The study provides empirical evidence confirming that only a very limited subset of PAEs (i.e. certain Litigation PAEs) engage in what has been deemed by some observers and commentators as problematic assertion behavior, and that there is no basis for widespread concern over PAEs who own patents subject to licensing assurances to standard development organizations or who send demand letters.
The study also provides evidence that Portfolio PAEs are efficient vehicles for patent licensing. As recognized in a recent speech about the study by Commissioner Maureen K. Ohlhausen of the Federal Trade Commission: “… [I]n aggregating thousands of presumably complementary patents into a single source, Portfolio PAEs may alleviate royalty-stacking effects associated with divided ownership of complementary property rights.” This conclusion is consistent with antitrust case law that has found portfolio licensing to be efficient and to reduce litigation. See U.S. Philips Corp. Int’l v. ITC, 424 F.3d at 1179, 1192-93 (Fed. Cir. 2005) (explaining that portfolio licenses may “obviate any potential patent disputes between a licensor and a licensee and thus reduce the likelihood that a licensee will find itself involved in costly litigation over unlicensed patents with potentially adverse consequences for both parties, such as a finding that the licensee infringed the unlicensed patents or that the unlicensed patents were invalid”) (citing Texas Instruments, Inc. v. Hyundai Elecs., 49 F. Supp. 2d 893, 901 (E.D.Tex. 1999) (describing how “extremely expensive and time-consuming” it is for parties to license and manage the licensing of technology by using individual patents and how it is preferable to employ a portfolio licensing approach)).
On the other hand, the study’s finding that the litigation activity of Litigation PAEs “dwarfed that of all other Wireless Respondent types combined” is inconsistent with a 2012 World Intellectual Property Organization report, which found that a manufacturing company (Apple) led in patent assertions in the smartphone industry (with about three times more litigation assertion instances than the next company on the list).
The study makes a number of proposals that have the potential to reduce non-meritorious infringement lawsuits without negatively impacting the rights of patent owners who bring legitimate infringement suits. Rules that limit discovery prior to preliminary motion practice, and that ensure those motions are timely decided, would most likely reduce the discovery cost imbalance in PAE litigations. The same is true for rules requiring more detailed complaints by infringement plaintiffs. But the study makes these recommendations at a high level, without setting forth specific suggestions for their implementation or evidence that the proposals would, in fact, reduce so-called nuisance litigation. Whether policymakers implement any or all of the FTC’s proposed reforms in the coming months will depend on how strongly the FTC and others advocate for their adoption, and on whether the proposed reforms remain relevant in the face of what Lex Machina recently reported is a continuing trend of fewer patent assertions.
