Nuanced Patent Honesty About the FTC


Joseph Schuman
September 12, 2014
FTC Building

Nuance is an all-too-frequent casualty of Washington debate, where certainty is held to be a sign of strength and an admitted grasp of fine distinctions can come off as wishy-washy.

In the narrative of political debate, it is simply easier, more expedient for lawmakers and other officials to paint black-and-white pictures of problems to be solved for the public good, especially when the issue in question is as esoteric and far from most Americans’ daily experience as patent law and patent policy.

So when a senior government official takes the less-rewarding path of acknowledging complicated truths that make policy making more difficult, it’s worth noting. And Federal Trade Commissioner Joshua Wright did just that in a recent interview with Law360 (subscription only) about the FTC’s study of patent assertion entities.

Wright voiced frustration at the “incredibly, remarkably, intolerably high ratio of theory to evidence” in public debate about PAEs and patents in general, and he suggested the FTC’s findings are more likely to shine light on how patents are enforced and licensed by such companies than to map out a course of government action.

"One of the most fascinating things about the policy debates in and around patents and by extension the intersection of patent and antitrust law, is that most of the debate is chock full of theory and supposition but completely devoid of empirical evidence," Wright told Law360. "It is very difficult to move forward sensibly in debates with those characteristics."

No ‘Thumbs-Up or Thumbs-Down’

Anyone expecting results that either wholly condemn or wholly praise PAEs as a business model is likely to be disappointed, he added.

"If we do the study correctly and limit ourselves to presenting descriptive data and descriptive analytics to the world, it will make a great contribution because that data doesn’t exist," Wright said. "If we do it right, it’s probably going to disappoint some people. A study that is addressing the right research questions in the right way has to disappoint an audience that is just in it for the thumbs-up or thumbs-down signal from an agency."

The issue, he suggested, doesn’t seem to be whether patent assertion by a non-manufacturing company is good or bad – for this is how patents have been used to channel capitol to inventors for two centuries – but rather how some bad actors can abuse the system. And the FTC’s consumer protection and competition mandates already give it authority to tackle such improper acts, he added.

"If we find unlawful conduct within our jurisdiction ... we're an enforcement agency and we ought to enforce, whether we have a study pending or not," Wright said. "I don't think that there's any special antitrust rules required for PAEs, and that's a statement that cuts in both directions, I don't think we need special scrutiny."

Wary of a Government “Management Consultant”

On a separate patent issue, Wright seemed concerned about the prospect of new regulatory action from the FTC or the Department of Justice based on theories that standard-essential patents are creating antitrust or competition problems when there are no data showing competition harm in the real world of SEPs. (See this post explaining the debate over SEPs, and see this study using empirical U.S. government data to suggest SEPs promote competition.)

The FTC and DOJ should be cautious about not jumping in as a "management consultant" to standard setting groups and their members, Wright told Law360.

"It is quite rare for antitrust agencies to come in, in the absence of evidence of market failure, and say, 'We have a better idea for how you should write your contract,'" Wright said. "It doesn’t happen in other areas and there’s a really good reason why that doesn’t happen in other areas. The antitrust laws are chock full of admonitions from the Supreme Court about courts wanting to avoid administering prices and the like, and I think all of those same concerns apply to agencies in what really are royalty disputes between parties."

And he urged economists and academic researchers to examine how SEPs work in the marketplace in place of additional government study.

"There is ample incentive in the patent holdup debate for researchers to go out and try to do some empirical work. It doesn’t always need to be the FTC," Wright said. "Both enforcement agencies, I think by my view, have committed pretty firmly to some policy views about patent holdup [so] at this point we may not be the institution best suited to do that."