PAE SS Part A fin

Supporting Statement for a Paperwork Reduction Act
Submission to OMB
FTC Study of Patent Assertion Entities
The Federal Trade Commission (“Commission” or “FTC”) proposes to collect
information about the organization, structure, economic relationships, and activity of Patent
Assertion Entities (“PAEs”), including their acquisition, assertion, litigation, and licensing
practices. The Commission will seek the information necessary to prepare this analysis through
compulsory process under Section 6(b) of the FTC Act, 15 U.S.C. § 46(b) (“Section 6(b)”). 1
PART A – JUSTIFICATION
1. Necessity for Information Collection
PAEs 2 are firms that purchase patents and then seek to generate revenue by asserting
them against, and securing licenses from, persons who are already practicing the patented
technology.
Currently, the public record of PAE activity is based on publicly available litigation data.
PAE activity, however, encompasses a wide range of non-public behavior related to acquisition,
assertion, and licensing practices, together with issues related to the organization and economic
relationships of PAEs. Data that would permit an analysis of these aspects of PAEs is not
available through the public record or from any single private source. The proposed collection of
largely non-public information is necessary, therefore, to facilitate a better understanding of the
operation and competitive effects of PAEs.
Members of Congress have expressed their support for the FTC’s proposed study. Urging
the Commission, “to address the abusive practices of patent assertion entities (PAEs) that are a
drag on innovation, competition, and our economy,” Senator Amy Klobuchar has stated that she
“appreciate[s] Chairwoman Ramirez’s intention to ask the full Commission to commence a study
under Section 6(b) of the Federal Trade Commission (FTC Act).”3 Representative Lipinski

1

Section 6(b) of the FTC Act empowers the Commission to require the filing of “annual or special … reports or
answers in writing to specific questions” in order to obtain information about “the organization, business, conduct,
practices, management, and relation to other corporations, partnerships, and individuals” of the entities to whom the
inquiry is addressed.

2

The Commission distinguishes PAEs from other non-practicing entities or NPEs that primarily seek to develop and
transfer technology, such as universities, research entities and design firms. FED. TRADE COMM’N, THE E VOLVING
IP MARKETPLACE: ALIGNING PATENT NOTICE AND REMEDIES WITH COMPETITION, 8 n.5 (2011), available at
http://www.ftc.gov/os/2011/03/110307patentreport.pdf.
3

Letter from Senator Amy Klobuchar to The Honorable Edith Ramirez, Chairwoman, The Honorable Julie Brill,
Commissioner, The Honorable Maureen K. Ohlhausen, Commissioner, and The Honorable Joshua D. Wright,
Commissioner (June 24, 2013).

“strongly urge[s] the FTC to follow through with [a Section 6(b) study of PAE activity],” 4 and
Representative Murphy “looks forward to reviewing the results of [the FTC’s] inquiry.” 5
PAE activity is a growing issue for the United States’ economy. For example, last June,
the Executive Office of the President reported that the number of “suits brought by PAEs have
tripled in just the last two years, rising from 29 percent of all infringement suits to 62 percent of
all infringement suits,” and this activity may have “a negative impact on innovation and
economic growth.” 6 In February of this year, the President renewed his call for legislation to
combat abusive PAE practices, 7 and several bills pending in Congress address reforms directed
toward PAE activity. 8
The Commission has studied PAE activity for several years, and its research points to the
need for an empirical record covering non-public PAE activity. The Commission first discussed
the rise of the PAE business model in its 2011 Report, “The Evolving IP Marketplace: Aligning
Patent Notice and Remedies with Competition.” 9 In that report, the Commission defined a PAE
as a firm with a business model focused primarily on purchasing and asserting patents, typically
against operating companies with products currently on the market. In addition, on December 10,
2012, the Commission and the Antitrust Division of the United States Department of Justice
(DOJ) jointly sponsored a workshop to explore the claimed harms and efficiencies of PAE
activity and the impact of PAE activity on innovation and competition more broadly. 10
Workshop panelists and commenters associated with the 2011 Report and the 2012
workshop provided anecdotal evidence of potential harms and efficiencies of PAE activity. These
participants stressed the lack of comprehensive empirical evidence, and urged the Commission to
use its Section 6(b) authority to collect information on PAE acquisition, litigation, assertion, and

4

Letter from Representative Daniel Lipinski to The Honorable Edith Ramirez, Chairwoman (June 25, 2013).

5

Subcomm. on Oversight and Investigations Hearing on “The Impact of Patent Assertion Entities on Innovation and
the Economy” 113rd Cong. 1 (2013).

6

EXECUTIVE OFFICE OF THE PRESIDENT, PATENT ASSERTION AND U.S. INNOVATION at 1-2 (2013), available at
http://www.whitehouse.gov/sites/default/files/docs/patent_report.pdf.
7

Press Release, Office of the Press Secretary, FACT SHEET-Executive Actions: Answering the President’s Call to
Strengthen Our Patent System and Foster Innovation (FEB. 20, 2014), available at http://www.whitehouse.gov/thepress-office/2014/02/20/fact-sheet-executive-actions-answering-president-s-call-strengthen-our-p.
8

See, e.g. H.R. 3309, 113 Cong. (2013); S. 1720, 113 Cong. (2013). The proposed 6(b) study has been cited as a
potential resource to be considered in connection with pending reform legislation. Subcomm. On Oversight and
Investigations Hearing on “The Impact of Patent Assertion Entities on Innovation and the Economy” 113rd Cong. 1
(2013) (statement of Rep. Murphy) (“we look forward to reviewing the results of this [6(b)] inquiry and in the
meantime will continue to further our understanding of such practices.”).

9

FED. TRADE COMM’N, THE E VOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE AND REMEDIES WITH
COMPETITION (Mar. 2011),) (“2011 IP Report”), available at
http://www.ftc.gov/os/2011/03/110307patentreport.pdf.
10

See Patent Assertion Entity Activities Workshop, Fed. Trade Comm’n, http://www.ftc.gov/opp/workshops/pae/.

2

licensing practices. Respondents to the Commission’s first Federal Register Notice for this
study11 likewise stressed the need for Commission research in this area.
The Government Accountability Office (GAO) has also recognized deficiencies in the
existing record of non-public PAC activity. As part of the America Invents Act, 12 Congress
directed GAO to study the costs, benefits, and economic impact of PAE litigation, and to make
policy recommendations. GAO issued its report on August 22, 2013.13 It found that over the
period 2007 to 2011, the share of all patent lawsuits accounted for by PAEs rose from 17 percent
to 24 percent and that suits by PAEs included about twice as many defendants as suits by
manufacturing companies. 14 GAO, however, emphasized several data deficiencies that limited its
ability to examine the issues identified by Congress. First, GAO reported that patent assertions
frequently do not result in litigation, which is publicly observable, and that it could not obtain
reliable data on such assertions. 15 Second, GAO could not collect information on litigation costs
from court records or the sample data, nor obtain information on the settlements that resolve
most cases. 16
Responding to these requests, and recognizing its own role in competition policy and
advocacy, the Commission proposes a Section 6(b) study that will provide a better understanding
of the organizational structure and economic relationships of PAEs, as well as their activity and
associated costs and benefits.
2. How the Data Will Be Used
The Commission will use the study to publish a report describing non-public PAE
activity that would otherwise not be available. The proposed study has two components: (1) a
case study of 25 PAEs reflecting different types of PAE business models; and (2) a case study
comparing patent assertion by manufacturing firms and non-practicing entities (“NPEs”) 17 in the
wireless chipset industry.

11

See Agency Information Collection Activities; Proposed Collection; Comment Request, 78 Fed. Reg. 61,352 (Oct.
3, 2013).
12

Pub. L. No.112-29 § 34 (2011).

13

U.S. GOV’T ACCOUNTABILITY OFFICE, ASSESSING FACTORS THAT AFFECT PATENT INFRINGEMENT LITIGATION
COULD HELP IMPROVE PATENT QUALITY (2013) at 17, available at http://www.gao.gov/products/GAO-13-465. The
GAO study used different terminology to describe patent assertion activity, referring to both NPEs and “patent
monetization entities,” defined as companies that “buy patents from others for the purpose of asserting them for
profit.” Id. at 2.
14

Id. at 118.

15

Id. at 26-27, 35.

16

Id. at 25-26, see also Sara Jeruss, Robin Feldman & Joshua Walker, The America Invents Act 500: Effects of
Patent Monetization Entities on US Litigation, 11 DUKE TECH. L. REV. 357, 361 (2012) (“[F]or many years,
discussions about non-practicing entities have featured ample speculation, but lacked empirical data.”).

17

NPEs are patent owners who primarily seek to develop and transfer technology. This differs from PAEs, whose
business model focuses primarily on purchasing and asserting patents. See 2011 IP Report at 8, n.5.

3

The proposed case studies will provide policymakers with a far better understanding of
PAE activity. The Commission intends to prepare both a descriptive summary of its findings,
explaining PAE business strategy in greater detail than is currently available, as well as a
quantitative summary, describing the practices of PAEs. While the findings of these case studies
will not be generalizable to the universe of all PAE activity, the results will provide a uniquely
valuable and highly useful view of activity that is not currently available through the public
record.
The proposed information requests cover, among other things, information regarding: (1)
how PAEs are organized; (2) what types of patents PAEs hold, and how they organize their
holdings; (3) how PAEs acquire patents; (4) the strategies PAEs employ to assert their patents
and secure licenses, and the characteristics of the resulting agreements, (5) costs for and revenues
from PAE assertion activity.
How are PAEs organized? The Commission intends to gather data regarding the
corporate structure and legal organization of PAEs, including the identity of their parent,
subsidiary, and related firms. The Commission will use this data to understand how PAEs are
organized and why they might choose different forms. For example, there is evidence that some
PAEs assert their patent holdings through shell companies, which can increase the costs of
negotiating licenses (transaction costs) for technology adopters and frustrate their ability to
negotiate global settlements that would cover a broader range of patents.18 There is also some
evidence that a PAE with legal or economic ties to a manufacturing firm may have incentives to
assert patents against the rivals of the manufacturer (sometimes referred to as “privateering”).
Because PAEs do not face the same risk of countersuit as manufacturers, privateering may
increase the costs of doing business for some competitors, and burden competition in the targeted
markets. The nature and extent of these relationships, as well as the potential to change market
dynamics, however, is not well understood. The data the Commission seeks on PAE legal
structure will provide a more robust picture of PAEs as business organizations, which is relevant
for understanding the competitive implications of PAE activity. 19
What types of patents do PAEs hold, and how do they organize their holdings? The
study will collect data regarding PAE patent holdings, including the characteristics of PAE
patent portfolios. To reduce the burden on respondents of collecting this information, the
Commission has worked with the United States Patent and Trademark Office (USPTO) to collect
USPTO’s publicly available data on patent holdings. The Commission will use this data to

18

See, e.g., EXECUTIVE OFFICE OF THE PRESIDENT, PATENT ASSERTION AND U.S. INNOVATION at 4 (2013) (noting
that it is “generally seen” that PAEs “may hide their identity by creating numerous shell companies and requiring
those who settle to sign non-disclosure agreements, making it difficult for defendants to form common defensive
strategies (for example, by sharing legal fees rather than settling individually).” See also Feldman at 4.

19

See Chairwoman Edith Ramirez, Competition Law & Patent Assertion Entities: What Antitrust Enforcers Can Do,
Opening Remarks at Computer & Communications Industry Association and American Antitrust Institute Program
at 9 (June 20, 2013) (“The assertion of patent rights by a PAE may also raise antitrust concerns, especially if the
PAE is effectively acting as a clandestine surrogate for competitors … But hybrid PAE activities may fall within the
scope of antitrust enforcement where there is evidence of harm to competition and consumers.”)

4

develop a better understanding of the types of patents held and asserted by PAEs, which will
inform a number of policy issues.
The Commission also intends to use this data to determine whether PAEs employ
strategies in patent acquisition that may have an adverse competitive impact. There have been
some reports that PAEs tend to acquire late-term or low-quality patents. 20 Assembling portfolios
of substitute patents may also raise competition concerns. 21 Collecting data about PAE patent
portfolio characteristics will help shed light on the extent to which these practices occur, the
strategies they reflect, and the impact they may have on competition.
The proposed requests also call for information regarding all commitments made to
Standard Setting Organizations. Patent holders that participate in the standard-setting process
often make commitments to Standard Setting Organizations to license their patents to third
parties to encourage implementation of a standard that incorporates the patents. Some have
expressed concern that PAEs could attempt to evade that commitment by later transferring these
encumbered patents to a new entity. 22 The Commission intends to observe the extent to which
this may occur in practice.
How do PAEs acquire patents? All of the various kinds of PAEs share a common
characteristic: they do not themselves engage in research and development activities to generate
the patents they own; they acquire patents from third parties. The Commission intends to
investigate how PAEs acquire patents and, in particular, their economic relationships with
inventors. Very little is known about the relationships between PAEs, the previous owners of
patents acquired by PAEs, and the entities that finance PAEs’ purchases of patents. Some have
argued that PAEs can provide an otherwise unavailable opportunity for inventors, often
individuals or small businesses, to generate revenues and profits from their patents by serving as
a cost-effective means of licensing them more widely. If that is the case, PAEs might help to
promote innovation by enhancing the economic incentives of inventors to invent. The proposed
information requests will show whether this claim is borne out in practice among the PAEs in the
case study, and whether PAE activity has benefitted the relevant inventors.23

20

See, e.g., EXECUTIVE OFFICE OF THE PRESIDENT, PATENT ASSERTION AND U.S. INNOVATION at 4 (2013) (noting
that it is “generally seen” that PAEs “acquire patents whose claim boundaries are unclear, and then (with little
specific evidence of infringement) ask many companies at once for moderate license fees, assuming that some will
settle instead of risking a costly and uncertain trial.”).

21

Ramirez, supra note 19 at 9 (“With respect to PAEs, antitrust concerns may arise with respect to their formation –
the assembly of a patent portfolio through one or more acquisitions – or the assertion of a portfolio once assembled.
Portfolio acquisitions that combine substitute patents, for example, may raise the risk of harming competition.”)
22

See, e.g., Verizon Comment (Verizon) at 2. Public comments responding to the FTC’s October 3, 2013 Federal
Register Notice (78 Fed. Reg. 61,352) announcing the study are available at http://www.ftc.gov/policy/publiccomments/initiative-501.
23

Ramirez, supra note 19, at 7 (“On the benefits side of the equation, we know little more today than we did in
2011. One recent widely cited study claims PAE’s return approximately 25% of the costs imposed on defendants
back to inventors. … Thus, the limited evidence we have today tends to support the Commission’s concern that
PAEs may do more to distort than improve incentives to invent.”); Commissioner Joshua D. Wright, What Role
Should Antitrust Play in Regulating the Activities of Patent Assertion Entities?, Remarks at Dechert Client Annual

5

What strategies do PAEs employ to assert their patents and secure licenses, and
what are the characteristics of the resulting agreements? Patent assertion is a key aspect of
PAE activity. As noted above, the limited empirical research of PAE activity to date is based on
publicly available litigation data, which does not include any information about licenses, even
when secured through settlements of litigation. The Commission’s proposed requests will gather
information about both licenses secured through non-litigation assertion activity and licenses
secured through litigation.
The principal way PAEs monetize their patents is by licensing firms allegedly using the
patented technology. PAEs may secure licenses with or without commencing litigation.
However, while the filing of an infringement claim is public, the majority of settlement activity
is not. Even if settlement follows the filing of a lawsuit, the terms of patent settlements rarely are
public. The Commission also intends to request that PAEs submit copies of “demand letters”
they have sent during assertion efforts to understand more fully the strategies PAEs employ
when asserting patents. The collection of currently unavailable information on settlement
characteristics and assertion strategies will provide a more thorough basis for any policy analysis
of the likely impact of PAE activity on competition and innovation.
What does assertion activity cost PAEs and what do PAEs earn through assertion
activity? The study will reveal PAEs’ costs and revenues for acquiring and asserting patents,
providing a deeper understanding of the economics of PAE activity within the study sample.
Because PAEs specialize in patent assertion, including litigation, they may be able to assert
patents at lower costs than the original inventors. Some market participants have claimed that
PAEs have lower discovery costs than operating companies, and that this lower cost allows them
to bargain more effectively. The data will provide insight into whether, as some commentators
claim, the PAE business model enjoys lower costs due to specialization, which may be beneficial
to competition. 24
The proposed information requests also ask whether the responding firms have ever
assigned a value to any of their patents. There is some evidence to suggest that PAEs demand
licensing fees that are significantly greater than the acquisition costs of the patents. 25 The study
will examine the difference between patent acquisition costs and licensing fees, and endeavor to
understand the factors that allow PAEs to extract greater value from the patents they acquire, and
how these features of the PAE business model are likely to impact competition.
Antitrust Spring Seminar at 9 (April 17, 2013) (“the key issue regarding PAEs from an antitrust perspective, and for
which we have very little evidence, is the extent to which PAE activity contributes to innovation. To answer that we
need to know … What share of these costs goes to inventors (or patentees)? … To what extent is this added
compensation to inventors stimulating innovation?”).
24

See Ramirez, supra note 19, at 3 (“Rewarding genuine invention is good for competition and consumers. PAEs
can serve that goal by reducing the enforcement hurdles facing small inventors and start-ups … PAEs may also
increase liquidity in the secondary market for patents, which can drive funding to R&D); Wright, supra note 22, at 9
(“In short, PAEs hold themselves out as intermediaries between inventors who engender patents and technologydriven practicing entities. The critical question is, of course, to what extent these benefits increase innovation or
otherwise enhance consumer welfare.”)
25

See Microsoft Corp. Comment (Microsoft) at 2; Apple, Inc. Comment (Apple) at 3.

6

In addition, the proposed information requests will examine how the costs and revenue
associated with PAE activity are distributed among third parties. Understanding how the risks of
gain and loss, as well as costs and revenues, are shared between the PAEs and interested third
parties is essential to understanding whether PAEs may foster innovation or have the potential to
affect competition adversely. For example, this information may shed light on whether PAE
activity has any potential to affect the incentive to innovate because it provides returns to
inventors.
3. Information Technology
Improved information technology may assist in gathering and producing this information.
Consistent with the aims of the Government Paperwork Elimination Act, 44 U.S.C. § 3504 note,
the Commission will allow the submission of information through electronic or automated
collection techniques. It will provide all study subjects with an electronic template in which to
enter much of the requested information. The template should significantly reduce the burden of
responding to the requests. It will also facilitate the Commission’s analysis of the data collected,
permitting it to more easily collect, compare, and contrast responsive information submitted by
different parties. In addition, the Commission will use database software to compile information
and further facilitate its review and analysis.
4. Efforts to Identify Duplication/Availability of Similar Information
Currently, there is no sufficiently comprehensive and public source of information that
would allow the Commission to otherwise achieve the goals of the proposed study. Existing
studies of PAE activity rely on publicly available patent and litigation information and note the
limitations of the available data. A significant portion of PAE activity is conducted through
communications and agreements that are confidential or not publicly available and often are
subject to non-disclosure agreements. In addition, there is no publicly available source for cost
and revenue information, including the details of assertion activity, settlements, and licensing.
5. Efforts to Minimize the Burden on Small Organizations
Because the requests focus on portfolio and assertion information, the burden on small
organizations that hold relatively few patents and engage in limited assertion activity will be
minimal. The Commission has made efforts to ensure that the burden imposed by the requests is
largely proportional to each study subject’s (1) patent holdings, and (2) volume of patent
acquisition and assertion activity. In addition, because patent acquisition and assertion is the
primary business activity of most PAEs, the information necessary to respond to the requests
should be readily accessible to all responding firms. Therefore, the Commission expects that the
requests will not have a significant impact on a substantial number of small entities.
6. Consequences to Federal Program and Policy Activities and Obstacles to Reducing
Burden
If the information is not collected, the Commission will not have the data necessary to
prepare a well-documented study describing non-public PAE activity that can inform future
Commission policy, as well as the policymaking of other interested federal agencies that address
7

competition, innovation, and intellectual property issues. For example, as discussed above, this
lack of empirical data has already complicated GAO’s attempts to study PAE activity.
The Commission believes that the proposed study will enable it to provide a more
comprehensive descriptive picture of PAE structure, organization, acquisition, and assertion
behavior, which will assist many organizations and individuals to understand more fully the
scope of PAE activity in the economy. This one-time collection will not create a repetitive
burden for respondents. As described in the responses to the comments, the Commission has
endeavored to minimize the burden of the information requests by carefully limiting them to the
information necessary to complete the study and by providing a template to assist in the
organization and submission of the data.
7. Circumstances Requiring Collection Inconsistent with Guidelines
The collection of information in the proposed survey is consistent with all applicable
guidelines contained in 5 C.F.R. § 1320.5(d)(2).
8. Public Comments/Consultation Outside the Agency and Actions Taken
As required by 5 C.F.R. § 1320.8(d), the Commission published a notice seeking public
comment on the proposed collections of information, and, consistent with 5 C.F.R. § 1320.10(a)
is doing so again contemporaneous with this submission. To maximize transparency, and support
robust commenting, the Commission published all of the questions that it proposed to direct to
respondents. The Commission also extended the comment deadline in response to requests for
additional time to respond.
The Commission received 70 comments on the proposed information collection requests.
Responses came from a wide variety of commenters including Intellectual Ventures, Acacia
Research Corporation, Microsoft, Intel, Qualcomm, Apple, Nokia and Verizon. A number of
professional and bar associations, such as the Intellectual Property Owners Association (IPO),
the American Antitrust Institute (AAI), and the American Intellectual Property Law Association
(AIPLA), also submitted comments, together with trade associations representing both small and
large businesses. 26 In addition, the Commission received comments from a number of law
professors and attorneys general, 27 individual inventors, attorneys, and interested members of the
public. 28
Almost all commenters recognized the lack of existing public information and expressed
support for a study of PAE activity. Some commenters proposed ways to increase the utility, or
26

These include the National Restaurant Association, the Application Developers Alliance, the Food Marketing
Institute, the Consumer Electronics Association, the Computer & Communications Industry Association, the Direct
Marketing Association, and the Software & Information Industry Association.
27

This includes Professors Michael Risch (Villanova University), Robin Feldman (University of California,
Hastings) and Jorge Contreras(American University), as well as Kamala Harris, Attorney General of California and
the National Association of Attorneys General, joined by the Attorneys General of 43 states.
28

See, e.g., comments of Philip Conrad, Todd Glassey and William Redmann.

8

decrease the burden, of responding to requests. Most comments stated that the proposed study
will have practical utility, that it is necessary for the proper performance of the Commission's
functions, or otherwise stressed the importance and value of the study. As discussed below, the
Commission has incorporated many of the suggestions by the commenters into its revised study.
A.

Practical Utility of the Proposed Study/Necessity for the Proper Performance
of the Commission’s Functions

Comment: The FTC has a unique dual mission that encompasses both consumer
protection and competition concerns. In addition to its enforcement authority, which covers both
“unfair or deceptive acts and practices” and “unfair methods of competition,” Congress also
empowered the Commission to use compulsory process to: “gather and compile information
concerning, and to investigate from time to time the organization, business, conduct, practices,
and management of any person, partnership, or corporation engaged in or whose business affects
commerce….” 15 U.S.C. § 46(a). The Commission judiciously uses its study authority to
examine and better understand industries and practices that are likely to affect competition and
consumers.
Although the particular mechanisms of PAE operation are not well understood, the
Commission’s past studies, more recent scholarship, and our 2012 Workshop all suggest that
PAE activity may be affecting competition, innovation, and consumers in a variety of ways that
are not fully understood at this time.
Almost all commenters on the first Federal Register Notice supported the Commission’s
study of PAE activity. Intellectual Ventures noted that “a well-designed and executed 6(b) study
would provide useful insights into the effect of PAE activity.” 29 Acacia Research Corporation
noted that it “welcomes the FTC’s study of this important issue.” 30 Microsoft similarly noted that
it “supports the FTC’s efforts to gather additional information to both supplement current
knowledge of PAEs and to better understand the costs and benefits of their behavior.” 31 The Stop
Patent Abuse Now (SPAN) Coalition stated that it “strongly supports the Commission’s decision
to conduct a 6(b) study of patent trolls.” 32 Likewise, AIPLA explained that there “is an urgent
need for more information to ensure that policy decisions are appropriately grounded.” 33 The
United States Telecom Association (USTelecom) noted that “the opaque nature of the PAE
business model makes the FTC’s inquiry into their activities both timely and imperative.” 34
Commenters agreed that data generated by the proposed requests will illuminate critical
aspects of PAE activity and have practical utility. Professor Robin Feldman noted that the
29

Intellectual Ventures at 1.

30

Acacia Research Corp. Comment (Acacia) at 3.

31

Microsoft at 1.

32

SPAN Coalition Comment (SPAN) at 1.

33

AIPLA Comment (AIPLA) at 2.

34

USTelecom Comment (US Telecom) at 3.

9

proposed requests “are a rational and reasonable approach to understanding a complex
problem.” 35 The Computer & Communications Industry Association (CCIA) noted that “the set
of questions that the FTC has prepared are thorough and properly directed toward information
that should shed light on the heretofore-mysterious PAE business model.” 36 Red Hat noted that,
“as put forward by the FTC, the proposed 6(b) industry study will add significantly to the
existing literature and evidence on PAE behavior.” 37 The Consumer Electronics Association
(CEA) noted that the proposed requests “are necessarily broad and will illuminate the many
dimensions of PAEs’ conduct in a way that no other entity is capable.” 38 The National
Association of Attorneys General expressed that “we believe the merits of the proposed
information request are beyond question.” 39 Kellogg Huber Hansen noted that the proposed
requests “are necessary to determine the net effect of PAE activity on innovation.” 40 Verizon
noted that “developing the full scope of the information requested in the FTC's draft questions is
likely to enable important research into the effects of PAE activity.” 41 As noted in more detail
below, commenters also made a number of proposals to increase the utility of specific requests,
which we have taken into account in revising the requests.
In addition, several respondents recognized that the Commission’s use of its 6(b)
authority will address the limitations of previous studies that relied upon publicly available
litigation data. The National Retail Federation noted that the Commission’s 6(b) authority makes
the study “a unique opportunity to gain a complete picture of patent troll activity through the
collection of nonpublic information including licensing agreements, patent acquisition
information, and data on PAEs’ costs and revenue.” 42 The Software & Information Industry
Association (SIIA) noted that previous “studies have focused primarily on publicly available
litigation data,” and that “certain licensing agreements, patent acquisition information, and cost
and revenue data that was not available to researchers in prior studies would be potentially
available to the FTC.” 43 Professor Feldman noted that “lack of information is particularly
problematic for the 90% of patent demand activity that occurs outside the courthouse.”44
35

Feldman at 5.

36

CCIA Comment (CCIA) at 2.

37

Red Hat, Inc. Comment (Red Hat) at 1.

38

CEA Comment (CEA) at 4.

39

National Association of Attorneys General Comment, joined by 43 State Attorneys General (NAAG) at 2.

40

Kellogg Huber Hansen Todd Evans & Figel, PLLC Comment, on behalf of Adobe Systems, Inc., Canon U.S.A.,
Inc., Cisco Systems, Inc., Dell Inc., Ford Motor Company, Google, Inc., Hewlett-Packard Company, Limelight
Networks, Inc., Rackspace US, Inc., and SAP Americas, Inc. (Kellogg Huber Hansen) at 6.

41

Verizon Comment (Verizon) at 1.

42

National Retail Federation Comment (NRF) at 1. See also Public Knowledge, the Electronic Frontier Foundation,
and Engine Advocacy Comment (Public Knowledge) at 1 (“the Section 6(b) study would generate substantial
empirical data particularly useful not only to the FTC for carrying out its mission of protecting consumers, but also
to businesses, researchers, and policymakers.”)
43

SIIA Comment (SIIA) at 2.

44

Feldman at 3.

10

Professor Contreras noted that the study “is likely to inform the policy debate concerning this
contentious topic, and should become a valuable resource for industry, scholars, and
policymakers.” 45 The Internet Commerce Coalition noted that “an FTC investigation is the only
realistic way to obtain information” about these PAEs.” 46
Many commenters believed that that any burden imposed by the proposed requests is
justified. Intel said that “any burden that the Commission’s information requests will impose on
PAEs is insignificant in relation to the burdens that PAEs impose on the economy…” 47
Similarly, Kellogg Huber Hansen, writing on behalf of a number of technology companies, noted
that “the cost to the PAEs of complying with the information requests is small compared to the
burden PAEs impose on the economy.” 48 Public Knowledge, the Electronic Frontier Foundation,
and Engine Advocacy noted that “the public value of the information to be retrieved vastly
outweighs the minimal burden of producing information on the part of PAEs and other
entities.” 49 Professor Feldman noted that that the requests in the “proposed inquiry are not
unduly burdensome and are reasonably related to finding essential information.” 50 The Retail
Industry Leaders Association similarly noted that “the proposed Section 6(b) request strikes the
appropriate balance between the benefits of the information to be obtained … and the potential
burdens imposed.” 51 The SAS Institute noted that the study “is well worth the burdens it may
impose.” 52
Response: The proposed study directly supports the FTC’s mission critically to examine
industries and practices that affect the economy. It will aid the Commission, other agencies
engaged in policymaking with respect to competition, innovation, and patents, as well as industry
and researchers to gain a better understanding of the operation and potential effects of PAE
activity. No other public agency is as well situated as the Commission to undertake the study,
and many have urged the FTC to do so. As is more fully discussed, below, the Commission has
addressed concerns expressed in the comments about the utility and burden of the proposed
requests by modifying them in significant ways to sharpen their focus and reduce their likely
burden.
B.

Suggestions to Reduce Burden

As discussed more fully below, the Commission has seriously considered Commenters
requests to reduce the burden of this study. For example, the Commission has: (1) simplified the
45

Professor Jorge Contreras Comment (Contreras) at 1.

46

ICC Comment (ICC) at 1.

47

Intel Comment (Intel) at 3.

48

Kellogg Huber Hansen at 1.

49

Public Knowledge at 7.

50

Feldman at 4.

51

Retail Industry Leaders Association Comment (RILA) at 1.

52

SAS Institute Inc., Limelight Networks Inc., VIZIO, Inc., Newegg, Inc., Citrix Systems, Inc., Xilinx, Inc.,
ABBYY USA Software House, Inc., and Altera Corporation Comment (SAS Institute, et al.) at 2.

11

study questions and removed questions that could lead to attorney-client privileged information;
(2) narrowed the beginning of the study from January 1, 2008 to January 1, 2009; (3) clarified
that the comparative case study focuses on the wireless chipset sector, not the broader wireless
industry; (4) clarified that the comparative case study includes fewer questions directed towards
manufacturing firms and NPEs; and (5) worked with the USPTO to remove questions directed
towards publicly available information.
1.

Document Requests Calling for “All Documents”

Comment: The Commission’s initial proposed requests called for “all documents”
related to a number of topics, including patent acquisition, demands, and licensing. Several
commenters expressed the concern that these requests were too broad. Intellectual Ventures
noted that “such requests are overbroad, unduly burdensome, and perhaps most important, will
not provide the Commission with the information needed to meet its goals.” 53 Qualcomm noted
that such requests would call for information that “may be entirely irrelevant to the issues
surrounding PAE activity.” 54
Some commenters proposed that the Commission reduce the scope of its requests. 55
InterDigital suggested that several document requests be revised to “require only high level
presentations or ‘documents sufficient to show’ instead of ‘all documents.’” 56 Intellectual
Ventures suggested that requests be limited to documents “such as board and investor
presentations or regulatory disclosures that reflect the culmination and finalization of ideas that
were considered, refined, and accepted or rejected, and facts and data that were accumulated and
validated.” 57
Response: To avoid unnecessary burden while still collecting the information necessary
to provide a robust study, the Commission has substantially reduced the scope of its document
requests. In most instances, the Commission has replaced its requests for “all documents” with
narrower requests tailored to specific types of documents. For example, the Commission
replaced its request for “all documents Relating to the Firm’s Acquisitions” of patents with
specific requests for “agreements… relating to any Acquisitions” as well as related Reports,
limited to “studies, analyses, and reports which were prepared by or for any officer(s) or
director(s) of a corporate entity … or presented to any Person outside the Firm.”
2.

Information Requests Calling for Additional Analysis

Comment: Some commenters expressed the concern that some of the initial proposed
requests may call for the creation of factual or legal analyses that might not be in the possession
53

Intellectual Ventures at 13.

54

Qualcomm Comment (Qualcomm) at 7.

55

Intellectual Ventures at 13-19; InterDigital at 11; Qualcomm at 8.

56

InterDigital at 11.

57

Intellectual Ventures at 14.

12

of a responding firm. Intellectual Ventures noted that several requests “require respondents to
summarize the documents they produce.” 58 Nokia suggested that “where information will clearly
be available from requested documents, recipients should not also be put to the additional burden
and expense of setting out information abstracted from the documents to the FTC.” 59
Some comments expressed concern about proposed requests calling for the identification
of specific patents subject to license agreements or licensing commitments. InterDigital noted
that answering the proposed request calling for “whether the Firm has licensed the Patent to any
Person(s),” would “entail legal analysis and opinion” because “many agreements do not list the
licensed patents by number.” 60 The AIPLA similarly noted that “licensing commitments to
Standard Setting Organizations are often made by a generic reference to all patents one owns
which are essential,” and that “the requests related to standard setting organizations should be
limited to patents specifically enumerated as essential.” 61 InterDigital also noted that responding
to requests drawn toward identifying patents in portfolios “would require a significant
expenditure of time and money” because companies often do not “neatly segregate their patents
into a list of defined portfolios.” 62
Other comments identified areas where document requests called for analyses that might
not have been created in the ordinary course of business. The AIPLA noted that requests drawn
toward portfolio valuations “presume that valuations are performed on patents, which is not
necessarily the case,” and InterDigital suggested that the request be revised to “not require
recipients to conduct any de novo valuations.” 63 Similarly, Nokia noted that proposed requests
called for “effective royalty rates from license agreements that may not be generated or tracked
by recipients,” and should be revised to “make it clear that recipients are not under any
obligation to produce or develop information that does not already exist.” 64 The IPO noted that
responding to the proposed request seeking “the cost of R&D related to each patent held by the
company” would “often be nearly impossible for a single patent, much less thousands of
them.” 65
Response: While the Commission is authorized to require creation of data necessary to
respond to a 6(b) study, it revised a number of the proposed requests to address these concerns
and reduce burden, while retaining the utility of the responses.
58

Id. at 20.

59

Nokia Comment (Nokia) at 3.

60

InterDigital at 9. See also AIPLA at 3 (“The nature of some questions fails to recognize that licenses sometimes
extend to one’s entire portfolio of patents.”).
61

AIPLA at 3; see also InterDigital at 8.

62

Id. at 9-10.

63

Id. at 9-10; AIPLA Comment at 3.

64

Nokia at 3. See also AIPLA at 3 (“Some information, such as royalty bases, might only be available from
licensees.”).

65

IPO at 2. See also AIPLA at 3 (“the requested details of the R&D relevant to each patent are not necessarily
recorded and will frequently require considerable investigation on an invention-by-invention basis.”).

13

Some of the proposed requests for data regarding requested documents, such as the
parties and products subject to license agreements, are necessary to organize data for analysis
and comparison. The Commission has retained these in the revised request. However, the
Commission refined and narrowed the definition of terms such as “License” and “Legal Right”
to provide respondents with additional clarity and guidance regarding how to respond. Such data
should be readily available to responding firms.
The Commission also incorporated the suggestions of a number of the other comments. It
revised its request regarding patents declared to Standard Setting Organizations to require listing
only specific patents when “specific patents have been identified as subject to a Licensing
commitment.” Similarly, the revised request only requires the identification of patents in a patent
portfolio “[when] the Firm identifies the Patent(s) included in the Patent Portfolio.”
Finally, the Commission replaced its request regarding the cost of research and
development activity related to each patent with a request for any “studies, analyses, or reports”
that “evaluate or analyze any research and development activities relating to any Patent.”
Similarly, the Commission revised its request for the “Firm’s valuation of” patent portfolios to
“whether the Firm has assigned a value to the Patent Portfolio.” The Commission revised its
request regarding patent assertion to request documents that “evaluate or analyze the calculation
of any payment Relating to the sale” of a patent, instead of calling for a description of how the
payment is calculated.
3.

Financial Data

Comment: Two commenters expressed concern regarding certain requests for financial
data. Intellectual Ventures suggested that request for “all documents” related to financial data
would be too broad, and asked that the request be limited to documents or data sufficient to show
relevant financial information. 66 InterDigital similarly suggested that these document requests
are redundant of other requests that call for cost and revenue data. 67 Two additional respondents
noted that respondents may not track financial information at the level of detail sought in the
requests. 68
Response: The Commission has eliminated the request for “all documents” relating to
costs and revenue data. Instead, the requests ask for “documents sufficient to show” such data. In
order to provide a useful basis for comparison, specific cost and revenue data is needed, so
specific requests for detailed cost and revenue data have been retained.
4.

Privileged Information

Comment: Two commenters expressed concern that certain requests could call for
material potentially subject to confidentiality under the attorney-client privilege. InterDigital
66

Intellectual Ventures at 19.

67

InterDigital at 12.

68

Nokia at 3; Qualcomm at 8.

14

noted that answering requests to identify whether patents are subject to a standard setting
organization’s licensing commitment “requires legal analysis” and that “such legal conclusions
are privileged.” 69 Nokia claimed that requests for “a firm’s rationale for asserting patents” and
“projected revenues or return on investment from patent assertions” may be privileged. 70 Nokia
also noted that requests for “all documents” related to patent acquisition could call for privileged
materials. 71
Response: The Commission has amended its requests to minimize the need to collect or
review potentially privileged materials. As noted above, it has revised requests in many
circumstances where such requests may be interpreted to call for legal analysis. Further, in order
to reduce the need to analyze or log documents for claims of privilege, the Commission revised
many requests originally calling for “all documents” to call for only “Reports,” defined as
“studies, analyses, and reports which were prepared by or for any officer(s) or director(s) of the
company … or presented to any Person outside the Firm.” This limitation should eliminate the
need to collect and review many drafts or internal communications that could raise privilege
issues. Despite these changes, the Commission expects that some privilege issues will arise
because of the central role of attorneys in PAEs’ acquisition, licensing, and litigation of patents.
These issues will be handled on a case-by-case basis as needed.
C.

Suggestions to Change Study Design

Comment: The Commission received a number of comments suggesting that it alter the
design of the PAE study. For example, InterDigital suggested that the Commission “clarify that it
is interested in the costs and benefits of PAE activity to innovation and competition.”72
Microsoft suggested that “the study should more closely examine PAE practices that involve
asserting patent(s) or patent portfolios for amounts far greater than the acquisition cost of those
patents ….”73 Apple suggested that the study “could attempt a full accounting of the economics
that motivate PAEs,” focusing on “(1) PAEs’ valuations of, and methods of valuing, patents at
the time of acquisition; (2) PAEs’ royalty demands at the time of assertion; (3) PAEs’ costs of
asserting their patents; and (4) defendants’ costs of defending against PAEs’ assertions.” 74 The
AIPLA suggested focusing on “abusive practices during infringement litigation as well as
demand notices from patent owners.” 75 Intellectual Ventures suggested that the Commission
limit its requests to those patents that have been specifically identified in litigation or a
demand—not every patent in a recipient’s portfolio. 76
69

InterDigital at 8-9; see also IPO at 2.

70

Nokia at 2.

71

Id.

72

InterDigital at 3.

73

Microsoft at 2.

74

Apple at 3.

75

AIPLA at 2.

76

Intellectual Ventures at 10-11.

15

Response: The Commission has narrowed requests to focus on relevant issues.
Responding to public comments, the Commission also has clarified that the study includes two
case studies, where the first is a descriptive study of PAE activity, and the second is a
comparative study including activity in the wireless chipset sector. The FTC has also clarified
the focus on the wireless chipset sector, rather than the wireless industry more generally. Finally,
the Commission has revised the questions to focus on “yes/no” answers and qualitative
information to allow the FTC to synthesize the data, as well as to reduce the burden on
respondents.
Comment: Some comments addressed the number and/or type of study subjects. The
California Attorney General suggested that the Commission “broaden the number of entities
from which it collects information. 77 Similarly, the National Association of Attorneys General
suggested that the Commission “increase the number of PAEs, Manufacturing Firms, and NPEs
to which the information request will be submitted.” 78 The Internet Commerce Coalition
maintained that “the Number of Entities reviewed should be increased, as this is the first study of
its kind in an area shrouded in considerable secrecy.” 79 A number of other commenters
suggested that specific types of entities that should be included in the study: “‘owner-operators’”
that license or practice wireless patents;” 80 “other participants in the secondary patent market;” 81
practicing entities which have “stand-alone licensing subsidiaries or divisions;” 82 and “parties
that have sold or transferred a large number of patents to the PAEs being examined.” 83 Acacia
suggested that inventors also be studied. 84
The Commission also received comments regarding the comparison of PAEs and
Manufacturing Firms in the wireless communications sector. Kellogg Huber Hansen noted that
“the Commission’s proposed study of manufacturing firms … will provide a potentially useful
benchmark for evaluating whether PAEs are an efficient means of rewarding patentees.” 85
Similarly, the SPAN Coalition noted that “the current structure of the study … seems well-suited
to evaluating many of the details of patent enforcement by patent trolls in [the wireless
communication] sector,” but proposed “the addition of at least one additional category of patent”
such as “web technology-related patents or wireless networking.” 86 Similarly, the Direct
Marketing Association commented that it “would welcome a broadening of the study beyond the

77

Kamala D. Harris, Attorney General of California Comment (California Attorney General) at 1.

78

NAAG at 3.

79

ICC at 2.

80

Kellogg Huber Hansen at 20.

81

Microsoft at 28.

82

Intel at 15.

83

AAI at 8.

84

Acacia at 4.

85

Kellogg Huber Hansen at 7.

86

SPAN at 2.

16

wireless telecommunications sector.” 87 Verizon suggested broadening the study to “investigate
the effects of PAEs on wireline communications services and other high-tech industries.” 88
Intellectual Ventures similarly noted that “the Commission should also expand its inquiry
beyond operating companies in the wireless communications sector.”89
The Commission received conflicting comments regarding the scope of requests sent to
Manufacturing Firms: Microsoft suggested that “the information requests to Manufacturing
Firms should …be reconsidered and revised by narrowing their scope,” while Intellectual
Ventures noted that “it is essential to obtain the same information about patent assertion activity
in the same markets from both PAEs and non-PAEs.” 90
Response: As currently designed, the study will provide a comparative view of a variety
of PAE business models, as well as a focused comparison of PAE activity to activity of nonPAEs in the wireless chipset sector. While commenters have suggested expanding the scope even
further, focusing on the well-defined wireless chipset sector allows the Commission to balance
the goals of and burden resulting from the study.
Comment: The Commission received comments on the time period covered by the
initially proposed requests, which was from January 1, 2008 through the present. Several
commenters stressed the importance of obtaining information for the entire proposed period.
Verizon noted that “examining the entire time period covered by the draft questions is also
important to discern trends.” 91 The Computer and Communications Industry Association (CCIA)
noted that “the time frame of five years is necessary to understand the evolution of the PAE
industry.” 92 The SPAN Coalition noted that “the time period of the study … is necessary.” 93 In
contrast, several commenters noted that the scope of information requests should be limited to
January 2011 to the present in order to reduce the burden of the requests.94
Response: The requests now seek information beginning January 1, 2009. The
Commission believes that at least five years of data is necessary to understand trends in patent
enforcement. Empirical research suggests that PAE activity has increased significantly, and it is
necessary to have a sufficient dataset to understand this trend and the reasons behind it. As the
CCIA noted, “PAE litigation has increased sharply in the last five years, but the causes of that

87

Direct Marketing Association Comment Comment (DMA) at 2. See also ICC at 2 (“The narrower case study
should by no means be limited to wireless as the effects of PAE activity are far, far broader than that.”).

88

Verizon at 1.

89

Intellectual Ventures at 8.

90

Id. at 2; Microsoft at 2.

91

Verizon at 1.

92

CCIA at 2.

93

SPAN at 1.

94

Qualcomm at 8-9; InterDigital at 8. Acacia similarly suggested that the time period be limited to three years. See
Acacia at 3.

17

increase are not well understood.” 95 Moreover, in 2011, the Leahy-Smith America Invents Act
made several changes to the U.S. patent system. Collecting data before and after the Act’s
passage, allows the Commission to study the impact of the Act on PAE activity.
D.

Suggestions Regarding Requests for Company Information

Comment: Some of the comments related to the scope of requests for company
information. Nokia noted that the request to identify all entities with an ownership interest in the
firm could potentially call for an identification of all of its shareholders. 96 The AIPLA claimed
that the company information requested would be “beyond the knowledge of clerical personnel
or even mid-level management.”97 Qualcomm also noted that the requests would call for an
identification of patents invented by employees of the responding firm. 98
In contrast, several other commenters suggested adding more detailed questions
regarding PAE organization, ownership, and structure. These commenters proposed questions to
illuminate the extent to which investors exert control over the PAEs. 99 For example, while the
proposed requests inquired about entities that shared in the revenues derived from PAE activity,
Kellogg Huber Hansen suggested extending these requests to cover entities that share in the costs
of the activity. 100 Davis Polk & Wardwell noted that the request “could be too narrow, because it
applies traditional ownership rights among businesses to a sector that is known for its novel and
opaque business arrangements.” 101 Along these lines, commenters proposed extending the
requests to include “both leading PAEs and the leading sources of patents for the selected
PAEs,” 102 PAEs’ “advisers,” 103 and lawyers, “organizers,” and “persons or entities that exercise
any supervision or control over the PAE.” 104
Response: The Commission’s request about firm organization is critical because of the
wide variety of business arrangements used by PAEs and the relative lack of knowledge of the
details of these arrangements, which likely affect the economic incentives and hence the
behavior and potential competitive impact of PAEs. The Commission has edited its requests to
capture the range of PAE organizational structures, with the understanding that PAEs take many
95

CCIA at 2.

96

Nokia at 3-4 (“Using Nokia as an example, the request could be read to require Nokia to produce a list of every
shareholder in the company and every management employee that receives a bonus or has other financial incentives
that are any way tied to the profitability or financial performance of Nokia.”).

97

AIPLA at 3.

98

Qualcomm at 6.

99

Kellogg Huber Hansen at 18; Verizon at 2.

100

Kellogg Huber Hansen at 18-19.

101

Davis Polk & Wardwell LLP Comment (Davis Polk) at 4.

102

AAI at 9.

103

Verizon at 2.

104

Kellogg Huber Hansen at 18.

18

forms and that it is difficult to anticipate the different types of activity that the study will find,
but has also taken steps to reduce the burden of these requests.
The Commission expects that ownership and organizational information will be readily
available to most respondents. In order to reduce burden, however, the Commission has
narrowed the scope of Firm owners called for in the requests. With respect to publicly traded
companies, the requests now call only for shareholders who hold 5% or more of the equity in the
respondent. Further, the Commission amended the requests to make clear that they do not
encompass patents assigned by employees of the firm.
E.

Suggestions to Increase Utility of Responses
1.

Comments on Existing Requests

Comment: The initial requests focused on patents “held” by each respondent.
Commenters suggested, however, that “held” could be read as limited to patents that are
“owned” by respondents, and cautioned that such a limitation would limit the value of the study,
because it would not encompass other, important legal rights in patents that might influence PAE
activity. They requested, therefore, that the scope of the study be extended to include not only
patents owned by respondents, but also patents for which a respondent possesses the right to
license or enforce the patent.105 The Internet Association expressed the concern that responding
firms would evade requests by “interpreting ‘held’ to mean only those patents for which it
possessed and owned all rights.” 106 Similarly, Verizon suggested that the definition of acquire be
expanded to “obtain legal rights to license or enforce.” 107
Response: The Commission agrees that the information requests should extend to all
forms of patent rights acquisition commonly used by PAEs, and understands that this may often
involve not only the acquisition of a patent, but may also involve acquiring an exclusive license
or other rights to enforce a patent. Accordingly, it has amended the requests to add a definition
for the term “held,” which includes possessing a legal right in a patent, i.e. “any ownership
interest in, an exclusive License to, or other rights adequate to License or enforce a Patent.”
2.

Suggestions for Additional Requests

Comment: Some Commenters proposed specific additional questions regarding patent
acquisition and holdings, demand letters, litigation, and licensing.
For example, Intel suggested that requests be expanded to cover certain agreements and
arrangements related to “privateering” activities. 108 The Internet Association suggested that the

105

Verizon at 2; Internet Association at 5; Kellogg Huber Hansen at 17.

106

Internet Association at 5.

107

Verizon at 1.

108

Intel at 9.

19

requests include interactions between PAEs and original assignees and inventors. 109 Other
commenters suggested that the requests explicitly ask whether PAEs submitted Hart-ScottRodino notifications for acquired portfolios. 110
The Commission also received several comments that requested a broadening of the
requests dealing with Standard Essential Patents (SEP). Several commenters suggested that these
requests should encompass licensing commitments made outside of the setting of Standard
Setting Organizations. 111 Kellogg Huber Hansen and Intel suggested requesting more detail
regarding SEP licensing. 112
Commenters also suggested expanding the requests regarding patent licensing demands.
Several commenters suggested expanding the requests to ask for details on the process by which
PAEs identify targets for their demands. 113 Another commenter suggested that the requests be
expanded to obtain more detail regarding the product that is the subject of the demand. 114
Another commenter suggested that the requests explicitly ask for “the royalty base used to
support any royalty demand.” 115
Several parties suggested that the Commission seek to obtain more information regarding
PAEs’ litigation strategies. This included asking for the number of documents produced by both
parties in litigation, so as to identify asymmetries in the costs and other burdens of litigation on
PAEs and the firms against which they assert their patents. 116 One commenter suggested
analyzing litigation data to observe whether PAEs select specific judicial venues for strategic
reasons. 117 One commenter suggested that the request include the inventor’s role or interest in
litigation. 118 Another suggested requesting the identity of all expert witnesses retained by the
PAE. 119 Finally, one commenter suggested that the requests regarding licensing be expanded,
and proposed that respondents specify “not only the amounts but also the structure of payments

109

Internet Association at 5.

110

AAI at 8; Davis Polk at 5. The Hart-Scott Rodino Antitrust Improvements Act of 1976 allows the Federal Trade
Commission and the United States Department of Justice to review certain mergers, acquisitions, and consolidations
that meet the Act’s thresholds. See 15 U.S.C. 18a.
111

Contreras at 2; Kellogg Huber Hansen at 20; Internet Association at 5.

112

Kellogg Huber Hansen at 14; Intel at 7.

113

NAAG at 3; Intel at 11-12; SPAN Coalition at 3; SAS Institute, et. al at 2; DMA at 2.

114

Kellogg Huber Hansen at 9.

115

Intel at 11.

116

Davis Polk at 5.

117

Intel at 15-16.

118

Kellogg Huber Hansen at 7; see also ADTRAN, Inc. Comment (ADTRAN) at 5.

119

Verizon at 2.

20

or other compensation,” as well as “all” recipients of payments or compensation flowing from
licensing. 120
Response: The Commission considered all of these comments. The diverse set of
commenters provided a wide variety of comments, each reflecting issues of unique importance to
them. While many of the proposed additions would have utility, in many cases the additional
information would focus on narrow issues that might not be justified by the additional burden to
respond.
9. Payments and Gifts to Respondents
There is no provision for the payment of gifts to respondents.
10.

Assurances of Confidentiality

In connection with its requests, the Commission will receive information of a confidential
nature. Under Section 6(f) of the FTC Act, such information is protected from disclosure while it
remains confidential commercial information. 15 U.S.C. § 46(f).
11.

Matters of a Sensitive Nature

The collection of information does not include any questions of a sensitive nature
involving matters that are commonly considered personal and private. The requests for
confidential proprietary information are discussed above.
12.

Estimated Hours and Labor Cost Burden

Several commenters noted that the Commission’s initial estimate of recipients’ burden
was accurate. The National Association of Attorneys General noted that the Commission has
estimated the burden “with a reasonable degree of accuracy.” 121 The SAS Institute, joined by
Limelight Networks, VIZO, Inc., and five other firms, agreed that the estimates “appear
reasonable.” 122 Similarly, Kellogg Huber Hansen, writing on behalf of Adobe Systems, Inc.,
Canon U.S.A., Inc., Cisco Systems, Inc., and seven other firms, noted that the Commission’s
methodology for estimating the burden of complying with the information requests “is
reasonable.” 123 The Retail Industry Leaders Association “agrees with the FTC’s calculation of
the burden” and “find[s] the factors considered and estimated costs to be reasonable.” 124

120

Kellogg Huber Hansen at 8.

121

NAAG at 2.

122

SAS Institute, et. al, at 1.

123

Kellogg Huber Hansen at 20.

124

RILA at 3.

21

In contrast, several commenters believed that the Commission’s initial burden estimates
were too low. 125 Intellectual Ventures claimed that the Commission’s estimate was “substantially
understated,” but acknowledged that it “owns a large patent portfolio and understands that its
compliance burden will be toward the upper end of the range of burden imposed on
respondents.” 126 The IPO noted that the burden estimate underestimated the efforts required to
gather “all the different types of documents” responsive to document requests and prepare “legal
analysis” required by the proposed requests.127
Several operating companies claimed that they would face a high burden to respond to
the proposed requests. Qualcomm estimated that reviewing documents responsive to the requests
as originally proposed would require “250,000 hours at a cost of more than $25 million.” 128
Microsoft estimated that it would cost it “several million dollars” and take “tens of thousands of
hours” to comply with the requests as originally drafted. 129
The Commission’s initial hour burden estimates are consistent with previous PRA
estimates and the Commission’s experience with information requests that require financial data,
answers to questions, and production of pre-existing documents. The GENERIC DRUG REPORT, as
well as the AUTHORIZED GENERIC DRUGS report, involved requests for financial information and
responses to questions, and the estimated hours burdens varied depending on the number of
drugs covered. Similarly, the burden in this study will vary depending on a subject’s number of
patents and amount of assertion activity. In the generic drugs study, the burden was an estimated
100-500 hours, and in the authorized generics study, the burden was an estimated 138 to 456
hours. 130
Even assuming that the Commission’s initial estimate understated the burden, the
Commission believes that its estimates are realistic given the modifications to the requests,
which adopted many of the public comments’ suggestions for reducing burden. Most
significantly, many requests that originally called for “all” documents in given category now
request a small subset of such documents. This will greatly reduce the burden of responding to
the requests. For example, the Commission revised its proposed request to: “for each license
agreement … submit a copy of the agreement and all documents Relating to the agreement” to
the narrower request to “submit … all License agreements … also submit all studies, analyses,
and reports … that evaluate or analyze the reasons for entering into the agreement.” The
Commission anticipates that this will reduce the number of responsive documents to only a
handful of documents for each agreement, which will greatly reduce the burden of responding.
For example, Microsoft claims that it has 557 license agreements, and that it would have 60,323
125

Intellectual Ventures at 21-23; Acacia at 3; Microsoft at 10-15; Qualcomm at 6; Nokia at 2; InterDigital at 5;
Prof. Michael Risch Comment (Risch) at 1; GTW Associates Comment (GTW Associates) at 1.

126

Intellectual Ventures at 21.

127

IPO at 2.

128

Qualcomm at 6.

129

Microsoft at 15.

130

66 Fed. Reg. 12,512, 12,522-23 (2001); 72 Fed. Reg. 25,304, 25314 (2007).

22

documents responsive to the initial proposed request. 131 As revised, the Commission anticipates
that Microsoft would have less than 3,000 responsive documents, or around 5% of Microsoft’s
estimate.
The Commission has amended its requests to reduce the burden on manufacturing firms,
which may have the highest burden because of their size. Several comments stated that requests
would unduly burden companies with large portfolios of patents that were developed by the
company’s employees. 132 The proposed requests have been modified to avoid unreasonable
burdens on such companies. Similarly, the Commission limited its request for investor
information for publicly traded firms, addressing the concern that this would call for the
identification of shareholders. 133 Moreover, there are two different proposed information
requests with different scopes: one to wireless chipset manufacturers and wireless chipset NPEs,
and a more comprehensive request for PAEs.
The Commission has taken a number of additional steps to reduce the burden of response.
To reduce the burden on responding parties, expedite responses, and facilitate the Commission’s
analysis of the information collected, it has prepared an electronic spreadsheet to be completed
by respondents. 134 Further, as noted above, the Commission has revised its requests in many
instances to minimize the legal or factual analysis required to respond.135 In addition, in order to
reduce the need to analyze or log documents for privilege, the Commission revised many
requests originally calling for “all documents” to call for only “studies, analyses, and reports
which were prepared by or for any officer(s) or director(s) of the company… or presented to any
Person outside the Firm,” which will reduce the number of responsive documents overall and
those that may raise potential privilege issues.
A.

Estimated Hours Burden:

The proposed information collection is a one-time endeavor that will not involve repeated
responses. In its prior Federal Register notice, the Commission estimated that a recipient’s
burden for the PAE study would range from 90 to 400 hours depending on the recipient. 136
The burden to respond to information requests will vary with the size of the responding
firm’s patent holdings, as well as the extent of its patent assertion activity. The Commission
anticipates that the cumulative hours burden to respond to the information requests will range
between 275 and 845 hours per firm. Nonetheless, the Commission conservatively assumes that,
except as noted above with respect to firms with few holdings and little assertion activity, the
131

Microsoft at 15.

132

Nokia at 3; InterDigital at 10.

133

Nokia at 3.

134

This approach has been suggested by several commenters. See SAS, et al., at 2; Liu at 1; IPO at 2.

135

InterDigital’s view that the FTC’s burden estimate was too low was based, in part, on its view that “determining
which patents are or are not subject to licensing commitments and other encumbrances is not just a factual
determination but a legal one that requires consultation with counsel.” InterDigital at 6.

136

78 Fed. Reg. 61,352, 61,357 (Oct. 3, 2013)

23

average burden for each of the approximately 25 PAE firms will be 845 hours, and the
cumulative estimated burden will be 21,125 hours. The Commission conservatively assumes that
the average burden for each of the approximately 15 wireless chipset manufacturers and wireless
chipset NPEs will be 565 hours per firm, and the cumulative estimated burden will be 8,475.
Given these conservative estimates, the total estimated burden is 29,600 hours. These estimates
attempt to include any time spent by other entities affiliated with the Firm that received the
information requests, however, the numbers may be greater or lesser depending on the numbers
of affiliated entities. The Commission seeks to understand the number of affiliated entities as
part of the Information Requests.
Task

PAE Firms

Wireless Chipset
Manufacturers and
Wireless Chipset NPEs

Identify, obtain, and organize firm
information; prepare response:

15-35 hours

15-35 hours

Identify, obtain, and organize patent
information; prepare response:

40 – 65 hours

N/A

Identify, obtain, and organize patent
portfolio information; prepare
response:

40 – 65 hours

N/A

Identify, obtain, and organize
acquisition information; prepare
response:

70 – 150 hours

N/A

Identify, obtain, and organize
transfer information; prepare
response:

70 – 150 hours

70 – 150 hours

Identify, obtain, and organize
assertion information; prepare
response:

150 – 300 hours

150 – 300 hours

Identify, obtain, and organize
aggregate revenue information;
prepare response:

20 – 40 hours

20 – 40 hours

Identify, obtain, and organize
aggregate cost information; prepare
response:

20 – 40 hours

20 – 40 hours

24

TOTAL
B.

425 – 845 hours

275 – 565 hours

Estimated Cost Burden:

It is difficult to calculate precisely labor costs associated with this data production. Labor
costs entail varying compensation levels of management and/or support staff among firms of
different sizes. In addition, comments responding to the first Federal Register Notice suggested
that some respondents expect to utilize outside legal counsel in responding to the requests, which
may add additional costs. Consequently, although financial, legal, and clerical personnel may be
involved in the information collection process, the Commission now assumes that
mid-management personnel and outside legal counsel will handle most of the tasks involved in
gathering and producing responsive information, and has applied an average rate of $250/hour
for all labor costs. Thus, except for firms with small patent portfolios and relatively little
assertion activity, the labor costs per respondent may range between $68,750 (275 hours x
$250/hour) and $211,250 (845 hours x $250/hour).
13.

Estimated Annual Capital or Other Non-labor Costs

The Commission anticipates that the capital or other non-labor costs associated with the
information requests will be minimal. Although the information requests may require the
respondent to store copies of the requested information provided to the Commission, responding
Firms should already have in place the means to store information of the volume requested. As
the SAS Institute noted, “the requested information overlaps significantly with what a PAE
would have to prepare in connection with asserting and litigating a patent.”137 Further, the
Internet Association observed that “because patents are PAEs’ primary assets, PAEs, whatever
the size of their portfolios, likely have well-organized files relating to individual patents and
patent portfolios.” 138
Respondents may need to purchase minimal office supplies to respond to the request. The
Commission estimates that each respondent will spend $500 for such costs regarding the
information request, for a total additional non-labor cost burden of $20,000 ($500 x 40
respondents).
14.

Estimate of Cost to the Federal Government

The cost of the information collection to the federal government will include the cost of
staff time used to design the information requests, analyze the data collected, and produce a
report in an expeditious manner. It is difficult to quantify the total cost to the Commission to
complete the study because multiple factors may vary, including how quickly and completely
subjects respond to information collection requests and the actual amount of time needed to
complete the study. Nonetheless, the Commission estimates that approximately 3 attorney work
years ($174,000 per work year, including benefits), 6000 economist hours ($500,000 including
137

SAS Institute, et. al. at 1.

138

Internet Association at 3.

25

benefits), and 320 research assistant hours ($11,000 including benefits) will be needed to
complete the study. Thus, the total remaining cost to the Commission is about $1,033,000.
Clerical and other support services and costs of conducting the study are included in this
estimate.
15.

Program Changes or Adjustments
Not applicable. This is a new collection of information.

16.

Plans for Tabulation and Publication of Information

Subject to OMB clearance, the Commission will collect information from respondents
and prepare a public report based on the results. The estimated date for the completion of the
report is 2015.
17.

Failure to Display the OMB Expiration Date
Not applicable.

18.

Exceptions to Certification
Not applicable.

26