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December 17, 2013

Miller, State AGs Commend FTC Patent Troll Effort

Through baseless patent infringement claims, patent trolls extract huge fees and settlements from businesses, non-profit agencies and even consumers

(DES MOINES, Iowa)  Attorney General Tom Miller today joined 42 attorneys general in voicing strong support for the Federal Trade Commission’s efforts to investigate so-called patent trolls.  The 43 state attorneys general submitted a letter to FTC Secretary Donald Clark.

In early October, the FTC announced its plan to conduct a wide-ranging investigation of known patent trolls, also known as patent assertion entities (PAEs).  The proposed investigation would arm consumer protection authorities with valuable intelligence as they escalate actions against abusers of the patent system.

Patent trolls make baseless claims of patent infringement to extract fees or settlements from consumers.  They acquire patents solely for this purpose.  Consumers, small businesses and non-profit agencies are often targeted because they have purchased or used off-the-shelf commercial products that rely on common, everyday technology. These products include printers, scanners, wireless routers and other products used in homes and businesses.

“Patent trolls use our legal system to shake down and, in some cases, take down businesses,” Miller said.  “The legal costs to fight these types of frivolous threats and lawsuits can ruin a company that did absolutely nothing wrong.”

The patent troll business model works because defending patent infringement lawsuits is expensive, particularly for small businesses.  A company accused of patent infringement can easily spend thousands of dollars just getting preliminary legal advice about the scope of the patent and its validity.  Successfully defending a lawsuit may cost a million dollars or more.

Though patent laws make some provision for awarding attorneys’ fees, a party that defeats a patent troll in court has little hope of getting its money back.  Patent trolls generally operate through undercapitalized shell companies that are effectively judgment-proof.  Targets of patent trolls often pay several thousand dollars to settle claims of patent infringement – however dubious – instead of risking an expensive legal battle.

Miller and the attorneys general expressed optimism that the FTC’s nationwide patent troll investigation will assist with future federal and state law enforcement efforts.

“We believe the (FTC’s) collection of such information will greatly assist enforcement efforts against PAEs where they are found to violate antitrust and unfair and deceptive trade practices laws,” attorneys general wrote.


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