Feds may spear patent trolls with antitrust law: FTC Chair wants help for “victims”

A metastasized patent system is leading businesses to remove common services to avoid being sued — for instance, cafes are pulling WiFi access and websites are removing calorie counters. Those are just two examples cited by the Chair of the Federal Trade Commission on Thursday to describe how so-called patent trolls are harming American consumers, small businesses and innovators.

In a speech at the Press Club in Washington, Chairwoman Edith Ramirez said the FTC stood “ready to enforce its antitrust powers” to rein in the trolls’ abuses.  The agency, she said, would deploy its Section 6(b) investigatory powers as well as its Section 5 power which the FTC uses to punish what the law calls “unfair and deceptive” business practices.

Ramirez said part of any investigation would look at the roll of “privateering” – where companies like Nokia give patents to shell companies with the purpose of attacking their rivals.

Ramirez’s remarks suggest the federal government is finally getting serious about the harm caused by patent trolls — shell firms that don’t make anything but amass old patents to threaten lawsuits against productive companies. As Ramirez noted, trolls now make up the majority of patent lawsuits in America and that “for victims of nuisance suits, it’s less expensive to settle than defend the suits […] just hold your nose, settle early and get out cheap.”

Congress attempted to fix the issue in 2011 with the America Invents Act but the legislation has proved feckless. More recently, President Obama has also taken up the issue, calling out “patent trolls” rather than using the polite name — Patent Assertion Entities, — used by Ramirez.

Unfortunately, the problem has proved intractable because the trolls’ activities may be immoral but they are not illegal. Under the law, patent recipients get the right to exclude others from using the technology for 20 years — unfortunately, the system turned toxic when the Patent Office began issuing a flood of low-quality patents and lawyers and others began buying them up and suing everyone in sight. And despite public outrage, such as NPR’s “When Patents Attack,” the patent troll machine is rolling along unabated.

In this context, the FTC’s antitrust tools may be the best hope of turning the tide (the state of Vermont is trying a similar approach). Skeptics, however, have told me the antitrust argument may not work because patents are, essentially, official monopolies granted by the government — which makes it hard to accuse a patent holder of being anticompetitive. But, in any case, the reform movement is gaining momentum as anti-troll companies like Google(s goog) gain more clout in Washington and as more conservatives come to oppose patent abuse as a form of regulation.

Ramirez spoke at the outset of an even hosted by the American Antitrust Institute and Computer & Communications Industry Association. You can see more about the event here.