Patent News

Jul. 11, 2014

Legal Newsline: House panel approves proposed bill aimed at abusive demand letters, by Jessica Karmasek

This post originally appeared in the Washington Examiner on July 11, 2014.

WASHINGTON (Legal Newsline) – A House panel has approved a draft of a bill that would rein in abusive patent demand letters.

On Thursday, the Subcommittee on Commerce, Manufacturing and Trade approved the Targeting Rogue and Opaque Letters Act, or TROL Act, by a bipartisan vote of 13-6.

The proposed legislation offers what some are calling a “balanced solution” to the demand letter problem — the crux of the current patent reform debate.

Such letters are often sent by so-called patent “trolls” in an attempt to enforce or assert rights in connection with a patent or a pending patent.

Patent trolls, or “bad actors,” are those patent assertion entities or non-practicing entities that purchase groups of patents without an intent to market or develop a product and then target other businesses with lawsuits.

The TROL Act aims to protect businesses while preserving the ability of patent holders to legitimately protect their intellectual property by increasing transparency and accountability in demand letters. It also would give the Federal Trade Commission the authority to levy fines on fraudulent practices.

“With so many stakeholders with differing perspectives, the process has been difficult — but our product reflects the input of the most divergent interests on this subject,” said U.S. Rep. Lee Terry, R-Neb. and chairman of the committee. “Our bill strikes the appropriate balance.”

A broad group of stakeholders seem to agree, including: 21 C, The Coalition For 21st Century Patent Reform; American Bankers Association; American Intellectual Property Law Association; Biotechnology Industry Organization; Credit Union National Association; Direct Marketing Association; Eagle Forum; Independent Community Bankers of America; Innovation Alliance; Intellectual Property Owners Association; Medical Device Manufacturers Association; National Association of Federal Credit Unions; The American Conservative Union; The Software Alliance on behalf of BSA; and Application Developers Alliance.

Each sent letters of support to the subcommittee ahead of Thursday’s vote.

AIPLA Executive Director Todd Dickinson called demand letters the “most concerning activity” of the ongoing debate.

“We believe that this activity should be treated like other acts of consumer fraud and deceptive trade practices, and we commend the subcommittee for taking an approach that seeks to target the abusive behavior in this manner while not inhibiting free speech or legitimate patent licensing and enforcement,” he said in a statement.

Innovation Alliance Executive Director Brian Pomper agreed, noting that the bill maintains the integrity of legitimate patent enforcement practices for all patent holders.

“Patents are essential to incentivizing invention, investment, research and development, and job growth,” he said in a statement Tuesday. “As such, any patent legislation should enhance those economic functions.

“The TROL Act targets a real problem while avoiding an overly broad approach that would impair the necessary and beneficial economic functions of the patent system.”

Others argue the legislation is lacking.

On Wednesday, some members of the Main Street Patent Coalition, a non-partisan group that is pushing for an end to patent trolling, sent a letter to Terry and the panel’s ranking member, U.S. Rep. Jan Schakowsky, D-Ill.

The group supports the bill but said it has “serious concerns” about its effectiveness.

Specifically, it contends the affirmative defense aspect of the bill is “overbroad” in that it creates an opportunity for trolls to intentionally alternate between good and bad faith behavior and thereby inoculate the bad faith behavior from law enforcement.

Also, MSPC argues the legislation diverges from traditional consumer protection law, which requires only that the activity be objectively deceptive.

“By requiring the FTC to prove a troll’s bad faith, the bill seems likely to make enforcement against trolls harder instead of easier,” the coalition wrote in its letter to the lawmakers.

“MSPC members are innovative, and we support innovation every day by purchasing and licensing patented products and services. But the patent system is being abused by trolls, so we are committed to strong, comprehensive reform legislation that includes protections against meritless demand letters, litigation fee-shifting, discovery reform, heightened pleading standards, and efficient review of poor-quality patents that are likely invalid.”

Among those signing onto the letter: the American Hotel and Lodging Association, American Gaming Association, The Emob, Food Marketing Institute, The Latino Coalition, National Association of Convenience Stores, National Association of Home Builders, National Association of Realtors, National Council of Chain Restaurants, National Grocers Association, National Retail Federation, National Restaurant Association, Printing Industries of America, Retail Industry Leaders Association, and Society of Independent Gasoline Marketers of America.

Bobby Franklin, president and CEO of the National Venture Capital Association, said Thursday it welcomes the bill’s passage, but, like MSPC, believes improvements can be made to the bill.

“While the TROL Act is a good first step toward protecting the integrity of our patent system, we continue to believe comprehensive reform legislation remains the best pathway to protect patent-dependent entrepreneurs and companies as well as encourage long-term investment in innovative ideas and technologies,” he said in a statement.