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DOJ and FTC Consider NPE Antitrust Issues

Logan M. Breed

Logan M. Breed,

Washington, D.C.

16 October 2012

DOJ and FTC Consider NPE Antitrust Issues

Over the last decade, the patent landscape has been dramatically altered by the rise of entities whose business model is to acquire significant patent portfolios and aggressively pursue license fees from businesses selling products that may infringe on some of those patents.  Such companies are known as “non-practicing entities” (NPEs) or “patent assertion entities” (or, in some circles, “patent trolls”) because they do not manufacture or sell any products to consumers.  The U.S. antitrust agencies are considering how the antitrust laws should apply to NPEs, and one news organization has reported that the agencies intend to hold a workshop (subscription required) later this year to address the issue.

 

Senior officials from both the Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC) have made recent public statements that the antitrust agencies should evaluate the behavior of NPEs and their effects on consumers.  FTC Chairman Jon Leibowitz recently acknowledged that practicing entities have complained to the agency about NPEs, and the FTC’s chief economist said at a recent conference that NPEs are “worthy of some very serious attention”  (subscription required).  Similarly, Joe Wayland, the head of the Antitrust Division, stated in a recent speech that NPEs raise “a number of competitive concerns” (subscription required) and the DOJ is “looking at the exercise of intellectual property rights” by NPEs.

 

The DOJ and FTC have not publicly discussed how they would apply the antitrust laws to NPEs.  They will have to be creative because NPE conduct does not necessarily fall into any of the clearly established applications of antitrust law, but they could explore several possible theories.  First, the transfer of patents to an NPE may raise unique issues under Clayton Act § 7, which prohibits acquisitions that may tend to substantially lessen competition in a relevant market.  If NPEs use a series of patent acquisitions to create a portfolio that enables the NPE to charge a supracompetitive price for its patents for the reasons discussed above, the DOJ or FTC could possibly block or undo those transactions.  Second, NPEs that force practicing entities to get a license to thousands of patents may be engaged in anticompetitive “tying” contracts.   A third relevant theory may be Sherman Act § 2, which prohibits anticompetitive conduct that creates or maintains monopoly power (e.g., an NPEs likely pursuit of sham litigation, or use of deceitful or unethical conduct).  Finally, the FTC may be able to use § 5 of the FTC Act, which prohibits “unfair methods of competition” and “unfair or deceptive acts or practices,” to enjoin certain NPE behavior. 

 

Based on the spate of recent public comments about NPEs by the most senior officials in both agencies, it seems that the agencies may be examining these issues more closely.  The workshops that the agencies are reportedly planning to host later this year should provide clues on how the agencies intend to proceed, and they will also help clarify the arguments on both sides of the issue.  NPEs and practicing entities should watch closely to see what the DOJ and FTC may do in this area.

 

Logan M. Breed

Logan M. Breed,

Washington, D.C.

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