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Originally published Friday, September 27, 2013 at 6:08 PM

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FTC starts inquiry into ‘patent trolls’

By a 4-0 vote, the Federal Trade Commission agreed to seek public comments on an investigation of “approximately 25 companies that are in the business of buying and asserting patents,” which are also known as “patent trolls.”

The New York Times

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WASHINGTON — The Federal Trade Commission voted to begin an inquiry into “patent assertion entities,” businesses whose only purpose is to stockpile patent portfolios and use them to sue companies like software designers and smartphone makers, the agency announced Friday.

The action is the first step in what is likely to be a lengthy and broad investigation, which could result in antitrust lawsuits against the companies.

Edith Ramirez, the FTC chairwoman, said in June that she believed there was little real evidence about the costs and benefits of a rising tide of patent litigation.

By a 4-0 vote, the commission agreed to seek public comments on an investigation of “approximately 25 companies that are in the business of buying and asserting patents,” the agency said in a statement. It will also look at about 15 other companies that assert patents in the wireless communications industry, including manufacturers of smartphones.

After reviewing public comments, the trade commission will seek to issue subpoenas to the patent assertion entities, which are also known as “patent trolls.”

“Patents are key to innovation and competition, so it’s important for us to get a better understanding” of how the entities operate, Ramirez said in the statement Friday.

She said the Federal Trade Commission Act allowed the agency to gather information about the financial operations of the companies, and it will seek to uncover how much they earn from patent lawsuits and licensing and how the profits are distributed to investors.

That information can form the basis of antitrust lawsuits, among other actions.

The purpose of the inquiry is “to expand the empirical picture on the costs and benefits” of the companies’ activity, Ramirez said. “What we learn will support informed policy decisions.”

The New York Times reported in June that Ramirez was trying to get the approval of the full commission to begin issuing subpoenas to the companies, which accounted for more than 60 percent of the 4,000 patent lawsuits filed in 2012. That figure was up from 29 percent two years earlier.

President Obama has also called for the federal government to ascertain how patent assertion entities are operating; he directed executive agencies to take steps to “protect innovators from frivolous litigation.”

The companies that are generally pointed to as the largest of the litigators say that, while there is abuse of patents in some sectors, they are not themselves involved in frivolous litigation.

Patent assertion entities span a spectrum. On one end are companies that are essentially legal shells that send letters to businesses claiming infringement and demanding payments; in 2011, for example, such a company targeted coffee shops for setting up Wi-Fi networks for customers.

At the other end are companies like Mosaid Technologies and Intellectual Ventures, which buy large portfolios of patents from technology companies like Microsoft and Nokia, using them to generate licensing payments that run to millions of dollars.

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