Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: House panel approves bill giving FTC authority over abusive patent troll practices, (Jul 11, 2014)

By Cheryl Beise, J.D.

The House Energy and Commerce Committee’s subcommittee on Commerce, Manufacturing and Trade yesterday voted 13-6 to approve draft legislation giving the FTC authority over illegitimate patent demand letters. The Targeting Rogue and Opaque Letters Act (“TROL Act”) 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 bill would make the practice of sending dishonest patent demand letters an unfair or deceptive practice within the meaning of Section 5(a)(1) of the FTC Act. The FTC could pursue companies that “in bad faith” send dishonest letters demanding licenses for patents. The bill describes several examples of deceptive statements. The TROL Act also would allow state attorneys general to enforce the legislation, but it specifically would preempt state laws “relating to the transmission or contents of communications relating to the assertion of patent rights.”

Subcommittee Chairman Lee Terry (R-NE) yesterday said that he was a little surprised and disappointed to learn that the FTC has expressed concern that its ability to get an injunction under Section 5 is compromised by the bill. “The bill does not alter the FTC’s authority to get an injunction under Section 5 and to make sure courts understand that, we inserted the savings clause with the help of the FTC,” Terry said.

Terry also noted that some stakeholders have argued that the FTC and state AG’s should not have to prove knowledge or impute knowledge to a defendant in order to get civil penalties, despite the fact that in order to get civil penalties under current law the FTC has to prove knowledge. “The difference with our legislation is that the FTC does not need to promulgate rules—nor does it need to have obtained an injunction—before pursuing civil penalties,” Terry said.

Energy and Commerce Committee Chairman Fred Upton said, “The overarching intent of this bill is to provide the FTC with an extra set of tools to augment its current section 5 authority. If the FTC chooses, we want the agency to seek civil penalties under this bill – but only for actors who were knowingly or recklessly committing harmful acts.”

Full committee Ranking Member Henry A. Waxman (D., Calif.) said, “The goal of this bill may be well-intentioned, but the drafting I think is flawed.” He took exception to the bill’s preemption of “15 existing state laws on this issue,” as well as its requirement that the demand-letter sender know that the letter’s representations and statements were false, which he said “is a departure from consumer protection legislation” and would make the bill “essentially unenforceable.”

The bill has garnered cross-industry support from a wide variety of stakeholders, including the American Intellectual Property Law Association (AIPLA), the Biotechnology Industry Organization (BIO), the Coalition for 21st Century Patent Reform (“21C”) and the Intellectual Property Owners Association (IPO), the Software Alliance, the Application Developers Alliance, the Medical Device Manufacturers Association, and the Direct Marketing Association (DMA).

The legislation will be taken up next by the Energy and Commerce Committee. Similar legislation has been introduced in the Senate.

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