Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Senate bill would authorize FTC to require disclosures, prohibit deceptions in PAE demand letters, (Feb 28, 2014)

By John W. Arden, J.D., LL.M.

A bill to empower the Federal Trade Commission to require minimum disclosures in demand letters sent by patent assertion entities (PAEs), often called patent trolls, and to prohibit specific unfair and deceptive acts and practices in the sending of these letters was introduced in the U.S. Senate on February 26. The proposed “Transparency in Assertion of Patents Act” (S. 2049) is intended to better equip the FTC to crack down on patent trolls that intimidate or sue small businesses, according to co-sponsor Senator Claire McCaskill (D, Mo.). The bill was read twice and referred to the Committee on Commerce, Science, and Transportation.

PAEs are companies that purchase patents and monetize them by demanding license fees or settlements—usually under the threat of litigation—from businesses using similar technologies, according to McCaskill, Chairman of the Subcommittee on Consumer Protection, Product Safety, and Insurance. Unlike some businesses that assert rights over patents they own and use, PAEs do not produce any goods or services with their patents.

“Patent trolls are stifling innovation, endangering jobs, and harming businesses and consumers,” McCaskill charged. “Acting now and giving the FTC the tools it needs to properly address this serious problem will send a message to these bottom-feeders. They will understand that we plan to do whatever it takes to protect American consumers and small businesses from scam artists trying to make a quick buck.”

Specifically, S. 2049 authorizes the FTC to promulgate rules to prohibit unfair and deceptive acts in the sending of written communications claiming that the recipient is infringing or may be infringing a patent and owes compensation to another. Such rules shall require that written communications include (1) a detailed description of each patent allegedly infringed; (2) each claim that is allegedly infringed; (3) a clear description of the device, business method, or service that alleges infringes each patent claim; (4) a clear description of how a device, business method, or service infringes a patent or claim; (5) the name and contact information of a person with the right to enforce the patent; (6) a description of any licensing commitment or obligation; (7) if compensation is proposed, the method used to calculate the proposed amount; and (8) each instance of reexamination or post-grant review of each patent asserted.

The Commission would further be directed to establish rules to prohibit unfair or deceptive assertions in demand letters, including (1) assertions that falsely threaten administrative or judicial relief if compensation is not paid; (2) statements that lack a reasonable basis in fact or law; or (3) assertions that are likely to materially mislead a reasonably intended recipient.

A violation of a rule promulgated under this legislation would be treated as a violation of a rule defining an unfair or deceptive act or practice under the FTC Act. The Commission could enforce such a rule by the same means or manner as though all terms and provisions were incorporated into the FTC Act. The legislation would provide state attorneys general with the authority to bring a civil action on behalf of citizens of the state.

The introduction of this bill is the latest effort to address perceived problems with PAEs. On February 20, the Obama Administration announced progress on initiatives designed to combat patent trolls and further strengthen the patent system and foster innovation. These initiatives included: (1) the USPTO’s publishing of a draft rule to ensure that patent owners accurately record and regularly update ownership information when they are involved in proceedings before the agency; (2) the USPTO’s development of a training program to help examiners rigorously examine “functional claims” to ensure that claims are clear and can be consistently enforced; and (3) the USPTO’s launch of an online toolkit aimed at helping consumers and main-street retailers know their rights before entering into costly litigation or settlements.

Oregon and Pennsylvania recently introduced legislation intended to curb suits brought by PAEs. The Oregon measure (Senate Bill No. 1540) would make it a violation of the Oregon Unlawful Trade Practices Act to make a bad faith oral or written communication alleging that a person has infringed or contributed to infringing a patent. The Pennsylvania legislation (Senate Bill 1222) would prohibit a person from making a bad faith assertion of patent infringement.

News: Antitrust ConsumerProtection