Regulators Take a Look at Patent Firms' Impact - Ask Any Law ...

By BRENT KENDALL And ASHBY JONES

U.S. antitrust authorities are examining whether specialized patent-holding firms?or ?trolls? to their detractors?are disrupting competition in high-tech markets, opening a new front in a long-standing Silicon Valley battle.

?There?s a possibility of competitive harm here,? said Joseph Wayland, who served as the Justice Department?s acting antitrust chief until last week, when he stepped down to return to private practice. Mr. Wayland said officials are devoting ?huge energy, particularly at a senior level? to this and other antitrust issues surrounding patents.

The FTC?s Jon Leibowitz, seen in June, says regulators want to better understand the patent industry.

The Justice Department and its fellow antitrust enforcer, the Federal Trade Commission, say they are inviting parties with a stake in the matter to informal hearings next month in Washington, where tech companies are expected to encourage tougher scrutiny of what they describe as a threat to innovation.

The patent-holding companies, which amass portfolios of patents not to build new gadgets but to pursue licensing fees from those who do, are expected to be on the defensive.

?There has been a great deal of controversy and disagreement about whether they stifle innovation and whether they are an anticompetitive problem,? said FTC Chairman Jon Leibowitz. ?What we want to do is understand the industry better.?

Among the companies confirming their participation at the Dec. 10 session in Washington are Cisco Systems Inc.,

Nokia Corp.

and Intellectual Ventures Management LLC, a Bellevue, Wash., a patent-holding firm co-founded by former Microsoft Corp.

technology chief Nathan Myhrvold. A second session also is in the works, said people familiar with the agencies? plans.

Patent companies say they promote a fair market by protecting smaller inventors. ?Often, we?re working with inventors that can?t reach deals with bigger companies because they don?t have adequate leverage,? said Paul Ryan, chief executive of Acacia Research Corp.,

a publicly traded company in Orange County, Calif. ?We step in and help these people get paid, and that?s good for innovation and ultimately good for competition.?

Last month, Cisco filed strongly worded racketeering allegations in federal court against two patent companies, alleging in one instance that the company?s tactics effectively amounted to an extortion scheme. Another expected conference participant, Research In Motion Inc., paid a Virginia patent-holding company $612.5 million in 2006 to settle patent-infringement claims that almost shut down its BlackBerry service.

RIM didn?t respond to a request for comment.

The Justice Department and FTC examination of specialized patent-holding companies is part of a broad review of how holders of patents use them as strategic weapons against competitors. In particular, the agencies have expressed concern about companies that make aggressive legal claims based on patents that are part of industry technology standards. Antitrust enforcers also are interested in mergers or acquisitions that result in large transfers of patents.

Federal regulators are grappling with the changing face of the patent business. Nowadays the specialized patent company that tries to wrest royalties from a big technology company might not be an independent enterprise. Rather, it might be the creation of other big companies.

Nokia and Sony Corp.?s

Sony Corp. of America, for example, have assigned some of their patents to an entity called MobileMedia Ideas LLC, which has sued Apple Inc.

for patent infringement in a Delaware federal court. In another case, Google Inc.

lodged an antitrust complaint with European regulators this year against Nokia and Microsoft. The search giant alleged that Nokia and Microsoft were using a patent entity as a proxy to hurt the prospects of Google?s Android mobile-phone software.

Nokia called the allegation ?simply wrong,? and said Nokia and Microsoft operate independently on intellectual-property matters.

Justice Department lawyer Fiona Scott Morton, speaking to a Chicago audience in September, flagged potential problems with companies teaming up to transfer patents to a specialized entity. Companies that should be competing ?instead are cooperating, through the troll, to raise rivals? costs and share the profits from doing so,? she said.

Companies like Intellectual Ventures, which collect patents but don?t make products, may present a tougher hurdle for antitrust enforcers. Patents, by design, forestall competition: They are a government-granted monopoly that gives the patent holder an exclusive time-limited right to an invention.

?The patent laws give you a right to exclude,? said Michael Carrier, a law professor at Rutgers University, in Camden, N.J. ?It?s yours to do whatever you want with it. That?s a big part of why over the past century courts have had a hard time applying antitrust law to patents.?

Acacia Research?s Mr. Ryan said his company bears no resemblance to a typical monopolist. ?This is not a situation where we have a product on the market and we?re working to keep others out of it,? he said.

Prof. Carrier said the best opening for government enforcers scrutinizing the specialized patent firms could come in reviews of patent acquisitions: The antitrust agencies generally review deals for their potential impact on competition. Ms. Scott Morton, in her Chicago speech, raised concerns that such acquisitions could harm competition.

Royalties ?could get large enough to make some products unprofitable to develop or produce,? she said. ?These higher royalty rates will raise the prices paid by consumers, and may reduce consumer choice.?

?Thomas Catan contributed to this article.

Write to Brent Kendall at brent.kendall@wsj.com and Ashby Jones at ashby.jones@wsj.com

Source: http://justasklegal.com/regulators-take-a-look-at-patent-firms-impact/7710/

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