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Patent Assertion Entity Activity: an Ftc Study

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Patent Assertion Entity Activity: an Ftc Study Patent Assertion Entity Activity AN FTC STUDY Federal Trade Commission October 2016 PATENT ASSERTION ENTITY ACTIVITY: AN FTC STUDY A REPORT OF THE FEDERAL TRADE COMMISSION EDITH RAMIREZ Chairwoman MAUREEN K. OHLHAUSEN Commissioner TERRELL MCSWEENY Commissioner Heather Hippsley Chief of Staff David B. Robbins Executive Director Deborah L. Feinstein Director, Bureau of Competition Jessica L. Rich Director, Bureau of Consumer Protection Ginger Zhe Jin Director, Bureau of Economics David Shonka Acting General Counsel Randolph W. Tritell Director, Office of International Affairs Jeanne Bumpus Director, Office of Congressional Relations Tara Isa Koslov Acting Director, Office of Policy Planning Justin Cole Director, Office of Public Affairs Donald S. Clark Secretary of the Commission Andrew I. Gavil Former Director, Office of Policy Planning* Martin S. Gaynor Former Director, Bureau of Economics Francine Lafontaine Former Director, Bureau of Economics Marina Lao Former Director, Office of Policy Planning Report Drafters and Contributors Suzanne Munck, Deputy Director, Office of Policy Planning & Chief Counsel for Intellectual Property Daniel S. Hosken, Deputy Assistant Director, Bureau of Economics John E. Dubiansky, Office of Policy Planning J. Elizabeth Callison, Bureau of Economics Julie A. Carlson, Bureau of Economics Jason O’Connor, Bureau of Economics Elizabeth A. Gillen, Office of Policy Planning Benjamin Chartock, Bureau of Economics Christopher Bryan, Office of Policy Planning Henry C. Su, Office of Chairwoman Edith Ramirez Inquiries concerning this report should be directed to: Suzanne Munck, [email protected] * Mr. Gavil, Dr. Gaynor, Dr. Lafontaine, and Ms. Lao were directors during parts of the report period. Table of Contents EXECUTIVE SUMMARY AND RECOMMENDATIONS ......................................................................1 Executive Summary .........................................................................................................................1 Key Findings ....................................................................................................................................3 Recommendations for Legislative and Judicial Reform ..................................................................8 Conclusion .....................................................................................................................................13 CHAPTER 1: INTRODUCTION AND BACKGROUND .......................................................................15 Definition of a Patent Assertion Entity ..........................................................................................15 Legal Framework for PAE Activity ...............................................................................................17 Prior Studies of PAE Activity and Other Literature ......................................................................20 Government Interest in and Response to PAE Activity.................................................................28 United States Patent and Trademark Office .......................................................................28 The White House ...............................................................................................................30 United States Congress ......................................................................................................31 United States Supreme Court .............................................................................................34 The History of the FTC’s PAE Study ............................................................................................35 Study Scope and Methodology ......................................................................................................38 Organization of the Report.............................................................................................................41 CHAPTER 2: PAE ORGANIZATION AND STRUCTURE ...................................................................42 Introduction ....................................................................................................................................42 Two Models of PAE Behavior: Portfolio PAEs and Litigation PAEs...........................................42 Portfolio PAEs ...................................................................................................................45 Litigation PAEs ..................................................................................................................47 Some Litigation PAEs Comprised Multiple Affiliates ..................................................................50 Transparency Issues with Multi-Affiliate Structures .....................................................................52 CHAPTER 3: PATENT ASSERTION ......................................................................................................54 i Introduction ....................................................................................................................................54 PAE Demand Behavior ..................................................................................................................58 Affiliates Sent Demand Communications .........................................................................59 Demand Recipients ............................................................................................................61 Comparison with Prior FTC Enforcement Regarding PAE Demand Letters ....................66 PAE Litigation Behavior................................................................................................................67 Litigation PAEs and Portfolio PAEs Litigated Differently ...............................................71 The Relationship Between Litigated Patents and Defendant Industries ............................74 Affiliates Filed Patent Infringement Suits .........................................................................78 Study PAEs Initiated the Greatest Number of Cases in the Eastern District of Texas and the District of Delaware ........................................................................80 PAE Licensing Behavior................................................................................................................82 Litigation PAEs and Portfolio PAEs Adopted Different Licensing Strategies..................82 Affiliates Executed Patent Licenses...................................................................................84 License Term Characteristics Were Relatively Homogeneous .........................................85 Study PAEs Generated Approximately $4 Billion in License Revenue During the Study Period ...........................................................................................................89 Study PAE Licensees .........................................................................................................96 Revenue Sharing with Inventors ......................................................................................100 Conclusion ...................................................................................................................................100 CHAPTER 4: WIRELESS CASE STUDY .............................................................................................102 Introduction ..................................................................................................................................102 Wireless Respondents’ Demand Activity ....................................................................................105 Wireless Manufacturers and NPEs Sent More Demands than Study PAEs ...................105 A Small Number of Targets Received Multiple Demands ..............................................107 Wireless Respondents Sent Demands to Different Industries .........................................107 Wireless Respondents’ Litigation Activity ..................................................................................109 Wireless Manufacturers Rarely Sued for Patent Infringement .......................................109 ii Litigation Outcomes.........................................................................................................111 Most Wireless Defendants Operated in the “Computer & Electronic Product Manufacturing” Industry ......................................................................................113 Wireless Respondents’ Licensing Activity ..................................................................................115 Licensing Activity and License Characteristics ...............................................................115 Magnitude of License Fees for Wireless Patents .............................................................119 Most Wireless Licensees Operated in the “Computer & Electronic Product Manufacturing” Industry ......................................................................................121 Conclusion ...................................................................................................................................123 CHAPTER 5: PATENT CHARACTERISTICS .....................................................................................124 Introduction ..................................................................................................................................124 Methodology ................................................................................................................................125
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