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The tech industry here in Texas and elsewhere could have an ally in the Federal Trade Commission (FTC). The FTC recently released a report calling for reform in patent law that currently allows PAEs (patent assertion entities, also known as patent trolls) to file lawsuits in an attempt to shakedown companies in the industry. The business model employed by PAEs is examined in the report and suggestions are made regarding changes in patent litigation.

PAEs will buy old patents and then file lawsuits against companies who would often rather settle because it is cheaper than going to trial -- even if the case is defensible. Holding companies that do not produce anything own the patents. Counterclaims are considered to be useless because of this, and PAEs know it.

PAEs will often offer to make the lawsuit go away for around $300,000, which is only slightly less than what the first stages of litigation would cost. Considering this, the FTC recommends that the discovery portion of litigation, which can be quite expensive in this area of law, be postponed until certain rulings can be made. This would eliminate expensive discovery being used by PAEs as a bargaining chip to convince the defendant to settle.

The FTC's report illustrates how PAEs take advantage of current patent law to legally extort money from tech companies and those in other industries. It remains to be seen whether the report will influence legislators to make changes that many believe are long overdue. Individuals or companies in Texas who find themselves on the receiving end of a lawsuit filed by a PAE should not attempt to handle the litigation alone.

Source: Fortune, "The FTC Has Some Harsh Words for Patent Trolls", Jeff John Roberts, Oct. 6, 2016

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