FTC’s PAE Study Makes Unsupported Recommendations

Cross-posted from the Center for the Protection of Intellectual Property (CPIP) blog.

The FTC released its long-awaited study of so-called patent assertion entities, or PAEs, today. As many predicted, the FTC makes several broad recommendations for substantive and procedural reforms. The problem with this, however, is that the study was not designed to reveal the sort of data that could support such policy recommendations.

The FTC itself even admitted this. When seeking approval from the Office of Management and Budget (OMB) to go ahead with the study, the FTC explained that its findings “will not be generalizable to the universe of all PAE activity.” In another submission to the OMB, the FTC acknowledged that “the case study should be viewed as descriptive and probative for future studies seeking to explore the relationships between organizational form and assertion behavior.” Now that the study is out, we see that the FTC has neglected to recognize the very limitations it once acknowledged to exist.

The simple fact is that the PAE study is just the first step down the long road to understanding the complicated world of PAEs. While the study’s results reveal some information about a handful of firms, they don’t—because they can’t—tell us how PAE activity affects competition and innovation in general. The sample size is too small, and the questions are too open-ended, to have any predictive power.

It’s clear that many had already jumped the gun, claiming both that we need this study to understand PAEs but that we know enough about PAEs to condemn them. They were going to use this study to argue for broad reforms no matter what it said. And now that the study is out, itself suggesting many fundamental changes, the anti-patent crowd has more fuel for the anti-inventor bonfire. That the study does not support its conclusions matters a great deal, and it’s disappointing that the FTC would use an exploratory study designed to simply suggest hypotheses to claim that those hypotheses have now been fully tested.

To better understand the limitations of the FTC’s study, here are some recommended readings:

Papers

  1. Anne Layne-Farrar, What Can the FTC’s §6(B) PAE Study Teach Us? A Practical Review of the Study’s Methodology
  2. Kristen Osenga, Sticks and Stones: How the FTC’s Name-Calling Misses the Complexity of Licensing-Based Business Models
  3. Fritz Scheuren, Statistics and the Paperwork Reduction Act: An FTC Case Study

Essays

  1. Devlin Hartline, Acknowledging the Limitations of the FTC’s PAE Study
  2. Devlin Hartline, How Rhetorical Epithets Have Led the FTC Astray in its Study of Patent Licensing Firms
  3. Anne Layne-Farrar, What Can the FTC’s PAE Study Teach Us?
  4. Kristen Osenga, Why the FTC Study on PAEs is Destined to Produce Incomplete and Inaccurate Results
  5. Fritz Scheuren, What Can We Learn From the FTC’s Patent Assertion Entity Study?
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