FTC Calls for Crack Down on Patent Lawsuits to Stifle Trolls

The agency is calling on both legislative and judicial fixes on frivolous patent infringement lawsuits.

October 10, 2016

WASHINGTON, D.C. – A new Federal Trade Commission (FTC) report spotlights the business practices of patent assertion entities (PAEs), firms that acquire patents from third parties and then try to make money by licensing or suing accused infringers. The report includes several recommendations for patent litigation reforms.

“This report is a big step forward in enhancing our understanding of PAEs and provides an empirical foundation for ongoing policy discussions,” said FTC Chairwoman Edith Ramirez, in a press release. “The recommendations we are proposing are designed to balance the needs of patent holders with the goal of reducing nuisance litigation.”

Patent Assertion Entity Activity: An FTC Study” found two types of PAEs that use distinctly different business models. One type, referred to in the report as Portfolio PAEs, were strongly capitalized and purchased patents outright. The second and more common type, referred to in the report as Litigation PAEs, frequently relied on revenue sharing agreements to acquire patents. The report found that Litigation PAEs accounted for 96% of all patent infringement lawsuits, but generated only about 20% of all reported PAE revenues.

“The FTC recognizes that infringement litigation plays an important role in protecting patent rights, and that a robust judicial system promotes respect for the patent laws. Nuisance infringement litigation, however, can tax judicial resources and divert attention away from productive business behavior,” the report states. With this balance in mind, the FTC proposes reforms to:

  • Address the imbalances between the cost of litigation discovery for PAE plaintiffs and defendants
  • Provide the courts and defendants with more information about the plaintiffs that have filed infringement lawsuits
  • Streamline multiple cases brought against defendants on the same theories of infringement
  • Provide sufficient notice of these infringement theories as courts continue to develop heightened pleading requirements for patent cases
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