Patent Trolls: In Search of Efficient Regulatory Standards

Abstract

Current concerns about the growth of patent assertion entities (PAEs) are typically related to their presumed anti-competitive behaviour and negative impact on innovation in product and technology markets. Regulators, required to balance the legitimate interests of patent holders and licensees, call for evidentiary standards to efficiently appraise, and for the purpose of policy formulation, prejudge the reasonableness and welfare consequences of these undertakings. And yet, recent economic analyses still seem far from offering operational criteria that could translate into enforceable, let alone efficient, regulatory norms. And so, case analysis, particularly in the US context, turns into an ordeal trying to tweak the facts of these fairly new business models to suit time-honoured legal principles. Plainly, PAE efforts in general do not seem to be easily caught by US competition rules that assign antitrust liability based on harm to competition and the competitive process. This is not to suggest that they are pro-competitive per se but, rather, that any attack on them may give rise to ‘administratively hopeless, but generally exculpating, rule of reason defence’. It may be for that reason that US judicial, federal and state reforms – for better or for worse – have begun to target some of the leverage points and key drivers of the PAE business model.The welfare consequences of reduced IP enforcement will still need to be established. The EU Commission expects PAEs to be less active in Europe because of the loser pays principle in European courts, the smaller damage awards offered in successful cases, and because of the higher degree of predictability of outcomes in European specialist patent courts. Yet, similar to the US context, EU regulators are faced with the dilemma of devising standards that fit a variety of circumstances and yet can be easily applied. In both cases, regulatory delegation avoids the pitfalls of ordering complexities centrally. But it requires a set of simple meta-rules to guide lower-level decisions, adjust principles to circumstance and keep matters predictable. Delegation in the area of competition policy is limited by the adequacy of the economic reference that it employs. At this stage, in dealing with outsourced patent assertion and related licensing conditions, economic theory offers a wide yet insufficient menu of advice. The article has four parts: Section 1 discusses patent trends, actors, rights and obligations, and the nature of current regulatory concerns. Section 2 reviews the scant empirical analyses and model work on patent trolls. Section 3 examines regulatory concerns in view of US antitrust standards and lists alternative remedies. Section 4 concludes and offers some considerations related to the European context.