Subcommittee Seeks a Solution to End Abusive Patent Demand Letters

April 8, 2014

WASHINGTON, DC –The Subcommittee on Commerce, Manufacturing, and Trade, chaired by Rep. Lee Terry (R-NE), today held a hearing on “Trolling for a Solution: Ending Abusive Patent Demand Letters.” The panel heard from stakeholders about abusive patent demand letters and explored ways to address this growing problem that is costing small businesses and threatening innovation.

“In the competition of ideas—whether we are talking about a multinational company that spends $8 million per day on R&D or an inventor with a workshop in the basement—the Constitution treats intellectual property the same. We must respect the arrangements small inventors need to make in order to enforce their patent rights,” said Chairman Terry. “What we addressed today are instances where bad actors extort money from innocent parties under the pretense of asserting intellectual property rights.”

Rheo Brouillard, President and CEO Savings Institute Bank and Trust Company, testified on behalf of American Bankers Association and explained the abusive practices of some patent assertion entities (PAEs), or “patent trolls,” and the resulting costs on small businesses who are dragged into unnecessary litigation. “At present patent trolls are able to make patent infringement claims for nothing more than the price of a postage stamp and the paper the claim is written on. These claims are often intentionally vague and based on shaky legal standing. However, when confronted with threats of expensive litigation, many banks—especially smaller banks—find that their only option is to settle, rather than paying millions to defend against extortive claims of patent infringement,” said Brouillard.

All of today’s witnesses agreed that Congress should do something to address abusive patent demand letters and protect small businesses. 

Mark Chandler, Senior Vice President and Chief Compliance Officer at Cisco Systems Incorporated, suggested that increased transparency and accountability would help expose patent predators. "We need a little sunshine to disinfect this dark corner of the patent world - because once the practices used by these scam artists are exposed, and the harm to their victims better understood, these rip-off artists will be forced to change their ways," said Chandler.

Vermont Attorney General William Sorrell explained efforts at the state level protect businesses from patent abuses but said that action at the federal level to increase transparency in letters is also needed. “Acting on little information, and often without legal assistance because it is not affordable, small businesses pay thousands of dollars in licensing fees for standard products being used for their advertised purpose or live with the fear that they will be sued. It is imperative that these small businesses be provided with the basic level of information necessary to evaluate their options and to not be misled or treated unfairly while doing so,” said Sorrell.

Michael Dixon, President and CEO of UNeMed, the technology transfer and commercialization entity for the University of Nebraska Medical Center, urged Congress to adopt a balanced approach and warned against overcorrection that could threaten legitimate patent practices. Dixon said, “As a university with a significant patent portfolio, every day we send letters and communications to established companies in an effort to convince them to license and invest in our innovations and technologies … Overly broad federal regulation would hinder legitimate efforts to market and license inventions on their journey to the marketplace.”

Dennis Skarvan, Deputy General Counsel in Caterpillar’s Legal Service Division, testified on behalf of Coalition for 21st Century Patent Reform. He sounded a note of caution stressing the need to protect business to business communications and also expressed the need for a targeted solution, stating, “Reasonable and clear rules of the road are needed to guide normal business activities; rules that will not inadvertently deter legitimate patent communications.”

Terry concluded, “There is something to be done here and in order to get it right, we’ll need the assistance of all stakeholders.”