U.S. Cong. Research Service Wants Some Patent Holders to “PAE”

Flawed IP Report Attempts to Legitimize Assertion Label

If the Congressional Research Service’s distorted findings on the impact of patent holders are not bad enough, it is promoting a new, nastier and arguably less accurate term for NPEs, “patent assertion entity.”

A recent report, “An Overview of the ‘Patent Trolls’ Debate,” relies on biased, flawed studies to tell Congress that trolls are even more destructive than they sound. (A summary of the report’s weaknesses can be found in “Report for US Lawmakers Gets it Horribly Wrong on NPEs.”)

A Google search on the term “patent assertion entity” does not reveal much. Wikia, the self-described “IT law wiki,” said that “A patent assertion entity is a firm whose business model primarily focuses on purchasing and asserting patents.” The earliest mention of the term that we could find was in a June 11, 2011 allusion to a paper by Colleen Chien, “From Arms Race to Marketplace: The New Complex Patent Ecosystem and Its Implications for the Patent System” Ms. Chien is with the Santa Clara University School of Law.

Her latest paper, “Startups and Patent Trolls,” released on September 13, argues that PAEs are more harmful to small businesses, not large operating companies. “A number of unique characteristics,” Ms. Chien writes, “make some startups and small companies, even though they lack deep pockets, attractive targets to PAEs.”

The Congressional Research Service suggests in its August 20th report that a new, harsher and less accurate term for NPE is a standard, when it is, in fact, not even close to being one. The first line of its report begins:

“Congress has recently demonstrated significant ongoing interest in litigation by ‘patent assertion entities’ (PAEs), which are colloquially known as ‘patent trolls’ and sometimes referred to as ‘non-practicing entities’ (NPEs).”

*     *     *

Term or Label?

I don’t know anyone who routinely uses the term “patent assertion entity,” and I have been working in patents for 25 years. NPE is a confusing enough description that describes little, but patent assertion entity (PAE or “pay”) paints an even less accurate picture. It speaks to an inherent combativeness and ignores the need to uphold rights or stop invention theft. It suggests that “buying and asserting” is the DNA of non-practicing holders, even when some NPE holders self-generate patents and the preference of most NPEs is to license them. (Isn’t “entity” the term they use for alien life-forms in horror movies?)

Bad data unfortunately tends to get perpetuated by those who either don’t know any better or who want to believe it is accurate. Techdirt, a popular tech blog ran a sympathetic story about the Congressional Research Service report in its “good research” department. Sunnyvale-based Techdirt claims 800,000 RSS subscribers.

There are many types of patent owners. Many because of their size and lack of capital and experience, don’t produce products. I wrote in IP CloseUp in August 2011 in “Innovative IP Models Generate Cash, Provide Alternatives” that there are at least seven different type of business models for those who wish to monetize invention rights but do not commercialize or sell products.The group includes universities and research institutions, inventors and publicly held R&D business.

Some operating companies are starting to out-source their patents to so-called  “privateers,” third-parties who can enforce their patents without directly involving them, especially if they wind up suing their customers or vendors. Patent enforcement is a business tool which some are more effective deploying than others. It is not a dirty word.

Not all holders are in the position to commercialize their invention rights but are still entitled to a return on them..Many believe that keeping infringers honest is good for innovation and healthy for commerce. Valid patents are infringed on a regular basis because the owners can not afford to enforce them. Some businesses like Acacia Research typically do not even own patents, but enforce them on behalf of others, often inventors and increasingly operating companies, for a share of the return.

Today, it is almost impossible to license a patent without first suing for infringement. The potential is too high for declaratory judgment, a preemptive move that provides a defendant with venue it may not ordinarily be entitled to. Enforcing rights is something that NPEs are forced to do to realize a return.

Many NPEs given the option would rather talk than litigate.

*     *     *

Intellectual property rights would benefit from a less hostile term for NPE, and PAE is not it. A term more in keeping with what patent holders outside of traditional operating companies actually do would be a good start. Something as simple as Independent Patent Holder, Patent Holding Vehicle or Invention Rights Business might do.

Whatever the acceptable term, let’s leave the alien life forms in outer space where they belong.  

Image source: ahirer.blogspot.com

About Bruce Berman

IP trend spotter, consultant and editor.

2 Responses to “U.S. Cong. Research Service Wants Some Patent Holders to “PAE””

  1. Did you actually read the CRS report? There’s an enormous footnote explaining the choice of PAE. The major pivot towards using this term was the 2011 FTC report, which ALSO explains the inadequacy of the “NPE” term (by the way, both of these government agencies–FTC and CRS– are independent and known to produce high-quality, trustworthy research that reflects research and exploration of all perspectives on an issue). More importantly, Congress chose to use the term to refer to these entities in a committee hearing this summer about the ITC.

    Your point about 7 different business models is wholly unclear (as is the entire issue with the term “PAE”… is it just about the fact that it resembles the word “pay”?). If you had read the reasons for the word choice, you would realize that the whole point of it was to exclude some of those business models, such as universities and startups, and make the term more precise.

    • “Patent Assertion Entity” implies that such a business exists to enforce patents and nothing else. It attempts to demonize the those other than operating companies that attempt to monetize their infringed rights. As you may know, assertion is not the initial goal of many independent patent holders, not just universities. Most hope to enter into a business discussion based on the merits of the the patent or patents, and on what it reads. Assertion often is necessary to get the attention of management and to avoid declaratory judgment filing on the part of a defendant. It is not a forgone conclusion. NPR is a poor term; PAE is even worse.

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