FTC Report Calls for Reform of Patent Trolls

The Federal Trade Commission (FTC) issued a report calling for reforms aimed at patent “trolls” to help lower the number of frivolous lawsuits filed by shell companies, a move welcomed by the tech industry that has pushed for reform because of the cost of lawsuits that result from the activity and its negative effect on innovation, research and development. The report follows an investigation into the 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.

The FTC was able to study the behavior of the PAEs because of their ability to collect confidential business information and conduct industry studies. They used that authority to study PAE acquisition, litigation, and licensing practices.  Previous research by the White House and the Congressional Research Service highlighted the increasing number of patent lawsuits and the detrimental effect on the innovation ecosystem.

The FTC study acknowledged the role that litigation plays in protecting patent rights, however, it highlights the negative effects of nuisance infringement litigation, noting that it “can tax judicial resources and divert attention away from productive business behavior.” To address the problem, the FTC recommends that policy makers address PAE “asymmetries” through procedural and substantive reform, including:

• 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; and,
• Provide sufficient notice of these infringement theories as courts continue to develop heightened pleading requirements for patent cases.