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Note: Anticompetitive Until Proven Innocent: An Antitrust Proposal To Embargo Covert Patent Privateering Against Small Businesses

By Kyle R. Kroll. Full text here.

Policy-makers have become increasingly wary of a new patent litigation strategy called “patent privateering.” Through licensing or transfers of patents, companies can sponsor and direct—or privateer—other entities (often called patent assertion entities (or PAEs)) to sue competitors for patent infringement. Unlike patent trolling, patent privateering is not purposed on collecting settlements or licensing fees—though, such fruits often constitute incidental benefits. Instead, the goals are to raise rivals’ costs, hinder rivals’ ability to compete, and forestall and foreclose competition from existing and potential rivals. These anticompetitive effects inflate sponsor companies’ market power, at the expense of competition, regulation, innovation, and consumer welfare. When patent privateering is targeted against small businesses, these effects are exacerbated.

Most solutions proposed to address patent privateering would not adequately address its problems. This Note proposes a solution in the form of a rebuttable presumption of Sherman Act Section 2 antitrust liability. This presumption would operate when small businesses are sued by PAEs for patent infringement. The effect would be to deter anticompetitive patent privateering against small businesses. As a result, large competitors could no longer employ covert patent litigation as a way to foreclose competition among small rivals and new innovators in the marketplace, thus protecting and promoting a competitive American economy.