United States: Patent Reform: It's Alive!

Last Updated: July 1 2014
Article by Jeffri A. Kaminski and Christopher J. Kim

When Senator Patrick Leahy (D-Vt.) announced on May 21 that he was pulling patent reform off the agenda of the Senate Judiciary Committee, commentators were quick to pass judgment: "Patent reform is dead." These reform efforts were meant to address the growing concern over patent assertion entities (PAEs) or non-practicing entities (NPEs), better known by the more pejorative nickname, "patent trolls." However, some hope remains for the ongoing legislative effort to solve PAE litigation issues. Patent reform may have been tabled in the Senate Judiciary Committee, but two patent reform bills are still alive in Congress. Both bills aim to prevent abusive practices by targeting illegitimate patent demand letters.

Background to Demand Letter Reform Legislation

PAEs acquire patents, but do not actually use them in any products or services. Instead, they pursue potential patent infringers and demand licensing fees by sending patent demand letters. These demand letters tend to contain vague or misleading language, but threaten recipients with costly infringement litigation if the licenses are not paid. PAEs often send out demand letters by the thousands, without making a genuine inquiry into the merits for each targeted individual.

Much of the public attention surrounding PAEs stems from high-profile litigation against well-known Silicon Valley corporations. In March, a Texas jury ordered Google to pay $85 million to SimpleAir, a PAE, for infringing network messaging and data transmission patents. SimpleAir had also filed suit against other tech companies like Apple, Microsoft, Motorola, and Samsung.

At the same time, these abusive tactics are especially effective against small companies and individuals. Lacking the immediate legal resources to evaluate the validity of the infringement claims, smaller entities are forced to pay the licensing fees in order to avoid an even more expensive lawsuit.

Recently Halted Patent Reform Bills in the Senate

Although reports on the demise of patent reform may have been exaggerated, it is fair to note that similar legislative efforts have fallen short in the recent past. On December 5, 2013, the House passed the Innovation Act (H.R. 3309), a comprehensive bill intended to combat abusive behavior by PAEs. Among other things, the bill would have raised the standards for pleading patent infringement, and imposed disclosure requirements regarding the identification of the patent claims asserted, the accused methods or acts, and the party alleging infringement. Additionally, the bill included discovery cost-shifting and fee-shifting provisions.

The Patent Transparency and Improvements Act (S. 1720) was introduced on November 11, 2013, and proceeded through the Senate almost contemporaneously, albeit at a slower pace. The Senate bill lacked the provisions regarding the heightened pleading requirement, cost-shifting, and fee-shifting, and was generally considered to be a stripped-down version of the Innovation Act. However, there were other bills in the Senate to cover those provisions in the event of S. 1720's passage.

The key differences between the bills proved fatal, as attempts to reconcile the variance between them failed. Although the bills were meant to protect against NPE abuse, some allege they carried an unintended potential to harm legitimate infringement enforcement, particularly by individual inventors and universities. The bills would have applied to all infringement enforcement, and thus came under criticism for their perceived over-breadth. Markup sessions to bridge the gap between the two bills were postponed five times, eventually ending when the Judiciary Committee removed patent reform from the agenda altogether. With the imminent return of members of Congress to their states and districts to concentrate on reelection, action on this legislation is considered unlikely.

Draft Legislation to Address Demand Letter Abuse

In contrast to the reform proposed by the Innovation Act and the Patent Transparency and Improvements Act, the draft bills currently circulating through Congress are tailored to combat one specific facet of PAE abuse – patent demand letters. In the Senate, Senator Claire McCaskill (D-Mo.) introduced the Transparency in Assertion of Patents Act (S. 2049). Because this bill is in the Senate Commerce Committee, Congress may examine it separately from its recently shelved counterparts in the Judiciary Committee. The main provision empowers the Federal Trade Commission to promulgate rules requiring demand letters to contain certain minimal disclosures. These include, among other things:

  • a detailed description of each patent and each claim that is allegedly infringed;
  • a detailed description of the product or service that allegedly infringes each claim;
  • contact information and the identity of the person with the right to enforce the patent; and
  • current instances of reexamination or post-grant review of each patent, including any determination of the invalidity of the patent or its claims.

A violation of the proposed Act would also constitute an unfair or deceptive act or practice under the Federal Trade Commission Act, allowing state attorneys general to enforce the terms of the Act under the parens patriae doctrine. Damages would be calculated by multiplying the number of separate violations by an amount no greater than $16,000. The proposed bill was referred to the Committee on Commerce, Science, and Transportation on February 26, 2014 but has not yet been acted upon, likely out of deference to the Senate Judiciary Committee's halted discussions.

Meanwhile in the House, Representative Lee Terry (R-Neb.) has introduced draft legislation to enhance federal and state enforcement of fraudulent patent demand letters. This proposed bill contains detailed disclosure requirements for demand letters, to provide greater transparency for recipients. It would also define bad-faith sending of a demand letter, marking it as an unfair or deceptive act or practice under the FTC Act. Representative Terry's bill would empower the FTC to regulate demand letters and to seek civil penalties for a violation. While the legislation would preempt state laws regarding patent demand letters (currently active in nine states), it would still allow state attorneys general to enforce the terms of the bill under the parens patriae doctrine.

The draft bill was reviewed by the House Subcommittee on Commerce, Manufacturing, and Trade at a May 22 hearing. The Subcommittee heard from a panel of government and private sector witnesses who provided suggestions on how to improve the draft, while identifying the areas of disagreement. There was some concern that the disclosure requirement might be considered "compelled speech," thus creating First Amendment issues. Some witnesses criticized the bill's wording on the specific types of activities that would allow the FTC to bring actions against PEAs and the class of protected recipients. The concern was that if a so-called patent troll activity was not explicitly listed, or if the demand letter recipient did not fall under the list of protected recipients, then there could be no relief. This inevitably raised the counter-argument that broadening the bill would harm legitimate patent enforcement activity and damage innovation.

Representative Terry indicated to reporters after the hearing that he hoped to resolve these issues and formally introduce an improved bill by the end of June. For the bill to pass this year, markup would likely need to occur before the August recess. Although comprehensive patent reform has suffered its share of setbacks in Congress, important work continues on the subject of PAE demand letters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions