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FTC to Begin Patent Troll Study

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The eagerly awaited FTC study on patent trolls moved closer to implementation this month.

The FTC got budget approval from the White House's OMB for an economic study on the tactics and business models of patent assertion entities (PAEs) or patent trolls, which use the patent system mainly for filing lawsuits rather than producing products.

Now, comes the important next step of the FTC issuing subpoenas to bring some overdue transparency on patent misuse. The wide array of companies increasingly targeted by trolls, from tech companies to restaurants, are anxious for the study and eventually relief from abusive practices that they hope will result.

Troll targets -- companies of all sizes, including small businesses which buy products like a scanner at an office supply store -- know how much these patent demand letters cost them personally. But little is known about the overall scope of the patent troll industry and how patent trolls operate.

As part of its patent reform advocacy, my trade association's Patent Progress blog has written about the past success of the FTC's 6b studies -- like the one that led to generic drug reforms in 2003. For more on what could be uncovered using the FTC's authority to uncover patent troll tactics, see this post.

The growing practice of so-called "privateering" is making it harder to track the patent trolls' business model. In privateering, a company sells patents to another entity to use in lawsuits against that company's competitors.

FTC Chairwoman Edith Ramirez expressed concern that privateering and other PAE strategies rely on a lack of transparency to reduce competition. That's why tech companies, which are often targets of patent trolls, are looking forward to the FTC study exposing the companies that rely on trolls to do their dirty work.

In announcing her interest in using the FTC's power for a 6b study at the National Press Club last June, Ramirez said:

"In particular, I would like the Commission to help develop a better understanding of the PAE business model, which would inform many of the cost-benefit questions associated with PAE conduct."

"Flaws in the patent system are likely fueling much of the real cost associated with PAE activities. PAEs are good at monetizing patents. But effective monetization of low-quality patents imposes a de facto tax on productive economic activity, with little or no offsetting benefits for consumers."

The tech industry, which depends on patent protection, has advocated for real patent reform for more than a decade. Beneath the "patent wars" headlines are companies that are losing their battles and businesses. They don't understand why the Obama administration and the House led by Republicans can agree patent reform is urgently needed, but then stand by as the Senate caves in to pressure from trolls to do nothing. The Senate seeks accommodation between trolls and their victims, but that is not a plan for reform... and will only result in a long wait. Decisive action is needed since the problems will continue to get worse if not addressed.

Anyone who thinks time is not of the essence here need only look at the breakneck pace that patent trolls have been suing small businesses into bankruptcy in just the 14 months since the idea for this FTC study was first announced. It's time for the FTC to begin using its authority to subpoena troll companies and gather more data on exactly how this parasitic industry is draining the economy.

While we are grateful we'll soon have even more information about the patent troll problem, we already have a strong record for legislative reform. Patent trolls are increasingly threatening and suing businesses and we hope Congress won't use the two year (or more) study period to delay reform.