Posted by Matthew Bye, Senior Competition Counsel
Today, we submitted comments together with BlackBerry, EarthLink and Red Hat to the Federal Trade Commission and Department of Justice on the growing harm caused by patent assertion entities (more widely known as patent trolls).
We’ve been encouraged by recent attention on the problem of trolls, which cost the U.S. economy nearly $30 billion a year. Trolls are hurting consumers and are increasingly going after small businesses, hampering innovation and reducing competition.
Our comments today also focus on a worrisome trend: some companies are increasingly transferring patents to trolls—and providing incentives to assert those patents against their competitors. These transfers can raise rivals’ costs and undermine patent peace.
This trend has been referred to as “patent privateering”: a company sells patents to trolls with the goal of waging asymmetric warfare against its competitors.
Trolls use the patents they receive to sue with impunity—since they don’t make anything, they can’t be countersued. The transferring company hides behind the troll to shield itself from litigation, and sometimes even arranges to get a cut of the money extracted by troll lawsuits and licenses.
Privateering lets a company split its patent portfolio into smaller sub-portfolios “stacked” on each other, increasing the number of entities a firm must negotiate with and multiplying licensing costs. This behavior unfairly raises competitors’ costs, ultimately driving up prices for consumers.
It also undermines incentives for companies to work together towards “patent peace” through good-faith negotiation and cross-licensing. If cross-licensing is nuclear deterrence for patents, then privateering has the opposite effect, facilitating patent proliferation and aggression.
We’re asking other companies to work with us to develop cooperative licensing agreements that can help curb privateering. We’re also encouraged that the FTC and DOJ are paying attention to this critical issue, and we hope they will continue to study how abusive troll litigation and patent privateering are harming innovative industries.