Last week, the House Committee on Energy and Commerce, Subcommittee on Commerce, Manufacturing and Trade held a hearing titled “Trolling for a Solution: Ending Abusive Patent Demand Letters.” The hearing focused on the regulation of demand letters sent in bad faith to businesses by patent trolls or patent assertion entities (PAEs).
There has been an upswing in the number of issued demand letters, which many times are vague, misleading and deceptive. The recipients, who are often small- and medium-sized businesses (SMBs), are generally ill equipped to engage in costly or protracted litigation and instead choose to pay licensing fees even though the demand may be spurious.
During the hearing, witnesses testified about the negative impact these actions have had on their businesses and encouraged Congress to take action. They support legislation that would require disclosure of demand letters above a certain threshold and establish a minimum standard of transparency – such as what legal entity is sending the letter and what the specific patent is that they seek to enforce.
However, others voiced caution, warning that federal legislation could negatively impact businesses and universities that act in good faith when asserting legitimate patent claims. Another concern centered on whether regulating the content of demand letters could raise First Amendment issues over commercial speech. The general consensus among the hearing panelists, however, was that action was needed in the form of Congressional legislation authorizing the Federal Trade Commission to regulate demand letters and determine if such letters constituted unfair and deceptive acts or practices.
This matter has remained a priority for TechVoice, as many of our member companies and their clients have been subjected to vague, misleading and deceptive demand letters. The House hearing comes at a time when the Senate Judiciary Committee is closing in on bringing patent litigation reform to a vote. The base bill under consideration is S.1720, the “Patent Transparency and Improvements Act of 2013,” introduced in November 2013 by Senator Patrick Leahy (D-Vt.).
Unlike HR 3309, “the Innovation Act,” (the House Bill that passed in December), the Senate bill is likely to include provisions on demand letters that are similar to S.2049, the “Transparency in Assertion of Patents Act,” introduced by Senator Claire McCaskill (D-Mo.) in the Senate Commerce Committee and supported by Committee Chairman Senator Rockefeller (D-W. Va).
In recent weeks, significant debate among members of the Senate has focused on this issue of demand letters, as well as the customer suit exception, which allows the manufacturer to step in to the litigation, determine the legitimacy of the patent and keep the downstream end-user (the customer) from the litigation. TechVoice has supported the notion that the end-user should not have to litigate if and until the legitimacy of the patent claim is determined. Moreover, such a determination should not foreclose the ability of the end-user to defend itself in court if the PAE is found to hold a legitimate patent.
A mark-up of the Senate bill in the Judiciary Committee has been delayed pending further negotiations, but we hope that renewed energy to reach an accord in the Senate will win the day in the coming weeks. TechVoice supports a commonsense approach that will allow for tech SMBs to focus on innovation and business rather than on illegitimate fee demands or abusive litigation tactics. We stand ready to work with Senators Leahy, Chuck Grassley (R-Iowa), John Cornyn (R-Texas), Chuck Schumer (D-N.Y.), Orrin Hatch (R-Utah) and other negotiators as they work towards a positive solution.
For more information, please contact Matthew L. Evans at [email protected].
