220px-FremontTrollYesterday, the Federal Trade Commission (FTC) Chairwoman Edith Ramirez, called on the Commission to embark on a dangerous quest – a hunt for patent trolls.

Washington is all fired up about the growing corporate specter of patent trolls (more formally known as Patent Assertion Entities or PAEs), and the FTC is just the latest brave governmental body to take up the fight.  As we wrote about a few weeks ago, the White House and both chambers of Congress have been busy thinking up ways to conquer these beasts. Why?  Because patent trolls game the patent system.

The usual patent troll pattern goes something like this…

  • Patent trolls buy up portfolios of tech patents that are really broad, claiming ownership of everything from QR codes to WiFi.
  • They send out demand letters to lots of businesses, including end users.  Think: retail, restaurants, and hotels – even your local independent coffee shop.
  • Patent troll letters demand a licensing fee from the business, or threaten a lawsuit if they don’t receive the payment.  To make matters worse, the licensing fee isn’t equivalent to the worth of the patent itself – it is calculated to be just slightly less than the cost of litigation were the company to fight back.   Even worse: PAEs don’t make things themselves, so the businesses they sue can’t even counter-sue them.
  • Because these businesses don’t usually have a team of patent lawyers, or the budget for a long and costly legal fight…they usually give in to the demand for a licensing fee.

Bottom line: Even a ballsy small business who wants to fight the trolls will be told by their lawyer that it isn’t worth it.

The result: Litigation concerning patent trolls has gone through the roof in recent years, totaling over $29 billion in 2011 alone.

How did theses greedy trolls get their start?  They took advantage of a long list of problems and loopholes in the current patent system.  Today, patents can be broad, costs high, and demand letters borderline extortion. As Chairwoman Ramirez put it, patent trolls “defy a one-dimensional answer.”

The FTC has a powerful weapon on choice in the battle against patent trolls: Section 6(b) of the FTC Act. Section 6(b) gives the FTC the authority to investigate an industry – in this case, patent trolls – and create a broad study.   Such a study would be incredibly value because the information we have so far on patent trolls is very limited – numbers on just a few litigation matters – but common sense tells us that this is just a fraction to the amount of demand letters being received by companies.  Like the trolls of yore, patent trolls hide in the shadows. Lots of the time, businesses don’t even know who they are being sued by.  An FTC Section 6(b) study would move the battle from the mire of “common sense” to stronger fact-based ground.

And so, the FTC as joined the Fellowship of the Patent, but the road to Mordor is long.  DMA is glad to have such a formidable regulator joining the quest, because it’s going to be a long journey…

If you want to learn more about patent trolls, or DMA’s epic quest to combat them, please contact Jerry Cerasale, DMA’s senior vice president of government affairs.

(Many thanks to DMA’s amazing legal intern, Alison Swift, for her contributions to this post!)

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