Red Hat is ratcheting up efforts to combat patent suits that the world’s top open source Linux software developer and services provider says is stifling innovation.

Fresh off a court victory in Texas over Uniloc, a so-called non-practicing entity (NPE) or patent troll, which is a company that has secured patents and uses them in search of cash, Red Hat (NYSE: RHT) on Friday filed comments with the Federal Trade Commission to support an FTC crackdown on other suits.

Joined by Google, EarthLink and BlackBerry, Red Hat criticized so-called “patent assertion entities.”

The four “recommend” that the FTC “initiate an inquiry into the relationship between PAEs and operating companies.”

“PAEs impose tremendous costs on innovative industries,” the companies wrote. “These costs are exacerbated by the evolving practice of operating companies employing PAE privateers as competitive weapons.

“The consequences of this marriage on innovation are alarming. Operating company transfers to PAEs create incentives that undermine patent peace.

“Transfers to PAEs threaten royalty stacking, which can raise rivals’ costs and hinder competition in technology markets. The secrecy in
which PAEs cloak their activities exacerbates all of these concerns and leaves the public without information needed to access the likely competitive effects of patent outsourcing practices.

“We therefore urge the antitrust agencies to study carefully the issue of operating company patent transfers to PAEs and recommend that a Commission inquiry under Section 6 is an appropriate vehicle for examining this issue of vital importance to the competitive health of this Country’s most important industries.”

What’s in a Name …

As Wikipedia notes, the pejorative patent troll is linked with other names: 

  • Patent pirate
  • NPEs
  • PAes
  • Non-manufacturing patentee
  • Patent shark
  • Patent marketer
  • Patent dealer

 … and more.

Some Disagreement

Not everyone agrees. Tim Worstall, a contributor to Forbes, writes: “[Y]you cannot point to there being more PAEs as proof perfect that there is a problem. You have to disentangle the rise of the patent trolls from the rise of a perfectly sensible method for companies to manage their patent portfolios. This isn’t something that the Google submission does: it just uses the rise of PAEs as proof perfect of their being an increasing problem. And that’s why, in my opinion at least, the submission is wrong: wrong because of the bit they left out. Some part of the rise of PAEs will be beneficial.”

The Red Hat Case

Red Hat and the anti-troll team don;t agree.

Noting that the FTC has already determined that PAEs “jeopardize the patent system’s central purpose of encouraging innovation,” the foursome said PAEs “impose an ever-rising ‘tax’ on innovative industries.”

The noted:

  • “PAEs are filing four times as many cases today as in 2005.
  • “PAE lawsuits now account for 62% of all recently filed patent litigation.
  • “Big tech companies face hundreds of PAE lawsuits, but small- and medium-sized companies are the most frequent targets.
  • “PAE claims cost U.S. companies $29 billion in 2011; $80 billion when accounting for all costs – direct and indirect.
  • “Although the Supreme Court’s decision in eBay limits PAEs’ ability to obtain injunctions in district court, PAEs continue to seek exclusion orders in the ITC.
  • “PAEs also continue to take advantage of information asymmetries that stem from poor notice and inadvertent infringement to appropriate sunk costs from firms locked into product design choices.”

These patent battles are hardly cheap.

According to the companies, “defending a patent infringement suit are startling.”

“Combine the legal costs with settlement costs, according to one source, and the ‘mean total litigation costs are $1.75 million
for small/medium companies (defined as companies with less than $1 billion in reported revenue) and $8.79 million for large companies.'”

Then there is time and effort.

“To understand the harmful impact of excessive litigation, one must add to these out-of-pocket costs the loss of time, energy and
creativity of managers, engineers and scientists caught up in the litigation process,” the companies said.

Bigger Problems Ahead?

If action isn;t taken to rein in such suits, Red Hat and its allies forecast more problems to come.

“The IT industry has been a principal target of litigation by PAEs and has witnessed notable patent transfers from operating companies
to PAEs. Moreover, many PAEs that have acquired patents in the IT industry are now contemplating acquiring patents in yet other areas. Thus, studying the role of PAE activities and patent outsourcing in the IT industry may provide a foundation for predicting the course of PAE activities elsewhere.”

The full Red Hat filing can be read online.