From the Alliance

Mar. 4, 2014

Innovation Alliance letter to the Senate Committee on Commerce, Science & Transportation Opposing S. 2049, the Transparency in Assertion of Patents Act

March 4, 2014

The Honorable Jay Rockefeller
Senate Committee on Commerce, Science & Transportation
United States Senate
Washington, DC 20510

The Honorable John Thune
Ranking Member
Senate Committee on Commerce, Science & Transportation
United States Senate
Washington, DC 20510

Dear Chairman Rockefeller and Ranking Member Thune:

The Innovation Alliance is a coalition of research and development-focused companies who believe in the critical importance of maintaining a strong patent system that supports innovative enterprises of all sizes. We write to you to express our serious concerns with and opposition to S. 2049, the Transparency in Assertion of Patents Act.

The Innovation Alliance supports balanced changes to the patent system that would improve the system for all stakeholders. To that end, we have been working closely with policymakers and other stakeholders to address the concerns of consumers and retail stores targeted by litigation abuse. We believe that where there are abuses, we should adopt targeted measures to address those abuses. We further believe that the Senate can and should develop a consensus product that targets abusive behavior and will be a force for progress for the full range of American innovation.

S. 2049, however, is not targeted at abusive behavior, and the Innovation Alliance believes it would seriously damage the innovation ecosystem in the United States. The bill effectively gives the Federal Trade Commission (“FTC”) the power to regulate and punish certain licensing and enforcement-related communications. By the terms of the bill, legitimate and otherwise legal and accepted economic activity which might fail to comply with the broad regulatory authority envisioned by the bill’s authors will be treated as per se illegal and actionable by the FTC or any State Attorney General.

In this manner, S. 2049 significantly expands the powers of the FTC to police the licensing and enforcement-related communications of all patent holders – the vast majority of which are engaging in perfectly reasonable and appropriate economic activity – and to threaten patent owners with litigation at the hands of federal and state regulators if one fails to follow the FTC’s specific guidelines. It creates a one-size-fits-all approach to company relationships and communications that simply does not reflect complex commercial realities in the private marketplace.

For example, the bill assumes that each licensing communication will involve at most only a handful of patents and a similar number of accused products, all of which are commercially available. Often, however, licensing negotiations involve a portfolio of hundreds or thousands of patents and numerous different devices. Yet, S. 2049 mandates a detailed description of infringement for every patent with respect to every accused device. Even assuming such information were readily available to patent holders, which it typically is not, the bill’s requirements would result in licensing communications totaling hundreds if not thousands of pages.

S. 2049 also raises serious constitutional concerns. The First Amendment affords broad protection for activities related to the communication of patent rights, including the sending of notice letters. Under well-established constitutional principles, a patent holder cannot be penalized for communicating its patent rights or an allegation of infringement in good faith. A patent holder is therefore constitutionally protected, unless it knowingly enforces a fraudulently obtained patent or makes an allegation of infringement that is both objectively baseless – in the sense that no reasonable litigant could realistically expect to succeed on the merits – and motivated by subjective bad intent. S. 2049 punishes patent holders who are not engaged in unfair and deceptive practices or bad faith conduct but who are seeking to license or enforce their patents differently from how FTC regulators believe they should. By creating a framework under which a patent holder could be penalized for good faith conduct, the bill intrudes upon the First Amendment rights of patent holders.

The bill effectively injects the Federal Trade Commission into disputes over the validity and worth of patents, an outcome that will adversely affect both patent holders and accused infringers. The private negotiations between parties to a patent dispute do not need to be regulated in this manner. The FTC arguably already has the authority to protect consumers by targeting those unscrupulous actors who engage in sending blatantly unfair or deceptive demand letters on a widespread basis. Expanding the FTC’s authority as S. 2049 does would enable infringers to intimidate patent holders seeking to enforce their legitimate rights and give infringers a tool to delay paying compensation for their infringement. Ultimately, S. 2049 will have a chilling effect on legitimate and valuable pre-communications, making it more difficult for patent holders to communicate their rights and accused infringers to make informed decisions about what action to take before a complaint for patent infringement is filed.

Most stakeholders saw the text of S. 2049 for the first time late last week, after it was introduced. The Committee should not rush to a markup of such a controversial bill – with such a sweeping scope, such damaging ramifications for patent holders, and such opportunity for unintended negative consequences – without sufficient vetting. The U.S. patent system has helped make the United States the most innovative economy in the world and helped create the greatest economy the world has ever known. Any action that would alter that system should be approached with caution and forethought to make sure we’re not doing more harm than good. While undoubtedly well-intentioned, S. 2049 will unfortunately do far more harm than good.

We urge the Committee to act with deliberation, and to work with the patent stakeholding community to achieve an approach that will protect consumers without damaging the ability of responsible patent holders to enforce their patents against unscrupulous infringers. The stakes to the U.S. economy and the future of U.S. innovation are far too great to act in haste and without significant input.

Brian Pomper
Executive Director
Innovation Alliance
Cc: The Honorable Claire McCaskill
Subcommittee on Consumer Protection, Product Safety, and Insurance

The Honorable Dean Heller
Ranking Member
Subcommittee on Consumer Protection, Product Safety, and Insurance