Insights

FTC Proposes Study of Patent Assertion Entity Activities, Holdings, and Structure

On September 27, the Federal Trade Commission ("FTC") announced a proposal to use its authority under Section 6(b) of the Federal Trade Commission Act, 15 U.S.C. § 46(b), to issue compulsory process orders requesting detailed information about the makeup and patent assertion practices of approximately 25 Patent Assertion Entities ("PAEs") and approximately 15 other companies in the wireless communication sector. Specific companies were not identified.

The FTC defined "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," a definition intended to exclude "other non-practicing entities or NPEs that primarily seek to develop and transfer technology, such as universities, research entities, and design firms."

The FTC described the proposed study as a follow-on to the Patent Assertion Entity Activities Workshop that it co-sponsored with the Antitrust Division of the Department of Justice in December 2012. It is also a reflection of continuing FTC interest in patent law, going back at least to its 2003 report entitled "To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy" and its 2011 follow-up report, "The Evolving IP Marketplace: Aligning Patent Notice and Remedies With Competition." (See Jones Day's Antitrust Alert, "U.S. Federal Trade Commission Issues Report on the Evolving Intellectual Property Marketplace.") The proposed study would make use of the FTC's authority under Section 6(b) to require companies to provide it with information, including nonpublic information, for the purpose of conducting studies and making reports. The FTC also notes that "destruction, mutilation, alteration, or falsification" of evidence related to the information requests is subject to criminal prosecution.

PAEs receiving the requests will be required to provide information, in some cases quite detailed, about their corporate structure, all patents and patent portfolios held, how the patents were acquired and how they have been asserted, and cost and revenue information. The 15 non-PAE wireless industry participants that will also be part of the study will be required to provide a subset of this information.

The FTC said that the study "will provide a better understanding of PAE activity and its costs and benefits." The FTC may ultimately produce a report along the lines of those released in 2003 and 2011, possibly recommending changes in patent laws or agency rules. The FTC could also decide to hold hearings or issue further information requests. An investigation of the licensing practices of one or more specific PAEs is theoretically possible but appears unlikely.

Public comments on the proposed study are due in 60 days. Any company wishing to provide comments may do so online at https://ftcpublic.commentworks.com/ftc/paestudypra.

Lawyer Contacts

For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com.

Gregory L. Lippetz
Silicon Valley
+1.650.739.3968
glippetz@jonesday.com

Geoffrey D. Oliver
Washington
+1.202.879.5447
gdoliver@jonesday.com

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