- How do PAEs organize their corporate legal structure, including parent and subsidiary entities?
- What types of patents do PAEs hold, and how do they organize their holdings?
- How do PAEs acquire patents, and how do they compensate prior patent owners?
- How do PAEs engage in assertion activity (i.e. demand, litigation, and licensing behavior)?
- What does assertion activity cost PAEs?; and
- What do PAEs earn through assertion activity?
On September 27, 2013, the Federal Trade Commission (FTC) voted to examine Patent Assertion Entities (PAEs) and their impact on innovation and competition. The FTC proposes to gather information from approximately 25 PAEs that engage in the buying and asserting of patents. If approved, the FTC's will be able to obtain non-public information about patent acquisition, licensing and litigation from these as-yet unnamed PAEs. The FTC will also gather information from 15 other entities asserting patents in the wireless communications sector including manufacturing firms. The FTC is inviting public comment on the study, which could be used to inform the FTC's competition policy advocacy efforts as well as potential future enforcement actions.The questions will include:
In 1990, Stephen Kimble invented a Spider-Man toy that allowed a child to “role play” as Spider-Man by mimicking Spider-Man’s webshooting abilities with foam string. Kimble filed a patent for his invention and, around the same time, met with Marvel to discuss licensing his patent and other ideas. Kimble and Marvel did not have a written agreement but Kimble claims that Marvel agreed to compensate him if any ideas were used. Marvel subsequently told Kimble that it was not interested in his ideas. Despite its supposed lack of interest, Marvel began manufacturing a similar Spider-Man role-playing toy. In the meantime, Kimble's patent application issued and Kimble sued Marvel for patent infringement and breach of contract. The parties settled in 2001 and Marvel bought the patent from Kimble for a lump sum and a 3% running royalty based on net sales.
Peace reigned until 2006, when a royalty dispute resulted in Kimble filing a new lawsuit for breach of contract. Marvel counterclaimed for a declaration that it was no longer obligated to pay Kimble based on the sale of products after the expiration of his patent. The Ninth Circuit reluctantly agreed with Marvel, finding that a Brulotte v. Thys Co., a 1964 Supreme Court decision forbidding patent holders from collecting royalties after the expiration date of the patent controls. Many judges and scholars have criticized Brulotte as making little economic sense. But unless the Supreme Court revisits its earlier precedent, Mr. Kimble's stream of web-shooting royalties has run out. Check out a commercial for the toy here:
On September 12, Twitter informed the world (through a tweet, naturally) that it is beginning the process of filing for an initial public offering. What made this announcement different is that Twitter took advantage of a provision in the newly-enacted JOBS Act to file its initial paperwork confidentially with the SEC. The JOBS Act allows what it defines as “emerging growth companies” to take advantage of reduced regulation during and after an IPO. Congress defined an emerging growth company as one with less than $1 billion in revenue.
Companies that don't meet the emerging growth criteria must release their IPO filings, usually with pages of detail about their financial condition, risk factors and ownership and management structure, months before they sell their shares. This gives investors, financial analysts and journalists a lot longer to analyze the company's prospects.
Twitter and other emerging growth companies can delay the release until 21 days before a roadshow to investors. The roadshow precedes the offering of shares by a few weeks. The JOBS Act was intended to help startups test the regulatory process for an IPO without worrying about bad publicity if they decide to withdraw their offering.