Senate Commerce Committee Steps Into Patent Abuse Debate

Senate Consumer Protection Subcommittee Chairwoman Claire McCaskill, D-Mo., said at Thursday’s hearing she believes Senate Commerce could also play a limited legislative role. McCaskill said she’s exploring legislation that would require entities sending demand letters to file the letters with a central government registry and would require the letters to “at a minimum include basic common-sense disclosures -- who, what, where, when, why.” Senate Commerce “doesn’t have the jurisdiction nor the appetite for any massive change to the patent system. We're talking about end users and consumer protection,” she said. Pro-patent revamp advocates told us the House and Senate Judiciary committees will continue to be the main leaders of patent abuse legislation, but Senate Commerce and other committees can also play an important role.

Senate Commerce should be tackling the demand letter issue because while entities send the letters out “under the guise of patent law, there are really straight-up consumer protection issues here -- people using the threat of patent litigation to harm competition, to go after end-users, small businesses, startups,” said Julie Samuels, an Electronic Frontier Foundation staff attorney, before Thursday’s hearing. “Just because that threat is based on patent law doesn’t mean it’s not a threat that the Senate Commerce Committee shouldn’t have to worry about.” Senate Commerce can “specifically look at the harms to the consumer and think outside of the box at creative ways to protect those consumers,” she said. Senate Commerce can also support efforts at the FTC to address patent abuse, Samuels said. The FTC has authority under Section 5 of the FTC Act to protect small businesses, end-users and others against deceptive demand letters from patent assertion entities (PAEs) meant to extract licensing fees, and recently began the process of conducting a study under the FTC Act’s Section 6(b) into the business practices of PAEs.

The House and Senate Judiciary committees are in a “good position to contribute to the demand letter discussion,” while the House and Senate Commerce committees can use their “authority over the FTC and consumer protection generally,” said Charles Duan, director of Public Knowledge’s Patent Reform Project. “I've also been hearing that some members of the Senate Small Business Committee might be interested as well, though there is nothing definitive on that yet.” Public Knowledge and 20 other companies asked House and Senate Judiciary leaders to include demand-letter provisions in their legislation (CD Nov 7 p12).

The Judiciary committees “have been concerned that they don’t have the jurisdiction to deal with demand letters, since those really deal with interstate commerce rather than the patent system itself,” said a patent lobbyist. “As far as anyone can tell, this is how it has to go if you want to deal with the demand letter issue -- it’s got to go through Commerce.” The Judiciary committees could still deal with demand letters as well by adding requirements to a notice of infringement, the lobbyist said. Copyright law requires multiple notices of infringement, which must include specific information in order to be effective. “I have argued that you could just do the same thing for patent infringement notices,” the lobbyist said. “I know that’s being batted around by some people in House Judiciary, so it could still end up in the Innovation Act. I suspect what happened in the Senate is they decided that Commerce needed to deal with it."

Senate Judiciary’s strategy on patent abuse has centered on having “individual senators focus on a piece with the idea that they'll be combined,” said Matt Levy, the Computer and Communications Industry Association’s patent counsel. The idea of a separate demand letter bill “is consistent with that approach.”

Advocates Urge Database Creation, Demand Letter Requirements

Levy told us he supports having Senate Commerce require demand letters to include minimum information “so they can’t be so vague that you can’t tell what you're being accused of.” Senate Commerce should also require consequences for entities that send out demand letters that aren’t investigated properly or if “a troll is threatening litigation but has no intention of ever following through,” Levy said.

Nebraska Attorney General Jon Bruning told the subcommittee that he and other attorneys general have declared a “multi-state war” on abusive demand letters. Nebraska’s Legislature and other state legislatures are also individually addressing state laws to curb demand letter abuses, but “we need Congress to lead,” he said. Bruning didn’t specifically mention what measures Congress should take on the issue beyond providing a “small tweak” to the FTC Act, but did urge Senate Commerce to hold additional hearings that will “lift the curtain” on demand letter abuses.

Application Developers Alliance President Jon Potter told the subcommittee any legislation should require demand letters include information about the patent and claims at issue, how the patent was infringed and the parties demanding licensing fees. The demand letter should also be supported by evidence the patent is valid, he said. Legislation should also include punishments for any entity that knowingly sends a false demand letter, Potter said.

Mark Chandler, Cisco’s general counsel, said the Senate should consider legislation to create an FTC-run online registry and require an entity to file any demand letter it sends to more than 10 entities that are not a product’s manufacturer. Chandler said he also wants the legislation to require that demand letters include a patent’s past and present ownership information, as well as a list of the specific products that infringe the patent at issue. Samuels said Senate Commerce should consider legislation labeling abusive demand letters to be “an unfair method of competition and a deceptive practice,” which would trigger the FTC’s Section 5 authority and many similar state laws. Samuels said she also wanted to see the creation of a U.S. Patent and Trademark Office or FTC-run public database of PAE information, including the number of demand letters a PAE files.

Subcommittee ranking member Dean Heller, R-Nev., said he’s working with McCaskill to develop demand letter legislation, but he wants to see more empirical evidence from the FTC’s 6(b) study and other sources. Sen. Amy Klobuchar, D-Minn., who also chairs the Antitrust Subcommittee, said she was curious about the possibility of asking the FTC to issue an interim report in its 6(b) study to provide interim evidence. Sen. Kelly Ayotte, R-N.H., said any legislation the subcommittee creates must “make sure we're not harming legitimate innovators. We have to get that right.”

Adam Mossoff, a professor at George Mason University School of Law, said Congress should be cautious about instituting new changes to the U.S. patent system so soon after the implementation of the America Invents Act, saying extending the FTC’s authority to deal with demand letters would harm innovation. He said there are certainly bad actors in the patent system, but the studies that patent revamp advocates frequently cite are anecdotal rather than scientific. Such studies “do not prove there is a systemic problem,” Mossoff said. McCaskill said the public registry she wants to create would provide Mossoff with the scientific evidence he says is currently lacking. “How in the world do we get past anecdotal if we let these scam artists and these bottom feeders work in the shadows?” she said. McCaskill urged whistle-blowers from the law firms that produce demand letters to come forward and provide an insider’s view of the “factories that are churning out these demand letters. … Your identity and where you work would be protected if you can give us a dirty inside glance.”