Feds Target Patent Trolls, Product Counterfeiters

The same day the Obama Administration released updated plans to protect U.S. intellectual property, the head of the Federal Trade Commission announced the agency would be taking more active efforts to examine the impact of "Patent Assertion Entities" -- more commonly called patent trolls.

"It's important to us that we have the right approach in terms of enforcement," said Victoria Espinel, the U.S. Intellectual Property Enforcement Coordinator at a press briefing June 20, where she announced new efforts the government plans to take, detailed in a document titled "Joint Strategic Plan on Intellectual Property Enforcement." "We want to make piracy and counterfeiting less [profitable]," she added. The strategic plan is an update of the plan issued in 2010.

The stakes for the U.S. economy are enormous, according to Espinel. Intellectual property industries, which include everything from the IT software to Hollywood movies to pharmaceuticals, comprised almost 35% of the U.S. GDP in 2010, or more than $5 trillion. They also represent 60% of all American exports and more than 40 million jobs, directly and indirectly.

[ For more on the administration's crackdown on patent trolls, see White House Declares War On Patent Trolls. ]

But a growing factor in the battle to protect U.S. intellectual property is the flood of patent litigation brought by companies for which the litigation itself is their business. The strategic plan points to actions taken earlier this month by the White House Task Force on High-Tech Patent Issues to crack down on frivolous and predatory litigation.

For many in the IT industry, patent trolls -- companies that buy small or struggling firms in order to obtain the patents they hold, and then embark on a string of lawsuits against other companies that may use aspects of the patents in their own products -- represent a form of intellectual piracy. The PAE's claims may not be true, but many companies would rather settle out of court than spend years in litigation.

Edith Ramirez, chairwoman of the FTC, didn't say "troll" during her keynote speech before a workshop hosted by the American Antitrust Institute and the Computer & Communications Industry Association, but she did warn that PAEs "are evolving in ways that raise red flags for competition and consumers."

For instance, Ramirez said, beginning in 2012 the majority of patent infringement lawsuits were filed by PAEs, reflecting the tripling of these lawsuits since 2007. "Some evidence, along with common sense, suggests that many more PAE lawsuits are threatened than filed."

In addition, patent trolls appear to be developing new strategies that can create even greater economic damage. Ramirez said there is a trend toward "privateering," where companies will transfer their patents to a PAE, which then targets the original patent holder's competitors.

"The sale [of the patents] may be structured to encourage the PAE to target the original owner's downstream rivals," Ramirez said. "The … company benefits indirectly if the PAE raises its rivals' costs. There are variations on this theme, but that is the core fact pattern."

Ramirez said the FTC will be studying PAE activity to determine the costs and benefits to the U.S. economy. Other agencies will be tackling aspects of the problem as well. "Earlier this week, the [Patent and Trademark Office] announced it will begin a rulemaking to require patent applicants and owners to regularly update patent ownership information," she added.