Patent assertion entities, or PAEs, have earned the ire of many tech companies, along with a derisive nickname —“patent trolls.” PAEs claim to improve the market for ideas by helping inventors more efficiently assert their rights. By contrast, many contend that PAEs exacerbate the costs of “patent hold-up,” and thereby undermine innovation.

A Presidential Report blamed PAEs for 60 percent of all patent lawsuits in the U.S. and asserted that PAEs “act to significantly retard innovation in the United States and result in economic ‘dead weight loss’ in the form of reduced innovation, income, and jobs.” It is, therefore, unsurprising that Congress and the FTC are investigating, and potentially considering action against, PAEs. Indeed, both State AGs and the FTC have acted (or are considering acting against) PAEs for bringing assertions without sufficient investigation, such as in MPHJ Tech. Inv. v. FTC (MPHJ filed a preemptive complaint against the FTC after receiving a subpoena in July 2013) and the similar In re MPHJ Tech. Inv. LLC (setting out guidelines for future patent assertion conduct by MPHJ).

A natural question is whether existing antitrust rules also impose meaningful constraints on PAE conduct. This article describes two PAE practices that antitrust law might constrain. These examples, we believe, illustrate some of many potential scenarios where antitrust might apply to PAE activity.

Patent privateering by dominant firms

Patent privateering is the practice by which operating companies outsource patent enforcement to PAEs. For instance, a company might transfer patents to a PAE tasked with deploying them against the company’s competitors. If undertaken by a firm with substantial market power to hinder a rival, privateering might run afoul of the Sherman Act in a variety of ways. Such arrangements might form part of a scheme to maintain or obtain monopoly power in violation of Section 2 of the Sherman Act, which prohibits monopolization. To prove a Section 2 violation, a plaintiff would have to prove that the transfers to PAEs were a part of an exclusionary strategy to obtain or maintain monopoly power by raising the costs of rivals without offsetting efficiencies. Such conduct might also violate Section 1 of the Sherman Act. Finally, depending on the facts, the FTC could employ its more general Section 5 power to prohibit certain privateering arrangements as “unfair methods” or “deceptive acts.”

Acquisition of substitute patents

In the PAE context, the acquisition of substitute patent rights might unlawfully create market power in technology markets where few alternatives exist. Clayton Act Section 7, which bars anticompetitive acquisitions, can bar the acquisition of such patent rights. A potential remedy for such an acquisition might include reasonable royalty licensing instead of divestment. A court that recently rejected certain other antitrust claims brought against a PAE recognized that such a claim could have merit. An antitrust theory asserting that PAE had “acquired all substitutes or competing technologies,” the court reasoned, could have legs.

These examples illustrate that the antitrust laws, while not the remedy for all PAE ills, can and do provide constraints on PAE conduct. Firms interacting with PAEs should carefully consider the antitrust implications of their conduct.