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First off, here are the general characteristics of patent assertion entities (PAEs), the points most salient to my question are items 3, 4, 5, 6, and 7:

Suits brought by PAEs have tripled between 2011 and 2012, rising from 29% of all infringement suits to 62% of all patent infringement suits. Estimates suggest that PAEs may have threatened over 100,000 companies with patent infringement in 2012 alone. PAE activities hurt firms of all sizes. Although many significant settlements are from large companies, the majority of PAE suits target small and inventor-driven companies. In addition, PAEs are increasingly targeting end users of products, including many small businesses.

PAEs take advantage of uncertainty about the scope or validity of patent claims, especially in software-related patents because of the relative novelty of the technology and because it has been difficult to separate the "function" of the software (e.g., to produce a medical image) from the "means" by which that function is accomplished.

The PAE business model is generally seen as combining characteristics such as the following:

  1. They do not "practice" their patents; that is, they do not do research or develop any technology or products related to their patents;
  2. They do not help with "technology transfer" (the process of translating the patent language into a usable product or process);
  3. They often wait until after industry participants have made irreversible investments before asserting their claims,
  4. They acquire patents solely for the purpose of extracting payments from alleged infringers;
  5. Their strategies for litigation take advantage of their non-practicing status, which makes them invulnerable to counterclaims of patent infringement.
  6. They acquire patents whose claim boundaries are unclear, and then (with little specific evidence of infringement) ask many companies at once for moderate license fees, assuming that some will settle instead of risking a costly and uncertain trial.
  7. They may hide their identity by creating numerous shell companies and requiring those who settle to sign non-disclosure agreements, making it difficult for defendants to form common defensive strategies (for example, by sharing legal fees rather than settling individually).

Regarding points 1 and 2, I understand that PAEs, or anyone else for that matter, have no moral obligation to develop their patents into something useful. However, my question is, what free market principles justify the predatory behavior of PAEs? It seems that they hinder the ability of productive individuals from marketing ideas that happen to share some of the qualities of the patented ideas. The PAEs don't do anything productive with these patents other than wait for an innocent, productive individual to come along and snare them with lawsuits---that is literally their sole purpose. In this sense, PAEs appear to be destructive agents of the market, they hamper progress, and limit people's freedom in the process.

What do Objectivists think about this?

asked Jun 13 '13 at 02:59

user890's gravatar image

user890
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edited Jun 27 '13 at 19:28


From the description in the question and in the cited article, this question pertains to the implementation of philosophy (intellectual property rights) in the field of law, and it sounds as if the implementation definitely needs improvement. Specfically how the implementation can be improved is not something that philosophy can define. Both the implementation and on-going refinements need to be worked out primarily by experts who specialize in intellectual property law, within the overall scope of rational philosophical principles and guidelines. For the Objectivist view of patents and copyrights, refer to that topic in The Ayn Rand Lexicon.

One point that may be unclear from the wording of the question is that apparently these PAEs are the actual patent owners. They evidently buy the patents from the original owners or possibly devise the patentable inventions themselves, or apparently expand their portfolios through settlements in past infringement lawsuits. The original article defines PAEs as follows:

A patent assertion entity (PAE) is a firm that owns patents but does not make products with them, instead it focuses on aggressive litigation, using such tactics as: threatening to sue thousands of companies at once, without specific evidence of patent infringement against any of them; creating shell companies that make it difficult for defendants to know who is suing them; and asserting that their patents cover inventions not imagined at the time the patents were granted.

Perhaps there should be a greater requirement to make products from patents before one can claim infringement. A patent is supposed to encourage inventors and businesses, not merely prohibit others from functioning. Perhaps there should be stricter accountability to determine who actually owns any particular patent. Certainly measures should be taken, if possible, to make the claims of patents more clear and objective (Objectivism advocates objective law). These are some of the points that any implementer of intellectual property rights should consider, as well as many other points that would not be as readily obvious but still philosophically relevant to the broad task of protecting intellectual property rights. It also ought to be easier and less costly, in my opinion, to obtain some kind of initial determination of claim validity before committing to an expensive, protracted litigation process that too many victims would rather settle than fight. I believe I would probably welcome efforts by legal experts to implement such a system (maybe somewhat akin to small claims court or binding arbitration), depending on how well the proposed solution meets the overall goal of protecting genuine intellectual property rights.

... what free market principles justify the predatory behavior of PAEs? It seems that they hinder the ability of productive individuals from marketing ideas that happen to share some of the qualities of the patented ideas.

From the descriptions of PAEs, it sounds like they are not an expression of free-market principles, but a hindrance to those principles, made possible by government policies that make litigation too easy for those who would rather sue others than produce values themselves, and too expensive for those who would like to be able to defend themselves more effectively against dubious legal claims. If so, Congress should strive conscientiously to fix it. There might also be some principles of common law (maybe some form of "equity," perhaps) that could be pursued in the courts to alleviate the harm that PAEs evidently perpetrate.

answered Jul 01 '13 at 01:18

Ideas%20for%20Life's gravatar image

Ideas for Life ♦
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Asked: Jun 13 '13 at 02:59

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Last updated: Jul 01 '13 at 01:18