We recently wrote about a workshop held by the Department of Justice and the Federal Trade Commission to discuss perceived abuses by patent acquisition entities. The workshop included a panel discussion about whether the potential harm to innovation and competition caused by PAEs, particularly with regard to patent aggregators who may acquire market power, or with PAEs who coordinate their activities with patent owners or competitors of the defendants, could violate the Sherman Act. Ultimately, the panelists seemed to agree that PAEs warrant antitrust scrutiny, but actions under the Sherman Act would present challenges, such as defining the relevant markets, or avoiding the Noerr Pennington doctrine.
The White House recently released a paper by the National Economic Council and the Council of Economic Advisors, as well as legislative recommendations and executive actions based on the findings in that report. Despite acknowledging the potential competitive benefits of patent aggregators, the report concluded that “patent assertion entities (PAEs) (also known as ‘patent trolls’) have had a negative impact on innovation and economic growth.” Like the workshop panel, the report concluded that PAEs take advantage of the uncertain scope of many patents by threatening to sue thousands of entities at once, often without specific evidence of any infringement. Many targets simply settle rather than face the uncertain prospect of patent infringement litigation. Those defendants that proceed to verdict often spend far more on attorneys’ fees than would have been required for a patent license.
The report confirmed the workshop panel’s observation that PAEs are immune from some of the factors that normally restrain patent owners when filing suit. Primarily, PAEs need not fear counterclaims by potential infringers, or reputational damage in the marketplace, because they do not practice any patents.
Moreover, according to the report, PAEs suppress innovation and competition at all levels of the market. Although PAEs do extract settlements from large companies, most PAE suits target small and inventor-driven companies. Also, PAEs are increasingly targeting end users of products, including many small businesses. The report’s findings are consistent with other studies evaluating PAEs: “A range of studies have documented the cost of PAE activity to innovation and economic growth.”
In addition to the report, the Administration announced several legislative recommendations and executive actions. The executive actions included holding additional workshops by the DOJ and FTC to discuss potential agency responses to PAE activity. Because it believed the previous workshops provided invaluable information, the Administration will hold more workshops to seek support and consensus for policies and laws to address the perceived abuses by PAEs.
While the White House’s recent releases do not specifically address antitrust enforcement, they suggest the Administration will support efforts by the DOJ and FTC to reign in anticompetitive activity by PAEs, including prosecution under the Sherman Act when appropriate.