FTC loses patience with patent trolls

The FTC is soon to take on firms that exist purely to buy and collect royalties on patents.
Written by Charlie Osborne, Contributor on

The Federal Trade Commission is preparing to investigate the practices of patent-assertion entities across the United States.

FTC chairwoman Edith Ramirez is expected to propose an inquiry that will place companies that exist purely to purchase and collect patent royalties under a federal gaze, according to the New York Times. Citing people familiar with the matter, the publication says that companies which purchase patent portfolios only to sue product makers and software designers might soon find themselves required to answer questions over their conduct, lawsuits, and whether funds ever reach the original patent owner.

Such patent-assertion entities -- known colloquially as "patent trolls" -- are able to take businesses of any size to court over patent disputes and make claims of intellectual property theft.

As a result, it can be argued that both innovation and competition becomes hampered -- since firms will sometimes err on the side of caution rather than become embroiled in costly lawsuits. In addition, lawsuits can be used to advantage by industry-dominating companies to prevent smaller rivals from getting off the ground; benefitting the corporation itself and potentially interested investors.

However, it can also be argued that these types of firms make it possible for investors to be compensated properly if they do not have the means to enforce their patents.

In recent years, the U.S. Patent and Trademark Office (USPTO) has seen a rise in patent-based lawsuits. As complex products including tablets and smartphones continue to rise in popularity, the components and software required for a single product can contain thousands of patents -- any of which can then be used as evidence in patent disputes.

Patent-assertion entities accounted for over half of all U.S.-based patent lawsuits filed last year.

Ramirez is expected to discuss her recommendation for an inquiry on Thursday at a patent law workshop. The chairman told an antitrust group in January that the agency will continue to examine "whether P.A.E.'s encourage invention or instead hamper innovation and competition."

The investigation is expected to scrutinize practices as a whole rather than target individual firms or cases. Both small companies that gather patents and claim infringements -- such as a firm in 2011 that claimed patent infringement was taking place in coffee shops that offered customers Wi-Fi -- and large corporations which amass patent portfolios in order to license them will be placed under the spotlight.

President Obama has recently said that steps will be taken to "protect innovators from frivolous litigation," which could make these types of lawsuits a thing of the past.