Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: Senate panel mulls registry to counter bogus patent demand letters, (Nov 8, 2013)

By Brian Hammond,TR Daily

Members of the Senate Commerce, Science, and Transportation Committee’s subcommittee on consumer protection, product safety, and insurance yesterday suggested requiring patent holders to submit copies of patent demand letters to a central registry in an effort to cut down on abusive practices targeting individuals.

Subcommittee Chairman Claire McCaskill (D., Mo.) noted that the focus of the hearing was not on the broader concerns surrounding the patent system that have arisen in recent years, but rather on specific problems with patent holders engaging in the “deceptive and unfair practice of threatening consumers … for the sole purpose of bilking them” out of money.

Nebraska Attorney General Jon Bruning said the typical scenario begins with a “patent troll” gathering a list of targets against which it believes it can assert infringement. “Our investigations have revealed little rhyme or reason to the type or size of entity a patent troll will include in its target list,” he said.

“We’ve identified victims ranging from small businesses and nonprofits for whom patent trolls can represent an existential threat to global technology producers and nationwide telecommunications firms for whom patent trolls represent a drain on resources and constant annoyance,” Bruning observed. “The former are often caught off-guard by the notion that they are ‘infringing’ on a patented technology totally unrelated to their organization’s actual work.”

The letters sent to businesses often say it is “necessary for the targeted entity to engage in some type of negotiation to pay the patent troll a license fee and will explain, in very broad terms, why a license is needed,” Bruning said. “Though the demand letter may indicate the possibility that the targeted entity is, in fact, not infringing, this caveat is often at the end, coming well after a series of conclusory and ominous statements that the targeted entity’s use of a particular technology - usually completely unrelated to the entity’s actual business - has infringed on the patent or patents in question.”

The Nebraska AG suggested that Congress could use its subpoena power to bring patent trolls into the investigation. “I encourage you to bring the most notorious patent trolls - and the lawyers who facilitate their schemes - to account for their alleged abuses of the patent enforcement system and explain how they do business,” he said. “For too long, patent trolls have operated in the shadows with virtual impunity. It is now time for federal and state authorities to bring them into the open.”

Jon Potter, president of the Application Developers Alliance, urged Congress to give the FTC authority to set minimum standards on patent assertion communications and specify that communications “lacking indicia of good faith and fair dealing are per se ‘unfair and deceptive’ under the Federal Trade Commission Act.”

Potter also urged Congress to “codify that patents are a public trust granted by the people’s government, and that patent assertion communications must include a sworn statement of good faith and fair dealing regarding the breadth of the patent, that the assertion is based on thorough research and fair analysis including about the letter recipient’s technology and business, and that the requested royalty amount is reasonably related to the benefit derived by the recipient by its use of the patented invention.”

Adam Mossoff, law professor at George Mason University, disputed that there is a significant problem with patent trolls, and argued that action should not be taken based on “anecdotal evidence” of problems.

“How do you get anything other than anecdotal” evidence, asked Senator McCaskill. “You’re not going to sit there and tell me these letters aren’t scams.”

Mossoff said the problem is that we “don’t have any established statistical evidence relative to the entire patent system to [show] this is a systemic problem,” but lawmakers are talking about making a “systemic change.”

Senator McCaskill said that requiring patent assertion letters to be filed publicly would help authorities go beyond anecdotal evidence. “I don’t think [Thomas] Edison would have been offended if he’d been asked to file the letter he was sending, what patent he was asserting,” she said.

Julie Samuels, senior staff attorney at the Electronic Frontier Foundation, said creating a public registry of patent assertion letters would enable recipients of such letters to “Google the patent number” and get access to the “most basic facts” about the claim.

“We need some congressional help to give those companies some cover so they’re more willing to share the data,” Samuels said, adding that the problem has gotten much worse in recent months. She cited a specific case about 18 months ago, and said that “since then it’s been a torrent.”

Mossoff again criticized the possibility of authorizing the FTC to “regulate and punish the sending of demand letters.”

“The more you testify, Mr. Mossoff, the more I think we need the registry, because then we’ll have the data,” Senator McCaskill said.

An archived webcast of the hearing and text of the written testimony are available here on the Senate Commerce, Science, and Transportation Committee’s website.

News: ConsumerProtection