FTC makes recommendations to reduce nuisance patent litigation

WASHINGTON (Reuters) - U.S. regulators on Thursday called for several reforms to how courts handle patent litigation in an effort to curb what some companies call nuisance lawsuits meant to extract settlements that may not be warranted.

The Federal Trade Commission issued a study in response to complaints from high-tech companies and others that patent assertion entities, or PAEs, sometimes called “patent trolls” allegedly file frivolous lawsuits in hopes of winning a settlement.

“Nuisance infringement litigation ... can tax judicial resources and divert attention away from productive business behavior,” the agency said.

As part of the study, the FTC examined business practices of more than 300 PAEs and their affiliates, from 2009 to 2014.

According to the study, the PAEs typically acquired the patents from third parties and used them to sue potential licensees, and would then settle shortly afterward.

The license royalties were usually below $300,000, which is in line with early-stage costs of defending a patent case in federal court, the study said, suggesting that PAE behavior is “consistent with nuisance litigation.”

The FTC recommended that courts update rules and case management practices to reduce the burden of discovery, a pre-trial exchange of information between a plaintiff and defendant. The cost of gathering that paperwork is often high enough that smaller plaintiffs will opt to settle out of court.

The agency also urged courts to pause cases against users of a technology if a PAE also sued the manufacturer on the grounds that the manufacturer is better able to defend against the lawsuit.

The problem of nuisance patent litigation has been also attacked from a number of different angles. In some cases, companies fight back and win invalidation of the plaintiff’s patents. Additionally, the U.S. Patent and Trademark Office has set up a board to consider invalidating certain patents.

Advocates of strong patent rights criticized the study as too small, and its questions too open-ended, to explain how PAEs might affect innovation or competition.

“Due to methodological flaws in this study, it does little to shed light on this important issue and provides no basis on which to justify sweeping policy changes,” said Brian Pomper, executive director of the Innovation Alliance, whose members include Qualcomm Inc and Dolby Laboratories Inc .

Additional reporting by Andrew Chung in New York