Patent Trolls, Nuisance Suits, and the Federal Trade Commission

The Federal Trade Commission’s (“FTC’s”) Patent Assertion Entity Activity Report (“The Report”) includes a path-breaking collection of data. The Report was compiled with the object of changing policy, both in Congress and before the courts. Because of the FTC’s ability to force businesses and individuals to provide information, a power that no ordinary researcher possesses, the FTC has amassed a data set that can potentially be of great value. For example, the Report’s description of litigation Patent Assertion Entities’ (“PAEs”) and portfolio PAEs’ structure and behavior is, although not entirely new, very instructive. Unfortunately, the FTC made analytical errors that preclude using its work to directly support policy prescriptions. First, the FTC claims that if a suit settles for less than $300,000, then the suit was likely Negative Expected Value (“NEV”). In addition, the FTC claims that NEV suits are bad. These claims are analytically false. Second, the FTC’s policy recommendations have no connection to any of its factual analysis. Although this does not prove that the policy recommendations are bad ideas, the FTC’s factual analysis gives the reader no help, at all, in deciding on the merits of the recommendations. Further, because the Report’s analytics are so flawed, they cannot help one evaluate any proposed new policies. Therefore, in terms of providing normative guidance, the Report is a failure.

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