents as a property right overall.

I am encouraged to see that policy makers in Washington, DC are pursuing reforms with regards to litigation abuse. Clearly, this is an area of the law that needs improvements. Please continue your efforts to support a strong marketplace while working to limit bad actors. Thank you for your thoughtful consideration.

As can be seen in the Kaleidoscope comparison below, I took out all mention of the Bessen study and tightened the focus on nuance and frivolous patent, lawsuit abuse. I also made a comparison to the surge in patent marking lawsuits that took place a few years ago, and was effectively dealt with under the AIA provisions introduced, to the increase in baseless patent lawsuits.

Comparison of original FTC letter to what I wrote - Click to enlarge

Comparison of original FTC letter to what I wrote – Click to enlarge

With any luck the upcoming FTC investigation will not damage the emerging patent marketplace and will create an environment where bad actors will not be able to prey on  small and uninformed businesses. Patents, and their use in developing corporate strategy, can not be understated. Frivolous lawsuits have helped create the impression that patents, in general, are bad as opposed to an incentive for innovation, as they should be. It took a little work to craft the right message, but if it helps to elimination nuance lawsuits that reflect poorly on legitimate innovations, then it will have been worth it. A copy of the letter that was sent to the FTC, Ohio Congress members and the USPTO can be found here.

Patinformatics_Letter_3.12.13_Final

Comments 8

    1. Hey Suzanne,

      Thanks for the comment. Lately, a lot of attention seems to be focusing on frivolous lawsuits in the popular press, so I hope my letter played at least a small part in making this happen.

      Thanks again,
      Tony

  1. On the IP Brokers LinkedIn group Pong-Kyun Shon made the following comments, that I thought were interesting:

    The statistics of Lawsuits filed by patent trolls is really interesting to me. Over 60% filed by patent trolls and mostly targeting over 80 % to Small and Medium companies would be obviously anomalous signals in the legal protection system of US Intellectual Property. I think IP system should protect to promote social innovations especially in manufacturing industries so that tangible jobs can be created under the protection of IP system ,and should achieve its original purpose of IP system for the enhancement of creative economy in society. The business models of Non-practicing Entities (NPEs) like patent trolls should be reviewed under the consideration of negative effects in manufacturing industries. For your reference, in contrary to the US trend, S. Korea and France governments are getting into to support the business model of NPEs so that they can boost the business of technology licenses and IP transactions from innovations of non-profit entities like universities and public research institutes ,and in order to protect their manufacturing industries from the invasion of global patent trolls (Governments Getting Into Patent Buying Business: Reuters By Dan Levine and Miyoung Kim). The global IP leader of US government should be more cautious to watch enterpreneurship of small and medium companies and their manufacturing industries. Under the considerations of these reviews, I fully agree with your opinions mentioned on the letter to FTC and your endeavors to support a strong marketplace and players in manufacturing industries would be highly appreciated.

    1. Hello Pong-Kyun,

      The statistics in this area are complicated and easy to misinterpret, especially since most commentators have a difficult time providing a definition of what is “troll” behavior and what is legitimate protection of patent rights.

      I prefer to concentrate on the issue of frivolous lawsuits, where infringement has not actually occurred.

      You raise several good points on manufacturing but licensing of intellectual property is an important industry as well and it should also be protected.

      Thanks,
      Tony

  2. Dear, Tony

    I agree that the role of patent management companies like patent trolls is also important and should be protected in order to boost monetization of individual inventors and innovations from them. However the most important thing is that patent trolls do not agree their litigations are frivolous lawsuits.

    Thanks,
    Pongkyun

    1. Hello Pongkyun,

      Thank you for following up on your comment here as well as on LinkedIn.

      Most patent assertion organizations to a tremendous amount of research and only engage in litigation as a last resort. Other bad actors, however, send out thousands of letters, even when there is not direct evidence of infringement. This is the behavior that needs to be rectified.

      Best regards,
      Tony

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