As anyone working in the world of patents knows, the vast majority of patent transactions are shrouded in secrecy. NDAs rule the day. Transactions generally start with non-disclosure agreements (NDAs) and end with agreements with non-disclosure clauses. (If you tell anyone you're dead meat.) From the real person of interest (lawyer speak for the person who really owns the patent) to the address of the owner, to the terms of a license agreement everything happens behind closed doors.
Enter Google, a firm that no doubt has signed its share of non-disclosure agreements while navigating the patentsphere. The firm makes no secret of its outrage over the activities of patent assertion entities (PAEs). In their latest comments on patent trolling and privateer business models sent to the Federal Trade Commission (FTC) it asks the FTC to investigate how these nefarious privateer business models operate. Patent privateering is where a company that makes things — an operating company — teams up with a non-practicing entity (or creates an entity for that purpose) and then go after infringers rather than file infringement lawsuits themselves.
Google Search Questions
Here are the questions buried in the Google FTC comments:
- How prevalent is the outsourcing of patent enforcement by operating companies to PAEs?
- What types of arrangement have PAEs and operating companies consummated?
- What motivates these arrangements?
- What are the likely competitive harms and benefits of patent outsourcing?
- What are the competitive implications of the secrecy with which many PAEs conduct their operations?
- Do the particular terms of outsourcing arrangements indicate that operating companies are employing PAE proxies as competitive weapons?
Most of the questions can be answered with, wait for it, a Google Search.
Some of the answers to the questions are obvious:
What motivates these arrangements?
Making money. Having non-correlated assets turned into cash without having them impact the bottom line. Non-correlated assets are hot these days. When a savings account with a return of 0.8% is considered high yield, firms with dormant patent assets seek to monetize those assets and plump up the bottom line.
And some seem kind of disingenuous for a firm that dominates its market space and it behavior as it moves into new markets questions as monopolistic:
Do the particular terms of outsourcing arrangements indicate that operating companies are employing PAE proxies as competitive weapons
And while Washington is awash in sequestration commentary and vitriol on the effectiveness of government employees, it seems a little simple minded that Google and its commenting buddies (Red Hat, Earthlink, and Blackberry) put forth such simplistic questions before an organization that put on one of the most sophisticated and informed discussion on the patent assertion entities and the verious business models that support it as part of it's December 10th 2012 Patent Assertion Entity Workshop with the Justice Department. Did Google send anyone? It was a veritable who's who of the Patent Bar (and a fashion parade for litigation wear and red ties.)
Consider the patent activities of quartet:
- Blackberry doesn't discuss its purchase of the patents held by the Multimedia Patent Trust or its pre-Google purchase of the mobile assets of Motorola, peace treaty between BBBY and MOTO. When GOOG bought the MOTO assets its due diligence people probably had access to the license agreements and peace settlement between the parties.
- Red Hat and Microsoft engaged in its own not dance on Linux related patents documented in Burning the Ships. Since GOOG is engaged in development of its own open source platform the previous exploits of Red Hat, Microsoft, and the impact of patents on the open source world are of particular interest here.
- Earthlink has its own NPE stories. In December it was accused of infringing on U.S Patent No. 7,631,101 issued Dec. 8, 2009, for Systems and Methods for Direction of Communication Traffic in Eastern District of Texas of course. A troll action that has snared many of the Internet Service Providers. The '101 patent looks a lot like hacker magic to redirect your traffic but hacker art probably doesn' appear in prior art.
So we get the point — does the FTC has the ammo it needs to look at privateering as an anti-competitive practice? Google and its cohorts have phrased the question within the context of the FTC domain.
As a very expensive subscription to Intellectual Asset Management and some pretty easy Google searches reveal, the privateer business model is on the move and other PAE business models are here to stay. The FTC continues to investigate intellectual property matters and GAO is due out with its own report on the impact of non-practicing entities. It looks like all that marketmaking in non-corelated assets is becoming a reality before all the tools and intelligence are available to support it. Even the giants are looking for answers and a level playing field.