Patent Assertion Entity Activity

Chapter 1: Introduction and Background
Definition of a Patent Assertion Entity
The term “patent assertion entity,” or PAE, as used by the Commission in this report and elsewhere, 36
refers to a firm that primarily acquires patents and seeks to generate revenue by asserting them against
accused infringers. As the term underscores, PAE business models focus on asserting patents that the
firm has acquired from third parties, rather than obtained from the U.S. Patent and Trademark Office
(USPTO) through prosecution. Patents are a PAE’s principal asset; a PAE does not manufacture,
distribute, or sell products.
Merely holding a patent, however, does not generate revenue for a PAE. Instead, the firm generates
revenue by licensing that patent or, more rarely, by obtaining court-ordered damages in successful
patent infringement litigation. Furthermore, a PAE generally initiates negotiations that may lead to a
license by communicating a demand for payment to, or filing an infringement suit against, an accused
infringer. 37
The Commission first commented on PAEs in its 2003 report entitled To Promote Innovation: The
Proper Balance of Competition and Patent Law and Policy. That report followed hearings conducted
by the FTC and the U.S. Department of Justice (DOJ) in 2002 regarding the intersection of competition
and patent law and policy. 38 At those hearings, some panelists observed the rise of “non-practicing
entities,” or NPEs—firms that, for various reasons, do not make or sell products and therefore are not
vulnerable to a countersuit for patent infringement when they sue on their own patents. 39 Panelists
identified, as one type of NPE, “patent assertion firms” that buy patents from other companies and then
36
See also FTC EVOLVING IP MARKETPLACE REPORT, supra note 1, at 50 n.2, 60–61.
37
Additionally, some PAEs also generate revenue by selling their patents, although such transfers are typically ancillary to
their licensing activity.
38
FTC PROMOTE INNOVATION REPORT, supra note 32.
39
Id., ch. 2, at 31 & ch. 3, at 38.
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