The U.S. Federal Trade Commission (“FTC”) recently published a Federal Register notice seeking additional public comments on the FTC’s proposed collection of information about Patent Assertion Entities (“PAEs”) (see our Sep. 27, 2013 post about the FTC’s first notice about the PAE study).  Public comments are due by June 18, 2014.

Generally.  In this notice, the FTC defines “PAEs” as “firms with a business model based primarily on purchasing patents and then attempting to generate revenue by litigating against, or licensing to, persons who are already practicing the patented technology.”  The FTC has been studying PAEs for years and is looking for an emperical record of PAE activity to better frame the debate about them.  The proposed study seeks to go beyond the limited publicly available information (e.g., litigation data that the GAO patent litigation study primarily relied upon) to delve into non-public behavior such as those related to acquiring patents, licensing patents, organizational structure and economic relationships.  The information sought is intended to answer the following questions:

  • How do PAEs organize their corporate legal structure, including parents, subsidiaries, and affiliates?
  • What types of patents do PAEs hold and how do they organize their holdings?
  • How do PAEs acquire patents; who are the prior patent owners; and how do they compensate prior patent owners?
  • How do PAEs engage in assertion activity (i.e., how do they behave with respect to demands, litigation, and licensing)?
  • What does assertion activity cost PAEs?
  • What do PAEs earn through assertion activity?
  • How does PAE patent assertion behavior compare to that of other entities that assert patents?

The study will have two parts: (1) a general study of about twenty-five different PAEs and (2) a comparative study of patent assertion activity in the wireless communication sector from about fifteen PAEs, manufacturers and non-practicing entities.

Standard Essential Patents.  With respect to standard essential patents, the FTC explains that it has modified its proposed requests for information to account for standard-setting declarations that may not identify particular patents (e.g., blanket letters of assurance) and, thus, may prove burdensome in identifying specific patents subject to the declaration, stating:

The original requests [in the Sep. 2013 FTC proposal] also required subjects to identify patents subject to commitments such as licensing and standard-setting declarations.  Commenters suggested that these requests may be unduly burdensome when the firm has made commitments on a field of use or subject matter basis–without identifying specific patent numbers.  Commenters also suggested that the original requests may require respondents to conduct legal research to determine whether specific patents are subject to broad commitments.  To address these comments, the FTC will ask respondents to describe the commitments as they have been declared to standard-setting organizations and third parties.

Accordingly, the FTC proposes that PAEs and other entities subject to the study respond to the following questions from Section D (found within the PAE questions) and Section M (found within the other Wireless Industry questions where the Patents are limited to Wireless Patents), where the differences between the Section D and Section M questions are noted below within [bold brackets]:

D.  [M.] Standard Setting Commitments

1.  If any Person has committed to a Standard Setting Organization that it will License any [Wireless] Patent(s) Held by the Firm since January 1, 2009, for each commitment

a.  State the date the commitment was made.

b.  Identify the Person who made the commitment.

c.  Identify the Standard Setting Organization.

d.  Identify the standard(s) to which the commitment applies.

e.  Provide a narrative response identifying any Wireless Patents held by the Firm that are subject to the commitment. [NOTE: This question is not within the Wireless Industry questions]

f.  [e.] State whether the commitment is to License the [Wireless] Patent(s) or any Patent claim(s) on reasonable and non-discriminatory (RAND); fair, reasonable, and non-discriminatory (FRAND); royalty-free (RF); or other terms.

(1) if the commitment is to License on terms other than RAND, FRAND, or RF, provide a narrative response describing the terms.

g.  [f.] Is the commitment subject to a field of use restriction? (Y/N)
If yes:

(1) State the specific field of use restriction(s); and

(2) identify, from the following list, inwhich sector(s) is the field of use restriction: Chemical, Computers & Communications, Druges & Medical, Semiconductors, Other Eletrical & Electronic, Mechanical, or Other.

h.  [g.] Proivde a narrative response listing all Patent(s) that any Person has declared, or otherwise identifed to any Person, as subject to the commitment.

i.  [h. ] Produce, and provide a narrative response identifying by Reference Number, all agreements embodying the commitment.

For purposes of the questions, the FTC defines “Standard Setting Organization” or “SSO” to mean “any organization, group, joint venture, or consortium that develop standards for the design, performance, or other characteristics of products or technologies.”  The definition of “Wireless Patent” depends on a few other defined firms, including the term “Assert” that appears to be limited to patents raised against another entity (not all patents) as well as the term “Patent” that is limited to U.S. patents and applications, the relevant defintions being as follows:

“Wireless Patent” means any Patent Asserted against a Wireless Communication Device.

“Assert” and “Assertion” mean: (i) Any Demand; (ii) any civil action threatened or commenced (by the Firm or other Person) relating to any Patent; or (iii) any investigation pursuant to 190 U.S.C.  1337 [ITC] threatened or initiated (by the Firm or other Person) relating to any Patent.  For Manufacturing Firms, “Assert” and “Asserted” do not include sales of products manufactured by the Firm, or on behalf of the Firm, that practice the claimed invention.

“Demand” means any effort since January 1, 2009 to License any Patent, in whole or in part, and any other attempt to generate revenue by authorizing a Person outside the Firm to practice an invention claimed in a Patent.  Demand does not include complaints or pleadings filed with a United States District Court or the United States International Trade Commission.

“Patent” means a United States patent or United States patent application as defined by 35 U.S.C. 101, et seq.

“Wireless Communication Device” means any device, including wireless chipsets, which implements wireless communication, including, but not limited to, softrware, user equipment, base stations, and network infrastructure.

“Wireless Chipset” means any baseband processor, radio frequency transceiver, integrated circuit, chip, or chipset, or any combination thereof, and any related software, used to implement wireless communication.

PAEs and SEPs generally are separate issues that should not be conflated.  Perhaps the FTC has specific questions on SEPs here given the context of this particular study.  The proposed study concerns entities whose business model primarily is to purchase patents to assert against those already practicing the invention (e.g., they are not innovators contributing to a new standard).  Purchasing a patent directed to an existing, widely adopted standard may readily target a large number of companies already practicing an invention.  Its not clear, however, whether the proposed questions capture all these instances–e.g., what if (1) the patent is not subject to a specific standard-setting declaration or (2) the patent owner claims that the patent is not subject to a standard-setting obligation, such as, disputing whether a blanket commitment attached to the specific patent or whether an obligation survived transfer of the patent (see, e.g., our April 23, 2014 post where the court rejected a patent owner’s express attempt to affirmatively receive “hold-up” value for an alleged standard essential patent not subject to an SSO commitment).  But perhaps the study already does or will consider whether a PAE has asserted to anyone (e.g., a prospective licensee or a litigant) that a patent covers an industry standard regardless whether the patent is subject to an SSO declaration or commitment.