Monday, May 20, 2013

PAEs Hide Real Party of Interest: A Veritable Shell Game

by Dietrich Schmitz

Several weeks ago, the Federal Trade Commission embarked on a special powers investigatory fact-finding mission to gather up details surrounding the activities of Patent Assertion Entities (PAEs) which, including a growing list of public comments, indicate PAEs have been operating in an environment 'ripe for abuse and gamesmanship', advises legal eagle Pamela Jones in a story posted today at her website (Image credit:

PAEs Target Small Businesses

PAEs "have started to target end-users, especially small companies, because they typically lack the expertise, experience and ability to fight questionable claims. Litigation costs can quickly mount up to $250,000 to $500,000, and reach millions if the case goes all the way through trial (not to mention appeals). End-users also have to deal with disruptions to their business from discovery requests and managing the litigation. Often companies are forced to divulge secret financial and technical information as well as divert key personnel from their work to participate in depositions and give testimony. Patent trolls, on the other hand, have few costs in pursuing a suit because they do not operate in any market. The lawsuit has no disruptive effect on the patent troll's business because it is the patent troll's business.", PJ explains.

In total there are now 68 public comments which when taken in totality illustrate what many have decried as an abuse of legal process for so many years yet have had to 'knuckle under' and comply or risk having heavy punitive judgments levied.

Technology Industry Number OneTarget

One particularly interesting comment came from a Mr. Ken Walsh President of the Software & Information Industry Association (SIIA) a 700 member group, including Red Hat and IBM, wherein he "details on how the patent trolls attack and what the results have been.", explains PJ.  There's no ambiguity in his comment to the FTC and Walsh uses strong words in his assessment stating that PAEs are: "masters at abusing and manipulating the patent system."

He goes further in his comment on behalf of his SIIA constituents to report that the Technology Industry is the "number one target of patent trolls."

The Shell Game: Real Party of Interest (RPI)

Still of more interest to the FTC is precisely 'how' PAEs manage to keep their affairs shielded from public scrutiny.  It turns out that a few of the public comments disclose their methodology.  

As Pamela explains, "But then comes the interesting part -- why trolls hide behind what are essentially nyms":

"This problem is exacerbated by another flaw in the patent system. Under the present system it is too easy for PAE’s to hide behind legal fictions and not identify themselves as a Real-Party-in-Interest (RPI) of their patents. Partnerships, LLCs, subsidiaries, and other legal entities can hold and assert patent rights while the connection between these entities and their corporate parents is often unknown or obscure to the public. Importantly, this secrecy makes it very difficult to determine what patents a PAE owns, to know whether a patent is owned by a party from which the prospective licensee has already been granted a license, and to determine the ultimate economic beneficiary of any monies obtained through infringed claims demands or suits. It also allows a PAE to increase its market power by acquiring a portfolio containing substitute patents that would have been competing technologies if owned by a different entity. This dynamic, in conjunction with there being no requirement that patent transfers be recorded with the U.S. Patent and Trademark Office or elsewhere, creates an environment that is ripe for abuse and gamesmanship. It allows PAEs to effectively “hide” their patent portfolio to the detriment of their prey.

The availability of complete, current and accurate RPI information would help (actual and potential) litigants make informed decisions on settlement and result in greater efficiencies in litigation. It’s difficult for a party to make an informed decision whether to settle if they do not really know who they are dealing with or what they are actually getting in the settlement."

I am both appalled and enraged to read this.  It's like shooting fish in a barrel as PAEs continue to take advantage of legal loop-holes

Still, what isn't being considered or mentioned is one fundamental issue, as PJ explains "the real problem doesn't occur to them, which is that software shouldn't be patentable in the first place. That truly is the core problem, and all the rest is symptoms."

-- Dietrich
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