Subcommittee Begins Review of Patent Demand Letter Legislation

May 22, 2014

WASHINGTON, DC – The Commerce, Manufacturing, and Trade Subcommittee, chaired by Rep. Lee Terry (R-NE), today held a hearing on draft legislation to address illegitimate patent demand letters. The legislation aims to protect businesses from abusive patent assertion entities (PAEs), or patent trolls, while preserving the ability of patent holders to legitimately protect their intellectual property. The subcommittee heard today from a panel of government and private sector witnesses who offered their perspective on the draft and provided suggestions on how to improve it to achieve a balanced solution.

“Now we turn to the nuts and bolts of how we accomplish the task before us, and I thank the witnesses for being here today to do just that. Our panel reflects a full range of opinions on what should or should not be required in a patent demand letter,” said Chairman Terry. “There is not yet agreement, but after hearing from all sides today we must find a way forward and thread the proverbial needle with this legislation.”

Lois Greisman, Associate Director of the Division of Marketing Practices at the Federal Trade Commission, praised the subcommittee’s efforts to address patent trolls and expressed support of the draft’s provisions regarding the commission’s enforcement authority. Greisman said, “Despite limits on the FTC’s ability to address some of the broader issues underlying the issue of patent demand letters, the commission believes that civil penalty authority in this area is of potential benefit and may deter some bad actors. We appreciate that the draft bill seeks to give the FTC this authority.”

On behalf of the Stop Patent Abuse Now Coalition, Robert Davis supported the draft’s primary objective of clarifying the FTC’s existing Section 5 authority to bring enforcement actions against those who send unfair or deceptive patent settlement demand letters. Davis noted, “The bill targets unfair or deceptive practices masquerading as legitimate patent demand letters. As such, addressing this problem is not about patent policy, and it’s not about the First Amendment.”  He focused on the definitions and preserving the commission's existing authority to pursue other unfair or deceptive practices not otherwise covered in the bill as areas for continued improvement. 

Wendy Morgan, Chief of the Public Protection Division at the Office of the Attorney General of Vermont, expressed her views on the draft’s preemption requirements. Vermont is one of ten states that has passed legislation to address unfair patent demand letter practices. Morgan explained that any federal solution should be “carefully and narrowly crafted to preserve state authority to enforce consumer protection statutes.” She stated, “The state of Vermont has fought hard to protect consumers and end-users of retail products from abusive practices and seeks to continue coordinating with other states and the FTC in these efforts. The legislation in the discussion draft would provide an additional tool for such efforts, which we support, but we do seek to clarify the existing and ongoing authority of states to utilize their consumer protection statutes to address new and changing unfair and deceptive acts as they arise.”

Jon Potter, President of the Application Developers Alliance, urged Congress to act “swiftly” to protect businesses from patent trolls and called the draft “a strong step in the right direction.” He explained, “The hardest challenge for the subcommittee may be to require good faith and fair dealing by extortionist patent trolls without upsetting legitimate enforcement practices of great American innovators. The discussion draft makes progress toward threading that needle, but it does not yet effectively protect startups and Main Street businesses from the trolls I have described. Fortunately, the discussion draft does not harm legitimate enforcement practices; and it can be improved to strengthen protection against trolls without undermining legitimate patent owners’ interests.”

Alex Rogers, Senior Vice President and Legal Counsel at Qualcomm, also commended the subcommittee’s draft for finding a careful balance, but suggested inserting greater clarity into the language to prevent the bill from being misinterpreted. He explained, “The committee’s demand letter legislation should draw a clear line between deceptive shakedown scenarios warranting FTC enforcement and routine individualized patent correspondence between companies, the vast majority of which is legitimate.”

Full committee Chairman Fred Upton (R-MI) concluded, “We know some of the concepts in this draft bill are not universally embraced, and I hope that through our dialogue today we can find a path forward. We need a solution that enables rights holders to continue protecting their inventions without overly burdensome regulation while impeding so-called trolls from shaking down hardworking Americans for money to which they have no claim.”

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