A House Energy and Commerce subcommittee on May 22 held a hearing to discuss a bill it introduced that day that would enhance state and federal enforcement of fraudulent patent-demand letters, which the retail industry says costs the economy $30 billion a year.
The bill introduced focuses on those engaged in a pattern or practice of sending unfair and deceptive demand letters to consumers or end users.
It contains disclosure requirements, and it sets forth the conduct that would be considered unfair and deceptive.
In 2013, the House passed legislation to reduce abusive patent litigation. That bill is still before the Senate. The May 22 hearing before the House Subcommittee on Commerce, Manufacturing and Trade was designed to take up issues that occur before litigation, when startups and small businesses are most vulnerable to fraudulent patent-demand letters. The subcommittee last month held a separate hearing on the “patent-troll” issue.
During the follow-up hearing, testimony was heard from various experts, industry regulators and affected parties, including a representative from the Application Developers Alliance.
Jon Potter, the alliance’s president, testified that deceptive and fraudulent patent-demand letters are harming America’s tech-industry entrepreneurs, as well as small and “Main Street” businesses. The alliance represents 30,000 individual and 175 corporate members.
“Smash-and-grab patent trolls have adopted a business model of sending deceptive demand letters to bully businesses into paying licensing fees or settlements that are often tens of thousands of dollars, and more,” he said in summarized written testimony. “App developers and our Main Street business colleagues urge the committee to legislate good-faith dealing by all patent owners when they demand licenses and communicate infringement assertions.”
Potter urged the committee to include amendments to the proposed legislation that would require demand letters to identify the specific patents allegedly infringed and document the basis of an infringement assertion, including the result of substantial investigation by the patent owner. The bill also should not limit protections to only those who use off-the-shelf technology, which excludes creators of custom websites, apps and networks. It also should not limit Federal Trade Commission authority to enforce against deceptive demand letters, Potter said.
In separate testimony, Alex Rogers, senior vice president and general counsel at Qualcomm Inc., expressed caution in taking the effort too far. Qualcomm is a member of the Innovation Alliance, a coalition of research-and-development-focused companies that believe in the importance of maintaining a strong patent system that supports innovative enterprises.
Qualcomm, Rogers noted in prepared testimony, is not a plaintiff in any pending patent litigation, but it is a defendant in several patent-infringement lawsuits, some of which were brought by so-called patent-assertion entities asserting “questionable infringement claims and patents of dubious validity.” Despite those cases, he said his purpose in testifying was not to criticize or defend such entities.
Instead, Rogers said, Qualcomm believes the committee’s legislation should focus on abusive demand-letter conduct and on the best ways to target such conduct without unintentionally damaging important patent protections. While the current bill has more teeth than other proposed demand-letter measures, further changes are required to ensure it is narrowly focused on the bad-faith actors causing the problem and does not contain broad provisions that undermine the appropriate exercise of patent rights, he said.
“Any demand letter legislation must be careful not to discourage legitimate patent-related communications, which are integral to the functioning of the patent system and the resolution of patent disputes, including possible resolution without resorting to litigation,” Rogers testified.