United States of America 

Federal Trade Commission 

Optimizing Innovation and Strengthening Intellectual Property Protection
 

Maureen K. Ohlhausen
 

Acting Chairman, Federal Trade Commission
 

Remarks before the American Bar Association’s 

32nd Annual Intellectual Property Law Conference 

Arlington, VA 

April 6, 2017 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction 

Good afternoon. My remarks today touch on an area that has been and will continue to 

be an area of special interest for me: optimizing innovation by protecting and strengthening IP 

protections. It is clear that strong IP rights are vital to the U.S. economy. The United States 

government recently reported that IP-intensive industries support at least 45 million U.S. jobs 

and contribute more than $6 trillion dollars to, or 38.2 percent of, U.S. gross domestic product.1 

I have written at length—most recently in the Harvard Journal of Law & Technology— 

about the positive correlation between robust IP rights and R&D investment in developed 

countries.2 As we begin our discussion this morning of optimal patent policy interventions, two 

leading studies warrant attention. 

Scrutinizing cross-country data on R&D investment and patent protection from thirty-two 

countries from 1981 to 1995, Kanwar and Evenson found that “[t]he evidence unambiguously 

indicates the significance of intellectual property rights as incentives for spurring innovation.” 

They found that “[t]he strength of intellectual property protection is positively and significantly 

associated with R&D. . . . Thus, countries which provided stronger protection tended to have 

larger proportions of their GDP devoted to R&D activities.”3 

That study followed work by Park and Ginarte, who examined data from sixty countries 

between 1960 and 1990 to explore the relationship between IP rights and economic growth. They 

1 U.S. DEP’T OF COMMERCE, INTELLECTUAL PROPERTY AND THE U.S. ECONOMY: 2016 UPDATE (2016), 

https://www.uspto.gov/sites/default/files/documents/IPandtheUSEconomySept2016.pdf. 2 Maureen K. Ohlhausen, Patent Rights in a Climate of Intellectual Property Rights Skepticism, 30 HARV. 

J. L & TECH. 103 (2016).
 3 Sunil Kanwar & Robert Evenson, Does Intellectual Property Protection Spur Technological Change?, 

55 OXFORD ECON. PAPERS 235, 249-250 (2003). 

1
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

found that “IPRs affect economic growth by stimulating the accumulation of factor inputs like 

research and development capital and physical capital.”

4 

A host of other empirical work finds a statistically significant relationship between patent 

strength and R&D investment. A 2013 Brookings report observed, “[r]esearch has established 

that patents are correlated with economic growth across and within the same country over time” 

and “R&D spending since 1953 is highly correlated with patenting and the patent rate.”5 

Studying U.S. data between 1980 and 2010, the report concluded that “patenting is associated 

with higher metropolitan area productivity” and that “the most likely explanation is that patents 

cause growth.”6 

We also know that firms respond to changes in the strength of patent protection. In a 

well-known study, for example, Hall and Ziedonis examined the U.S. semiconductor industry 

between 1979 and 1995. They found that “large-scale manufacturers have invested far more 

aggressively in patents during the period associated with strong U.S. patent rights, even 

controlling for other known determinants of patenting.”7 

This is only a small introduction to the economic literature in this area. Still, it provides a 

useful framework as I address two of the FTC’s most-recent IP policy initiatives: the revised IP 

licensing guidelines and our PAE report. 

4 Walter G. Park & Juan Carlos Ginarte, Intellectual Property Rights and Economic Growth, 15 

CONTEMPORARY ECON. POL’Y 51 (1997). 

5 JONATHAN ROTHWELL ET AL., BROOKINGS, PATENTING PROSPERITY: INVENTION AND ECONOMIC 

PERFORMANCE IN THE UNITED STATES AND ITS METROPOLITAN AREAS 4, 8 (2013). 

6 Id. at 15. 

7 Bronwyn H. Hall & Rosemarie Ham Ziedonis, The Patent Paradox Revisited: An Empirical Study of 

Patenting in the US Semiconductor Industry, 1979-1995, 32 RAND J. ECON. 101, 104 (2001). 

2
 
 

 

 

 

 

 

 

 

 

IP Guidelines 

In January 2017, the Federal Trade Commission and the U.S. Department of Justice 

jointly issued updated Antitrust Guidelines for the Licensing of Intellectual Property,8 which 

state the agencies’ enforcement policy with respect to the licensing of intellectual property 

protected by patent, copyright, and trade-secret law, and of know-how. This is the agencies’ first 

update since the Guidelines issued in 1995. 

Before discussing the revisions in detail, it is helpful to frame the economics of IP 

licensing. Forty years ago, Edmund Kitch famously theorized his “prospect” theory of patents:

9 

broad patents issued during the early stages of development will encourage technological 

investment after the property right is granted.10 I have noted that this represents the “Coase 

Theorem” in action. By voluntarily contracting with one another based on an initial allocation of 

property rights, parties efficiently reallocate entitlements to higher-value uses. 

Patents, and patent licensing, facilitate this distribution of resources. Stakeholders may 

choose to focus on developing early-stage technology, addressing technological improvements, 

or bringing the final product to market. Clearly defined patent rights allow participants to engage 

in efficient bargaining, ex ante, to deliver the optimal product to consumers. The FTC explained 

this dynamic in its IP Marketplace report from 201111, noting the roles of universities and 

semiconductor design houses as facilitating development through technology transfer. 

8 U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST GUIDELINES FOR THE LICENSING OF 

INTELLECTUAL PROPERTY (2017), 

https://www.ftc.gov/system/files/documents/public statements/1049793/ip guidelines 2017.pdf 

[hereinafter 2017 Guidelines]. 

9 Edmund W. Kitch, The Nature and Function of the Patent System, 20 J L & ECON. 265, 265-66, 268 

(1977). 

10 Id. at 276. 

11 FED. TRADE COMM’N, THE EVOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE AND REMEDIES 

WITH COMPETITION, (Mar. 2011), https://www.ftc.gov/reports/evolving-ip-marketplace-aligning-patentnotice-remedies-competition. 

3
 
 

 

 

 

 

While IP licensing generally is procompetitive, antitrust enforcers have a role to play in 

protecting against competitive abuses. In the past, however, I have expressed concern when less 

like-minded overseas enforcers apply their antitrust laws to dilute IP rights. Doing so 

inappropriately morphs antitrust law into a tool for price regulation and create harmful 

disincentives for innovation. Consequently, I have long favored an evidence-based approach 

towards evaluating potential IP abuses in the antitrust space. The 2017 Guidelines exemplify my 

approach to antitrust/IP issues, and offer the following reasonable guideposts: 

First, the Guidelines represent a modest update, embracing principles of commendable 

flexibility. Some commenters called upon the U.S. agencies to create new, specialized, 

guidelines to address FRAND-encumbered SEP, PAE, or pay-for-delay issues. I did not support 

this. As I have said before, “IP issues are not a special case that requires a different competition 

jurisprudence.”12 For more than twenty years, the Guidelines have offered general guidance that 

has adapted to new and complicated issues in the IP space. Under this precedent, we should be 

careful not to establish new standards without compelling evidence to do so. 

Second, the Guidelines continue to affirm that IP laws grant “enforceable rights,” which 

have social value.13 Intellectual property laws incentivize innovation by establishing enforceable 

boundaries to protect new products, more efficient processes, and original works of expression. 

Without IP rights, imitators could exploit investments in R&D without compensation. As the 

Guidelines recognize, “Rapid imitation would reduce the commercial value of innovation and 

erode incentives to invest, ultimately to the detriment of consumers.”14 

12 ABA Section of Antitrust Law’s Intellectual Property Committee, Interview of Commissioner 

Ohlhausen, PUBLIC DOMAIN 11-12 (Feb. 2016).
 13 Id. at 1-2.
 14 Id. at 2. 

4
 
 

 

 

 

 

 

 

 

 

 

 

 

 

Third, the Guidelines state that “antitrust laws generally do not impose liability upon a 

firm for a unilateral refusal to assist its competitors.”15 Read together with the Agencies’ 2007 IP 

Report, which stated that, “liability for mere unconditional, unilateral refusals to license will not 

play a meaningful part in the interface between patent rights and antitrust protections,”16 it is 

clear that the Guidelines will continue to protect strong IP rights in the United States. 

The PAE Report 

I turn now to the FTC’s recent report on patent assertion entities, which we issued last 

October.17 Our report was in good company. Last fall, the European Commission’s Joint 

Research Centre issued its report on “Patent Assertion Entities in Europe.”

18 

The European Commission report provides a European perspective on PAEs, which 

complements the FTC’s study. In particular, it notes that “the legal fragmentation of patent 

protection” in Europe dis-incentivizes widespread PAE activity, but the imminent introduction of 

the Unitary Patent Court could increase assertion activity in the coming years.19 

PAEs are businesses that acquire patents from third parties, and then try to make money 

by negotiating with, or suing, accused infringers. PAEs focus on accused infringers who are 

already on the market. This differs from technology transfer licensing which focuses on bringing 

15 Id. at 3. 

16 U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL 

PROPERTY RIGHTS, PROMOTING INNOVATION AND COMPETITION 30 (2007) (“[L]iability for mere 

unconditional, unilateral refusals to license will not play a meaningful part in the interface between patent 

rights and antitrust protections.”), www.usdoj.gov/atr/public/hearings/ip/222655.pdf 

17 FED. TRADE COMM’N, PATENT ASSERTION ENTITY ACTIVITY: AN FTC STUDY (2016), 

https://www.ftc.gov/system/files/documents/reports/patent-assertion-entity-activity-ftcstudy/p131203 patent assertion entity activity an ftc study 0.pdf. 18 Joint Research Ctr., Eur. Comm’n, JRC103321, Patent Assertion Entities in Europe (Nikolaus Thumm 

& Gary Gabison eds., 2016), 

http://publications.jrc.ec.europa.eu/repository/bitstream/JRC103321/jrc103321%20online%20version.pdf. 19 Id. at 8. 

5
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

new products to market. Because PAE activity focuses on post-development activity, it has 

raised policy questions about the role of PAEs in promoting innovation and economic growth. 

The FTC has statutory authority to collect confidential business information and conduct 

industry studies.20 We used this authority to study PAE acquisition, litigation, and licensing 

practices because more data on the non-public aspects of PAE activity enhances the quality of 

the policy dialogue. 

While we had access to a significant volume of non-public information, we were unable 

to review the business practices of all PAEs. This is because, unlike other industries, the full 

universe of PAEs is not known. As a result, the report is a case study that focuses on the most 

economically important PAEs, as well as PAEs of various sizes. Overall, the FTC analyzed 22 

PAEs, more than three-hundred asserting affiliates, and more than 2000 entities that held patents, 

but did not assert. Those Study PAEs accounted for over 75% of all U.S. patents that PAEs held 

at the end of 2013, and a substantial portion of PAE patent infringement litigation initiated 

during the study period. 

So what did we learn? For me, the most interesting finding was that PAEs followed two 

distinctly different business models, focusing either on suing and settling quickly, or on 

negotiating licenses to large patent portfolios. There was surprisingly little crossover in the 

behavior of these two groups. 

Portfolio PAEs were sophisticated firms that most closely resembled the licensing arms 

of large technology companies. They capitalized themselves through institutional investors, 

aggregated hundreds or thousands of patents, and typically negotiated licenses worth millions of 

dollars. Even though they represented only 9% of the licenses in the study, they generated fourfifths of the revenue—more than three billion dollars. Importantly, they hired specialized IP20 15 U.S.C. § 46(b) (2012). 

6
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

licensing professionals and typically negotiated licenses without first suing prospective licensees. 

On average, Portfolio PAEs acquired patents that were more than three years younger than 

patents acquired by Litigation PAEs. 

Portfolio PAEs may engage in economic specialization that is potentially consistent with 

efficient aggregation. Because Portfolio PAE licenses overwhelming resulted from arms-length 

negotiations, it is plausible that the license value reflects the quality of the licensed patents. 

Through aggregation, Portfolio PAEs also may mitigate royalty-stacking effects associated with 

the disaggregation of complementary IP rights. 

At the same time, the Commission did not conclude that Portfolio PAEs necessarily 

enhance social welfare. It is possible, for example, that Portfolio PAEs share little revenue with 

upstream inventors, many of their patents would not have been asserted but-for their 

accumulation, their licensees independently invented the claimed technologies, or that their IPR 

holdings are of poor quality. The FTC’s report cannot categorically answer whether PAEs 

benefit innovation. Portfolio PAEs however, demonstrate complex business practices that could, 

under the right circumstances, serve a valuable function. 

Litigation PAEs, by contrast, were not highly-capitalized. They typically relied on 

revenue-sharing to fund their activity, acquired small portfolios, and created subsidiaries to 

litigate this IP and hold it separate. 

Infringement lawsuits played a key role in the viability and success of the Litigation PAE 

business model. More than ninety-percent of their licenses followed litigation, and these cases 

settled quickly. Parties typically settled for less than $300,000, an amount that defendants could 

expect to pay through initial discovery. Despite filing 96% of the lawsuits in the study and 

representing 91% of licenses, they accounted for only 20% of the reported revenue. 

7
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

The PAE report is full of relevant findings unavailable in other studies, and 

unfortunately, I cannot address each of them in these remarks. A few conclusions, however, are 

worth noting for their contribution to larger policy discussions. 

First, some have expressed concern with PAEs make money simply by sending thousands 

of demand letters to accused infringers. The FTC did not observe this behavior. As a result, 

demand letter reform, by itself, may not fully address PAE behavior. A company called MPHJ, 

whom the FTC sued for sending deceptive demand letters, may have been an outlier. 

Second, PAEs focused overwhelmingly on acquiring and asserting information and 

communication technology patents. More than three-quarters of the more than 35,000 patents in 

the study were software-related. Still, PAE’s asserted information and communication 

technology patents against parties in a wide-range of industries. As I will discuss in a minute, 

this “software-focus,” and the associated complaints about patent quality, are addressed in part 

by recent Supreme Court precedent. 

Third, while some have focused on potential harms arising from the assertion of FRANDencumbered standard-essential patents, these SSO commitments did not appear to be a draw for 

PAEs. PAEs identified fewer than 1% of Study patents as FRAND encumbered. Finally, the 

evidence suggests that some PAEs target end users of technologies, rather than those that built 

the infringing devices. 

Finally, the Commission compared PAE activity to the behavior of manufacturers and 

others in the wireless chipset market. It found that Litigation PAE behavior differed significantly 

from manufacturer behavior: Litigation PAEs almost always sued before licensing, while 

manufacturers went to court far less frequently. Manufacturers also licensed differently, with far 

more complicated contracts than Litigation PAEs. 

8
 
 

 

 

 

 

 

 

 

 

 

 

I’ll now turn to the FTC’s recommendations growing out of the study. First, to be clear, 

infringement litigation plays an important role in protecting patent rights. The ability to sue 

others for copying your invention, among other things, is crucial to establishing the property 

boundaries necessary to promote innovation. At the same time, nuisance litigation, which relies 

on estimated costs and not the strength of the patent claims, can tax judicial resources and divert 

attention away from productive business behavior. 

Accordingly, the report presents tailored recommendations to alleviate potential litigation 

abuses. For example, the report proposes case management practices that could mitigate 

litigation cost asymmetries between PAE plaintiffs and defendants. The report also recommends 

that Congress pass rules increasing transparency and encourage courts to stay litigation by PAEs 

against end users when parallel proceedings already are underway against the manufacturer. I 

support these proposals because they are narrowly-tailored to address observed behavior, without 

leading to unintended consequences well beyond PAE activity. 

Some have questioned whether the FTC should have included any recommendations in 

its report. This position, however, does not fully account for the realities of Washington. There 

has been recurring interest in legislating changes in this area. It is thus important that the agency 

offer informed guidance to help ensure any changes have a positive impact in the IP marketplace. 

Subsequent Developments 

As we address intellectual property and competition policy, we should bear in mind how 

the legal environment has changed in recent years. 

For example, in 2013, I forecasted that, to the extent there is a problem with PAEs, it is 

likely to be a function of patent quality, particularly with respect to software patents. The FTC’s 

report is consistent with my hypothesis, given the prevalence of information and communication 

9
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

technology patents at issue and Litigation PAEs’ apparent use of nuisance-value lawsuits to 

extract revenue. 

In addressing next steps, however, we must consider the changing dynamics of patent 

law. Among the more than 37,000 patents in our sample, more than three-quarters contained 

software related claims. Still, our recommendations did not focus on specific claims, or art units. 

This is in part, because the Supreme Court’s 2014 decision in Alice Corp. v. CLS Bank, 

International has already had a significant impact on software patents, and its ramifications 

continue to play out. 21 As you know, Alice considered whether computer-implemented 

inventions are patentable. The Court held that an abstract idea does not become patentable 

simply because it is implemented on a “generic computer.”

22 

With few exceptions, the Federal Circuit—the U.S. court of appeals dedicated to patent 

cases—has repeatedly relied on Alice to invalidate software-related claims directed at abstract 

concepts. A few weeks ago, on March 7, 2017, the court held that patents acquired by a large 

PAE, Intellectual Ventures, were impermissibly abstract without any “additional features,” that 

would transform the idea into patentable subject matter.23 Last year, in a similar case finding 

Intellectual Ventures’ software IP invalid, Judge Mayer, in concurrence, wrote, “Software lies in 

the antechamber of patentable invention”24 and concluded “claims directed to software 

implemented on a generic computer are categorically not eligible for patent.”25 

Other developments bear notice. Until the end of 2015, a patent holder could file a 

complaint in district court by making simple allegations regarding patent ownership and 

21 Alice Corp. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014). 

22 Id. at 2358.
 23 Intellectual Ventures I LLC v. Capital One Financial Corp., 2017 WL 90031 at *1 (Fed. Cir. Mar. 7,
 

2017).
 24 Intellectual Ventures I LLC v. Symantec, Corp., 838 F.3d 1307, 1325 (Fed. Cir. 2016).
 25 Id. at 1322. 

10
 
 

 

 

 

 

 

 

 

 

 

infringement. The patent holder did not need to identify any claims that were allegedly infringed, 

or list any accused products.26 In December 2015, however, an amendment to the Federal Rules 

of Civil Procedure abolished this standard. Now, patent holders must follow the pleading 

standard articulated by the Supreme Court for all civil cases and plead factual allegations that 

make infringement “plausible.”27 Because Litigation PAEs generate licensing revenue primarily 

through litigation, raising the pleading standard can provide defendants with more notice to 

evaluate their alleged infringement and should influence a patent plaintiff’s ability to bring 

nuisance suits successfully. 

Also, the U.S. Supreme Court recently eliminated the laches defense for patent 

infringement suits brought within the six-year statutory limitation period.28 Laches is an 

equitable remedy for prejudice caused by unreasonable delay in filing suit. Some commenters 

had argued that the laches defense was necessary to address litigation asymmetries caused by 

patent plaintiffs, particularly PAEs, who wait until a product is successful in the marketplace 

before filing suit.29 The Court held, however, that applying an equitable remedy within a 

statutory limitations period specified by Congress would give judges a “legislation-overriding” 

26 FED. R. CIV. P. 84, Form 18.
 27 Ashcroft v. Iqbal, 556 U.S. 662 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). See, e.g., 

e.Digital Corp. v. iBaby Labs, Inc., No. 15-cv-05790-JST, 2016 U.S. Dist. LEXIS 111689, at *5–9 (N.D. 

Cal. Aug. 22, 2016) (reviewing district court decisions since the abrogation of Form 18); Atlas IP LLC v. 

Pac. Gas & Elec. Co., No. 15-cv-05469-EDL, 2016 U.S. Dist. LEXIS 60211, at *15–17 (N.D. Cal. Mar. 

9, 2016) (granting motion to dismiss with leave to amend, noting that “the disclosures required by the 

Patent Local Rules will soon provide more detailed notice”); Ruby Sands LLC v. Am. Nat’l Bank of Tex., 

No. 15-cv-01955-JRG, 2016 U.S. Dist. LEXIS 83897, at *15 (E.D. Tex. June 28, 2016) (granting motion 

to dismiss with prejudice, noting “a highly unusual case ... with a serial litigant” who failed to plead 

plausible claims of direct infringement).
 28 SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 2017 WL 1050978 (Mar. 21,
 

2017).
 29 See, e.g., Brief for Dell et al as Amici Curiae Supporting Respondents, SCA Hygiene Prods. Aktiebolag 

v. First Quality Baby Prods., LLC, 2017 WL 1050978 (Mar. 21, 2017); Brief for Roche Molecular Sys., 

Inc. as Amici Curiae Supporting Respondents, SCA Hygiene Prods. Aktiebolag v. First Quality Baby 

Prods., LLC, 2017 WL 1050978 (Mar. 21, 2017). 

11
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

role that exceeds the judiciary’s power.30 In his dissent, Justice Breyer wrote that the majority 

“remains ‘determined to stay the course and continue on, traveling even further away,’ from 

Congress’s efforts in the Patent Act, to promote the ‘Progress of Science and useful Arts.’”31 

Finally, the Supreme Court will soon issue its decision in TC Heartland LLC v. Kraft 

Foods Group Brands LLC, which addresses the proper venue provisions for patent cases.32 Some 

commenters, including the former Chief Judge of the Federal Circuit, Paul Michel, have argued 

that the current venue provisions have led patent infringement suits to concentrate in a small 

handful of district courts, leading to “numerous practical negative consequences.”33 Judge 

Michel notes that, among other things, this concentration “prevents the Federal Circuit from 

receiving diverse views about how patent law should change to keep up with ever-changing 

technologies.”34 Notably, The FTC’s PAE report supports the proposal that patent cases are 

concentrated among certain districts. 75% of reported cases were brought in either the Eastern 

District of Texas (53%) or the District of Delaware (22%). 

Given the dynamic nature of patent law, I recommend asking U.S. policymakers two 

important questions before weighing in with policy solutions: (1) how are our colleagues in 

Congress, the courts, and the PTO addressing these proposed problems, and (2) what evidence 

supports our intervention? This is why I favor evidence-based reforms, like those proposed in the 

FTC’s PAE report. Likewise, I support retaining flexibility—as we did in the revised IP 

30 SCA Hygiene Prods., 2017 WL 1050978 at *5. 

31 Id. at *20 (quoting Mathis v. United States, 579 U.S. ___, ___, 136 S.Ct. 2243, 2271, 195 L.Ed.2d 604 

(2016) (Alito, J., dissenting) and U.S. Const. Art. I, § 8, cl. 8.)). 

32 TC Heartland LLC v. Kraft Food Brands Grp. LLC, 137 S.Ct. 614 (2016) (granting certiorari to address 

whether the patent venue statute, 28 U.S.C. § 1400(b), is the sole and exclusive venue provision 

governing patent infringement litigation, or whether it is supplemented by the general venue statute, 28 

U.S.C. § 1391).
 33 Brief for Paul R. Michel as Amicus Curiae Supporting Petitioner, TC Heartland LLC v. Kraft Food
 

Brands Grp. LLC, 137 S.Ct. 614 (2016).
 34 Id. at 1.
 

12
 
 

 

Guidelines—when the available evidence does not support a radical shift in our antitrust 

analysis. 

Thank you for inviting me to speak with you today. 

13