The issue of patent assertion entities, or patent trolls, continues to be a hot one in the startup community. The Ninth Circuit Court of Appeals defines a patent assertion entity as “a small company [that] enforces patent rights against accused infringers in an attempt to collect licensing fees, but does not manufacture products or supply services based upon the patents in question.” Several weeks ago, on August 28, we discussed a report issued by the Government Accountability Office (GAO), which raised questions about whether patent trolling is really a big problem for startups and small businesses and whether patent trolls are truly the cause of an increase in patent infringement litigation. The report seemed to conclude that other material factors were to blame for the increase in patent infringement litigation. Despite the conclusion of the GAO report, many in the startup community have declared “war” on patent trolls and now the Federal Trade Commission (FTC) has entered the fray.
The Federal Trade Commission Joins the Fray
Two weeks ago, the FTC, whose principal mission is to promote consumer protection and eliminate and prevent anti-competitive business practices, announced that it will use its subpoena power to begin a formal investigation into patent trolls, by seeking information from approximately 25 companies that buy and sell patents, and 15 other companies that manufacture devices and write software and applications. The commission unanimously approved the effort with a vote of 4-0. According to FTC chairwoman, Edith Ramirez, “[p]atents are key to innovation and competition, so it’s important for us to get a better understanding of how the companies operate.” The FTC will delve into the companies’ financial operations, including how much they earn from patent lawsuits and licensing and how the profits are disbursed to investors. The FTC hopes that the subpoenas will allow its regulators to explore the secret workings of troll operations. If the FTC uncovers illegal or questionable practices, it may choose to use its antitrust and anti-competition regulatory powers to pursue the patent assertion entities. We will have to wait and see what the investigation reveals.