FTC PAE Study Would Collect Detailed Confidential Business Information From 25 PAEs

by Foley & Lardner LLP

In the May 19, 2014 Federal Register, the Federal Trade Commission published a Notice and Request for Comments concerning its proposal ”to collect information about Patent Assertion Entity (‘‘PAE’’) organization, structure, economic relationships, and activity, including acquisition, assertion, litigation, and licensing practices.” Written comments on the proposed FTC PAE study are due by June 18, 2014.

Background on the Study

The FTC long has shown an interest in regulating the activities of PAEs, and supported the USPTO’s proposal to require disclosure of attributable ownership/real party-in-interest information in U.S. patent and patent applications. This study may be aimed at giving the FTC information it needs to lay the groundwork for regulating PAEs.

According to the Federal Register Notice, “PAEs are 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.” Also according to the Notice, “PAE activity is a growing issue for the United States” and “may have ‘a negative impact on innovation and economic growth.’’’ Because publicly available information on PAE activity is limited, the FTC claims that it needs to undertake this study to generate an “empirical record addressing non-public PAE activity.”

Purpose of the Study

According to the Notice, “[t]he proposed study will add significantly to the existing literature and evidence about PAE form, structure, organization, and behavior” by going beyond publicly available data and requiring detailed information from 25 PAEs. In particular, the study aims to obtain information pertaining to at least the following aspects of PAE activity:

  • 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?

Talk about a fishing expedition!

The FTC proposes to send information requests to approximately 25 PAEs that use different organizational models and assertion strategies, and also obtain information from 15 non-practicing entities (NPEs) and manufacturers.

Scope of the Study

The study would dig deeply into the inner workings of the PAEs, and would require the selected PAEs to disclose detailed information dating back to January 1, 2009, pertaining to:

  • Corporate Structure
    • A complete description of the corporate entity, its subdivisions, affiliates, branches, operations under assumed names.
    • “each Person(s) with a contractual or other legal right or obligation to a share of revenues, profits, costs, or other Economic Interest in the Firm”
  • Patent Information, for each patent including:
  • its number, priority date, expiration date
  • if it has been subject to review by the PTO, or a court
  • person(s) holding an interest in the patent, and the nature of that interest
  • all litigations involving the patent (including those before the PAE purchased the patent)
  • all licenses and agreements and, if there is an exclusive license, “a narrative response that identifies by Reference Number, all Reports that evaluate or analyze the Firm’s reasons for entering into the exclusive License” and any restrictions on the license.
  • If a value has been assigned to the patent, its date of valuation, its value, and a narrative of previous valuations
  • How much was spent on litigation and licenses, the details of expense sharing agreements
  • How much value was obtained through litigations and licenses, how it was shared, and the method for calculating projected revenues
  • Patent Valuations

The Notice also seeks detailed information on patent acquisition, licensing, transfer, and assertion, and reveals a special interest in PAEs that operate in the area of wireless communications.

Concerns About the Study

Companies that are the target of this study may be concerned about several issues, including:

  • Confidentiality
    • The study would force the selected PAEs to disclose all of their inner workings to the FTC. While the information technically would be protected from disclosure under § 6(f) of the FTC Act “while it remains confidential commercial information”(unlike the information the USPTO proposes to collect under its proposed “attributable owner” rules), companies that are the target of this study may be concerned about the FTC’s ability to keep the information secure. If a government contractor can steal secrets from the NSA, it is not unreasonable for a company to question whether the government can be entrusted with the keys to its crown jewels.
  • Subsequent inquiries and prosecution
  • It is possible that confidential information collected pursuant to the study could be used by the government in subsequent investigations and prosecution.
  • The information to be reported under the study may be protected by confidentiality agreements with other entities. While most contracts permit disclosure of confidential information when required by law, it is not clear that an FTC inquiry under the proposed study would be encompassed by such terms.
  • The FTC estimates a total of “425-845” hours per PAE company and a maximum of $211,250 for a large PAE. As high as these amounts are, they likely significantly underestimate the true costs of collecting and reporting all of the requested information, particularly for any company having sizable patent portfolios.
  • Conflicts with other legal obligations
  • Costs

Can They do This?

According to the Notice, several U.S. Senators have urged the FTC to conduct a study of PAEs. Congressional urging is not the same as legal authority, however. The FTC cites to § 6 of the FTC Act (15 USC § 46) for its authority to conduct this study. That statute is a catch-all provision permitting the FTC to request information, and inquiries under that statute are subject to judicial review. It is difficult to believe that a study of this breadth falls within the normal scope of § 6 inquiries, and it is likely that at least some target PAEs would challenge the FTC’s authority to compel their confidential business information for the simple purpose of “provid[ing] a better understanding of the organizational structure and economic relationships of PAEs, as well as their activity and associated costs and benefits.”

Many thanks to Alan Rutenberg, partner and chair of the Antitrust Practice at Foley & Lardner LLP, for sharing his insights into FTC practices.

View This Blog


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Foley & Lardner LLP | Attorney Advertising

Written by:

Foley & Lardner LLP

Foley & Lardner LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.