Antitrust Law Daily Wrap Up, ANTITRUST NEWS: American Antitrust Institute expresses support for FTC probe of PAEs, (Dec 19, 2013)

By Linda O’Brien, J.D., LL.M.

The American Antitrust Institute (AAI) has announced its support of the FTC’s investigation of Patent Assertion Entities (PAEs) by filing comments with the FTC on December 16 in response to the FTC’s proposed information request to PAEs. Commending the FTC for its investigation into PAE business practices and their impact on competition and innovation, the AAI stated that PAE enforcement practices can harm competition, innovation, and consumers by raising rivals’ costs, erecting barriers to entry, and subverting collaborative standard setting.

Although the AAI believes that the FTC investigation will yield important findings about PAEs and help provide for a more comprehensive competition policy response, the AAI has offered suggestions to expand and refine the information requests that will allow the FTC to more fully understand whether PAEs and other related entities have violated antitrust laws.

PAEs, commonly known as “patent trolls,” do not develop technology or manufacture products. Instead, their business model is to focus on purchasing and enforcing patents. Although PAEs can create a more liquid market for patents, they can also harm competition, innovation, and consumers through abusive enforcement and by exploiting flaws in the patent system. PAEs have sometimes delayed enforcement of patents until the technology has become widely available on the market. They have sent demand letters and filed complaints against manufacturers and users for allegedly infringing the patent and exploited the high cost of patent litigation.

Simple enforcement of patents is ordinarily an antitrust violation. However, PAEs may violate antitrust laws in multiple ways. In the AAI’s view, the FTC and Department of Justice should bring enforcement actions against PAEs on antitrust theories whenever there is supporting evidence. The FTC’s investigation is an important step forward in illuminating the extent of abusive PAE conduct, and the information gathered by the agency will help support FTC’s efforts to further competition advocacy and enforcement against abusive behavior.

Antitrust laws have played and should continue to play an essential role in addressing PAE behavior. The AAI set forth several antitrust theories of harm relating to PAES. When a PAE seeks or threatens to seek injunctions or exclusion orders for the infringement of a standard essential patent (SEP), which is subject to a reasonable and non-discriminatory (RAND) licensing commitment, the conduct may be a violation of Sections 2 and 5 of the Sherman Act. A PAE’s acquisition of patents and patent portfolios may violate Section 7 of the Clayton Act, which prohibits transactions that substantially lessen competition. In another example, if a PAE seeks to enforce patents in collaboration with multiple firms against competitors, this behavior may violate Section 1 of the Sherman Act. Finally, the sending of demand letters to alleged infringers, without disclosing the patent or technology claimed to be infringed, may violate Section 5 of the Sherman Act.

In the AAI’s view, the FTC’s proposed information request would further illuminate the relationship between PAE conduct and the antitrust laws. The AAI has suggested refinements to the information request that will allow the FTC to more fully understand whether PAEs have violated the antitrust laws.

• The information request should specifically ask for Hart-Scott-Rodino (HSR) notifications that were filed on patent acquisitions.

• PAEs should be asked to provide formal and informal representations that they have made to potential investors.

• The information request should be sent to the leading sources of patents for the 25 PAEs selected to respond to the information request.

• A limited information request should be sent to standard setting organizations (SSOs) concerning their current and historical patent policies.

The AAI concludes with its commendation of the FTC on using its authority to investigate the activities of PAEs. Although the antitrust agencies already have sufficient evidence to challenge abusive and anticompetitive behavior under established antitrust theories, the proposed investigation will yield important findings about PAEs and provide the basis for a more comprehensive competition policy response.

The American Antitrust Institute is an independent, Washington-based non-profit education, research, and advocacy organization. Its stated mission is to increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy.

News: Antitrust FederalTradeCommissionNews