By far the most important finding of the Report – what the FTC describes as its first “Key Finding” – is that not all PAEs are created equal. Instead, the FTC found that there are dramatic and significant differences between “Portfolio PAEs” such as IV, which emphasize licensing and high-value patents, and other types of litigation-oriented PAEs, which often draw criticism and negative marketplace scrutiny.
The Report is disappointing in many respects – for example, it offers legislative recommendations not supported by the evidence in the report, and it misses a key opportunity to analyze the fundamental issue of how to value the mission and impact of PAEs. But overall the in-depth analysis of the different models of PAE should provide useful insights in the ongoing discussions of patent policy.
Crucially, the Report highlights a significant flaw in virtually all prior academic studies in this field. It observes, accurately, that most prior studies of PAE activity “have focused on publicly observable litigation behavior and relied on publicly available litigation data.” And it notes that relying on only public data conceals key information that is required for a “deeper understanding of PAE business models,” such as “their confidential... licensing terms and data.”  As is noted in the study, for PAEs such as IV, which reach negotiated licensing agreements far more often than they litigate, this information is critical to any well-founded analysis of the market impacts of its business model. This Report attempts to gather that essential information and as a result is able to make a valuable contribution to the ongoing policy debate in this area.
As noted, the Report draws an important distinction, supported by extensive analysis and evidence, between two very different modes of PAEs. On the one hand, the Report recognizes what it calls “Portfolio PAEs” – firms like IV, which focus their efforts on investment, IP innovation and development, and wide-scale licensing of high-value patents to further develop significant technologies. (Indeed, the Report at various points notes the similarities between the strategies and business methods of Portfolio PAEs and those of other Non-Practicing Entities (NPEs) and of manufacturing firms). In contrast, while the Report goes out of its way to eschew the term “patent troll,” it also draws a clear distinction between the methods and approach of high-value Portfolio PAEs with the strategies and approach of what the Report calls “Litigation PAEs” – PAEs that, according the findings of the Report, focus their efforts on low-value patent settlements that are generally consistent with nuisance settlements and appear driven by the interest of defendants in avoiding litigation costs. The collection of hard data and statistical evidence and the FTC analysis of the clear differences between these two very different business models is an important and compelling aspect of the Report, and it alone makes the Report worth reading.
In particular, the Report details these differences and specifies a number of ways in which Portfolio PAEs such as IV differ dramatically from those Litigation PAEs that participated in the Report, and the ways in which Portfolio PAEs such as IV are more like other NPEs or like manufacturing concerns.
Portfolio PAEs typically:
-Funded initial patent acquisitions through capital raised from investors, including manufacturers
-Negotiated licenses covering large portfolios (at least hundreds and often thousands of patents)
-Commonly began the negotiation process with a demand letter, and usually reached license agreements without suing the infringer first – indeed, litigation preceded only 29% of Portfolio PAE licenses 
-Negotiated licenses with a value that was typically in the millions of dollars (“65% of Portfolio PAE licenses generated royalties of greater than $1 million per license, and 10% generated royalties of greater than $50 million per license.”) 
The clear picture that emerges from this evidence is that Portfolio PAEs such as IV are engaging in responsible business negotiations with other commercial entities, licensing high-value patents that provide legitimate benefits to those other entities, and resolving these negotiations in a timely and mutually beneficial manner.
In contrast, the evidence gathered by the FTC paints a far more troubling picture of the so-called Litigation PAEs.
Litigation PAE’s typically:
-Acquired separate patent portfolios and held those in newly created affiliate entities that have little or no working capital and hold fewer than 10 patents each
-Routinely sued potential licensees prior to licensing and quickly settled for license agreements on small portfolios – for amounts below the costs of defending the litigation
In stark contrast to the FTC’s positive description of the business methods of Portfolio PAEs, this analysis of Litigation PAE conduct led the FTC to conclude that “the behavior of Litigation PAEs is consistent with nuisance litigation.” 
Not only does the FTC clearly draw the contrast between Portfolio PAEs and Litigation PAEs, but it also notes the significant similarities in the Portfolio PAE licensing practices as compared to other NPEs and to practicing entities such as manufacturing companies, and the many benefits that Portfolio PAEs offer to the marketplace.
“Portfolio PAEs most closely resembled the licensing arms of manufacturing firms; they were highly capitalized and often raised money from investors that included both investment funds and manufacturing firms. Typically, these investors received a share of the Portfolio PAE’s future revenue and a license to the Portfolio PAE’s patents.” 
The Report goes on to offer a more detailed description of how Portfolio PAEs conduct business, providing even more evidence of the value of this business model. It describes the “large up-front payments” often made to the manufacturing firms who own the patents, and the formation of the patents into large portfolios for licensing. It notes that the Portfolio PAEs “employed dedicated management and licensing executives that frequently had prior licensing experience” and that the PAEs executed “71% of their licenses without litigation.” And perhaps most important, the Report acknowledges the liquidity function and risk mitigation opportunities that Portfolio PAEs can offer.
“The Portfolio PAE model may serve as a mechanism for shifting the financial risk of assertion activity to individuals or entities more able and willing to bear such risk, which may be more attractive to some patent owners than asserting the patents themselves. By raising capital from investors and purchasing patents with a large up-front payment, the Portfolio PAE provides the patent seller with guaranteed revenue and zero risk. The investors, who may have greater risk tolerance, then stand to enjoy the financial upside of successful assertion activities. In addition, manufacturing firms may transfer patents to Portfolio PAEs for assertion because Portfolio PAEs may enjoy lower costs, lack of reputational concerns, or licensing experience owing to their specialization in patent assertion.
Additionally, for manufacturing firms that are potential investors, the Portfolio PAE model also offers an extra upside benefit, a chance not only to be an investor but also to avoid becoming a target of assertion activity. Several PAEs adopted a practice whereby investors acquired a license to the patents in which they invested, in addition to an interest in revenue generated by future assertion against third parties. In such cases, investors obtained assurances that the patents would not be asserted against them, as well as the opportunity for potential financial gain.”
In contrast, the Report makes clear that the very different Litigation PAE model offers far less value and creates significant transparency and efficiency concerns. Litigation PAEs are “thinly capitalized,” often relying merely on outside attorneys to maintain records and drive the litigation process. As noted previously, Litigation PAEs routinely sue before licensing negotiations and those suits are often in the name of Affiliates, which are legally distinct entities that exist only on paper and with a relationship to the Litigation PAE that is murky and difficult for the licensee to determine. Rather than up-front payments, licensees are often offered only contingency payments, payable only on net proceeds calculated after a deduction of legal and other fees. Further, the complex Affiliate structure create by many Litigation PAEs make it difficult for licensors to understand who the counterparty is and whether in fact the licensee may already have a license to some of the patents at issue. The problem is amplified by the strategy employed by many Litigation PAEs of using multiple Affiliates to send demand letters.
Thus, in multiple ways the Report provides a clear, evidence-based and compelling verification of what IV has always said – different PAEs offer different services to the market, and PAEs such as IV are providing an efficient, cost-effective and useful market-clearing liquidity function. Recognition of the differences between “Portfolio PAEs” and “Litigation PAEs”, as described by the FTC, is critical to any productive policy debate about the proper role of PAEs going forward.
The Report concludes with recommendations for litigation reforms, most of which have been discussed for years and are currently under consideration in Congress. IV has no philosophical or business objection to the notion of litigation reform and indeed, as correctly noted by the Report, these reforms are aimed, at least in principal, at a business model quite different from the “Portfolio” business model operated by IV. IV certainly has no interest in a patent litigation system optimized for the litigation of low-value patents and no interest in promoting litigation aimed at seeking nuisance settlements, because those are not the patents that IV asserts, not the litigation strategy that IV employs, and because IV agrees that such nuisance litigation is costly and inefficient for all involved.
But we caution that a wholesale change in the long-standing rules regarding patent litigation must not be undertaken lightly. While some modest changes may be beneficial, modifying the fundamental balance between litigants creates a very significant risk of undermining the ability of all patent holders to vindicate their legitimate patent rights in court. Changing the balance would incentivize licensees to reject reasonable licensing offers and dare patent holders to take them to court – which would have the perverse effect of forcing even Portfolio PAE’s such as IV into litigation far more often, diverting resources and energy from more productive endeavors. This would exacerbate the very problem that the litigation reforms were intended to address – and, far worse, would dramatically decrease the value of legitimate patents, harm inventors, dis-incentivize innovation and decrease economic activity. There may be some benefits to well-crafted litigation reform, but those reforms must be very carefully considered and any changes must be targeted to ensure that they do not create very significant and negative unintended consequences.
More broadly… while the FTC did a great job analyzing different business models, it missed an opportunity to analyze the larger market in which these models operate. Despite the reams of data collected in the course of this study and the many resources devoted to it, the Report disappointingly fails to address fundamental questions about the impact of PAE activity on innovation and patent generation. IV highlighted this concern early on. In its public comments regarding the design of the FTC’s 6(b) study, IV expressed concern that “the study as designed does not appear likely to yield meaningful results” because its sample of PAE activity would not be statistically meaningful and because the FTC’s study would not seek comparable information about non-PAE patent enforcement activity. And, indeed, the FTC’s Report draws no conclusions regarding the effects of PAE activities on innovation or competition. At the most fundamental level, the Report fails to provide a concrete, evidence-based assessment of whether and how patent assertion by PAEs differs from patent assertion by manufacturers and other patent holders.
The FTC gathered information from PAEs regarding all patents, no matter what the industry, but gathered information from non-PAEs in only the wireless industry. And the staff dutifully notes that it found some differences in the way that those in the “Wireless Case Study” behave as compared to PAEs – manufacturers more often used demand letters prior to litigation, while the Litigation PAEs tend to file a lawsuit without first sending a demand. Portfolio PAE lawsuits tend to take the longest to settle, while Litigation PAE cases settle the fastest, and NPE and manufacturer lawsuits are somewhere in between. NPEs and Litigation PAEs tended to use counsel paid on a contingency basis, while Portfolio PAEs and manufacturers tended to pay on an hourly basis. But what are we to make of these differences? They are of some value in helping to reach the conclusion that Portfolio PAEs are a different (and better) beast than are Litigation PAEs, and that Portfolio PAEs share more common characteristics with NPEs and manufacturing concerns – but they cannot tell us more broadly how valuable either form of PAE is, and what, if anything, should be done to modify the legal and market environment in which they operate.
The Report provides some interesting statistics about litigation strategy, but it does not provide any insight regarding the critical bottom-line question of whether PAEs writ large are good for innovation or bad for innovation. Nor does it provide insight on whether PAEs offer a better return on investment for the original patentee than do non-PAEs, or how inventors might change their innovation activity without PAEs as an outlet to purchase their patents. How often would inventors assert on their own versus selling to operating companies? What would be the competitive effects of these choices?
The Report has some other flaws as well. For example, it fails to take into account the fundamental notion that the competitive impact of patent assertion will always vary on an individual level – by technology, by strength of the patent and strength of the infringement claim and defense, and by the potential damages associated with each claim. Nor was it able to effectively compare the data it gathered because of differences in the way that data was held.
Notwithstanding these flaws the Report is extensive, and the FTC should be commended for the thorough data collection it performed and the analysis, as far as it goes, is well-done. Thus the Report deserves thorough review and continued consideration over time. We are pleased that the Report recognizes the differences among PAE business models and has gathered evidence supporting what IV has always known – that the IV business model is fundamentally different from other, litigation-based, PAE business models that have generated concerns among certain stakeholders in this industry. While we are disappointed that the Report does not provide answers or insights to some fundamental questions, and that the Report jumps to some unfounded conclusions, we look forward to working with the FTC and others in ongoing discussions about these critical issues, and again offer our thanks to the FTC staff for its diligent work.
 Patent Assertion Entity Activity Report, an FTC Study (hereafter cited as “Report”) at 3. Federal Trade Commission October 2016.
 Report at 1-2; see also Report at 38.
 Report at 3; 42; 44-45; 56; 59.
 Report at 5; see Report at 42, 44-45; 90.
 Report at 4; 43-45; 56; 59.
 Litigation PAEs accounted for 96% of the cases in the study, (Report at 4; 43; 71) and sued prior to licensing 93% of the time (Report at 8; 56).
 Report at 4; 43; 101. 77% of Litigation PAE settlement generated royalties of $300,000 or less, and 94% generated royalties of under $1 million (Report at 4-5; 43; 45; 91).
 For example, Wireless manufacturers, Portfolio PAEs and certain NPEs were more likely to settle cases than are Litigation PAEs. See Report at 112.
 Report at 46-47 (emphasis added); see also Report at 82-83 (describing Portfolio PAE approach to licensing more broadly).
 See Report at 50-52; 63; 79
 See Report at 60-61; 63; see also Report at 83 (describing more broadly Litigation PAE approach to licensing). The Report also notes that while PAEs sometimes utilize demand letters to begin the process of negotiation, there is little evidence that PAEs are using deceptive demand letter campaigns to generate revenues. See Report at 66-67.
 See generally, Report at 111-119.