Patent Demand Letter Bill Moves through House Cmte

April 29, 2015

pic-patent-licenseThis week, the House Energy and Commerce Committee began marking up a targeted patent demand letter bill, the Targeting Rogue and Opaque Letters Act (TROL Act), with opening remarks held on Tuesday. The bill, introduced by Rep. Michael Burgess (R-Texas), is separate from the House’s NSBA-opposed Innovation Act (H.R 9) that does not go as far to address demand letters, which accuse recipients of infringing on patents.

Last week, the House Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade took action to protect consumers and small businesses by voting to advance the TROL Act by a vote of 10 to 7. The TROL Act is intended to be a balanced solution to stop the practice of fraudulent and abusive patent demand letters, while preserving the ability of patent holders to legitimately protect their intellectual property.

Abusive patent assertion entities (PAEs), or patent trolls, unfairly target small businesses and cost American companies tens of billions of dollars every year by threatening litigation. The TROL act seeks to increase transparency and accountability in patent demand letters and provides the Federal Trade Commission (FTC) with the authority to levy fines on bad actors that send deceptive demand letters. The provisions in the TROL Act would likely have a significant impact on limiting abusive demand letters, and would allow the FTC to use is civil penalty powers against demand letter abusers, making them potentially liable for up to $5 million for a series of related violations. The goal is to achieve the greatest protections without harming innovation or punishing those patent holders acting in good faith.

Meanwhile, in an attempt to jump-start the Senate’s conversation on patent trolls, Senate Judiciary Committee leaders including—Chairman Charles Grassley (R-Iowa), and Sens. John Cornyn (R- Texas), Patrick Leahy (D-Vt.) and Charles Schumer (D-N.Y.)—plan to introduce their patent reform bill today. That debate is already in full swing in the House, where Judiciary Chairman Bob Goodlatte (R-Va.) has been pushing and holding hearings on his Innovation Act, which is expected to be marked up after the early May recess.

The Senate measure is expected to build off of last’s year’s work that was eventually stalled in the Senate. At that time, lawmakers sought compromises on a number of provisions, including one to delay defendant’s costs until a judge makes an initial ruling on the validity of a case and another to have courts require the loser of an unreasonable patent lawsuit to pay the winner’s fees.

Grassley also hopes to include a measure from Senate Finance Committee Chairman Orrin Hatch (R-Utah) that would give courts the ability to bring in a patent troll’s financial backers if the troll loses an unreasonable case and is unable to pay the winner’s fees. The proposal is not expected to be identical to the House’s Innovation Act but will include some of the same provisions. It is expected to have provisions on discovery and pleading requirements that are less strict than the House version.

A major concern for Democrats has been a provision related to fee shifting, or having the loser of an infringement lawsuit pays the winner’s legal fees if the litigation was found to be frivolous. The Senate bill will not go as far as the House. While the Senate bill would give judges more latitude to award fees, it will not contain a fee shifting presumption.

Both chambers appear confident that patent reform will be accomplished this year.

NSBA and its high-tech arm, the Small Business Technology Council (SBTC), has raised concerns over various patent bills which would include fee-shifting, pay-to-play, and covered business methods, as these provisions would disproportionately affect small-business inventors and make the cost of defending patents too burdensome to litigate.

Please click here to read and/or watch the testimony on patents from SBTC Co-Chair Robert Schmidt, which provides a detailed outline of why various patent reform proposals could be very problematic for small business and innovation.