FTC to Hold Final Hearing on Patent Law

The Federal Trade Commission announced last week that it would hold the fifth and final hearing in a series exploring the evolving market for intellectual property on May 4-5, 2009.  This fifth and final hearing will take place on the campus of the University of California at Berkeley, in cooperation with the Berkeley Center for Law and Technology and the Berkeley Competition Policy Center. It will explore how markets for patents and technology operate in different industries, whether those markets operate efficiently, and how patent policy might be adjusted to respond to problems in those markets in order to better promote innovation and competition.  To be perfectly honest, it seems that the Federal Trade Commission is coming quite late to the party.  The Patent Office has embarked upon wide-ranging changes over the last several years, and in the wake of the Federal Circuit decision in Tafas v. Dudas it seems likely that the Patent Office will implement far-reaching rules changes that will alter the foundation of patent prosecution.  Additionally, Congress is nearing completion of legislative patent reform, with the Senate Judiciary Committee finally reporting out patent reform legislation to the full Senate.  What the FTC hopes to accomplish at this late date is puzzling, but maybe they just didn’t want to be seen as asleep at the switch while revolutionary change is sweeping the patent industry.

In any event, the hearings were part of an ongoing evaluation of patent law and patent-related business models, which is aimed at learning about the operation of new markets for patents, innovation and technology.  This series was prompted by the believe that the marketplace has changed quite significantly since the October 2003 Commission report on the patent system, “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy.”  Had the FTC really wanted to play a role in bringing change to the patent system the agency should have embarked upon this process well over a year ago, but better late than never I suppose.

I just wonder what it means when the FTC is asking about whether the market for patent assets is operating efficiently.  I also question what the motivation is when the FTC explains that one significant change prompting this investigation relates to how patents are sold.  The FTC has specifically explained:

Some of the most significant recent changes in markets for intellectual property have occurred through the emergence of new business models involving the buying, selling and licensing of patents.

Of course the market for patents is operating efficiently.  The fact that the FTC is uncomfortable with patent trolls, or non-practicing entities as is now the accepted term, does not mean that the government should launch an investigation to help those tech-giants who can’t figure out how to combat trolling.  First, we need to keep in mind that whatever rule is created to apply to the so-called non-practicing entities, will also apply to universities, federal laboratories and research & development companies.  So we can use the politically correct term — non-practicing entities — or we can use the term “patent trolls.”  I for one want to keep using patent trolls because it will make it far harder for the government to make changes to the law if they are forced to state in public that universities, federal laboratories and R&D companies are patent trolls.  Calling them patent trolls is nonsense, and that is exactly why those mega-infringers want to complain about non-practicing entities.  Let us not forget they are infringers!  They are tortfeasors who have been found to infringe, or believe they infringe and pay off those who own valid patent rights.

All of this really sickens me because there is a solution to the patent troll problem, assuming it really is a problem at all and not just a fiction created by those who would love nothing more than to weaken patent rights of independent inventors, entrepreneurs and start-up companies.  There is tremendous support in the high-tech community for expansive new post-grant review procedures, presumably so they can make it more difficult for innovators to obtain patents.  The only trouble is that the current reexamination procedures are hardly utilized despite the fact that there is an overwhelming success rate for those who challenge patents.  As I explained in Reexamination Would Stop Patent Trolls, ex parte reexamination requests result in all claims being canceled 9.2% of the time and in 59% of the cases a certificate is issued with at least some claims being changed. Even more astounding are the statistics relating to inter partes reexamination.  For inter partes reexamination 74% of requests result in all claims being canceled and 14% of the time certificates issue with at least some claims being changed.  With this level of success you would anticipate those who complain about patent trolls would race to the Patent Office and file reexamination requests.  Notwithstanding, they don’t.  I know this for a fact because we have had meetings and provided proposals for filing multiple reexaminations to change the calculus for patent trolls, but tech is not interested.  Kind of makes you wonder why they complain about a problem when there is an obvious solution they are ignoring.  Rather, they would prefer to participate in building defensive patent portfolios, which simply won’t work because patent trolls do not make, use or import anything, so having a defensive patent portfolio is ineffective against patent trolls.

You might not like the outcome of patents being sold to those who value the rights, but the reality is that the government recognizes rights and others either acquire or license those rights as they see fit and based upon free market rules.  For example, Ocean Tomo has made a successful business out of auctioning off patents.  According to the Ocean Tomo website:

Ocean Tomo’s model of a multi-lot, live auction for intellectual property was created to introduce the marketplace to a forum for facilitating the open and public exchange of Intellectual Property (“IP”).  The auction was designed to bring a sense of urgency and closure to IP transactions, create a center for IP liquidity, and effectuate transparency for a market in which none had historically existed.

The auction brings numerous benefits to both a seller and buyer.  From a seller perspective, the auction is the first forum for transacting intellectual property in which the burden of purchasing is actually shifted to the buyer.  The auction structure and format enable a seller to offer a pre-set terms and conditions including a minimum price, “the reserve”. Many auction participants and followers in the marketplace now recognize the value of the auction format.

Admittedly, the Ocean Tomo Spring 2009 auction held a few weeks ago was disappointing, but that seems to be due to the weak economy, not the fact that the market for patent assets is inefficient.

I suppose soon enough we will find out what all these hearings are about and what the FTC plans to do.  Interested parties can submit comments to the FTC for consideration by May 15, 2009, so at some point thereafter we will likely get a new report from the FTC will all kinds of suggestions.  I wonder whether those suggestions will favor big-tech or the independent inventors, entrepreneurs and start-ups that are the ones who will make the technologies and create the jobs that will get us out of this recession.