Congress Will Likely Take Aim at Abusive Patent Demand Letters in 2015

The House and Senate have both recently offered competing patent "reform" bills that seek to combat abusive patent demand letters. The House's Innovation Act and the Senate's STRONG Patents Act of 2015 both target evasive and inaccurate letters that demand payment based on dubious allegations of patent infringement. Patent trolls frequently use these letters as a tool to extract quick settlements from recipients that wish to avoid costly patent litigation. Their letters are often misleading and fail to include details about the patents, such as who owns them and the products or services that allegedly infringe. In short, the letters generally fail to give recipients the information needed to make rational decisions, such as whether they should pay the senders, ignore the letters, or go to court to fight them.

This article summarizes how both bills would go about limiting abusive demand letters.

The Innovation Act (H.R. 9)

On February 5, 2015, Congressman Robert Goodlatte (R-Va.) reintroduced his patent reform bill known as the Innovation Act in the United States House of Representatives. The February 5 bill is identical to the Innovation Act passed by the House of Representatives on December 5, 2013, by a vote of 325-91. The 2013 bill eventually stalled in the Senate.

The Innovation Act states that demand letters "should" include "basic information about the patent in question, what is being infringed, and how it is being infringed." Demand letters that lack these elements will be considered "evasive," "a fraudulent or deceptive practice," and an "exceptional circumstance" to be considered when a court evaluates whether the litigation was abusive.

The Innovation Act would also amend Section 284 of the Patent Act. The amendment would require that anyone seeking to establish willful patent infringement based on evidence of pre-suit notice identify with particularity in its demand letter:

• The asserted patent;
• The accused product or process;
• The ultimate owner of the asserted patent; and
• How the accused product or process infringes the asserted patent.

STRONG Patents Act of 2015 (S. 632)

On March 3, 2015, Senators Christopher Coons (D-Del.), Dick Durbin (D-Ill.), and Mazie Hirono (D-Hawaii) introduced a competing patent reform bill, entitled the “Support Technology and Research for Our Nation’s Growth (STRONG) Patents Act of 2015.”

The demand letter provisions in the STRONG Patents Act are much more extensive than those in the Innovation Act. Unlike the Innovation Act, the STRONG Patents Act preempts all state legislation regarding patent demand letters and hands over enforcement of the law to the FTC. The FTC would treat abusive patent demand letters as unfair trade practices under § 5 of the Federal Trade Commission Act. The bill also empowers state attorneys general to bring civil actions under the FTC Act for violating the demand letter requirements.

The STRONG Patents Act classifies misrepresentations in demand letters as unfair trade practices when a sender wrongly and in bad faith states that:

• The sender has the right to license and enforce the patent;
• A civil action for infringement has been filed against the recipient;
• A civil action for infringement has been filed against others;
• Legal action for infringement will be taken against recipient;
• The sender is the exclusive licensee of the patent;
• Others have purchased a license for the patent asserted in the letter;
• Others have purchased an unrelated license and it is not identified as such; or
• An investigation of the recipient's infringement occurred.

The bill also prohibits a sender from seeking compensation in bad faith for:

• A patent that is held to be unenforceable or invalid in a final determination;
• Activities taken by the recipient after expiration of the patent; and
• Activity of the recipient that the sender knew was authorized by a person with right to license the patent.

In addition, the bill prevents a sender from omitting in bad faith:

• The identity of the person including the name of the parent entity unless the person is a public company and the name of the public company is identified;
• An identification of at least one patent allegedly infringed;
• An identification of at least one product or service of the recipient infringing the identified patent;
• A name and contact information for a person the recipient may contact about the assertions or claims.

Both Bills Provide Complementary Tools to Fight Abusive Demand Letters

The Innovation and STRONG Patents Acts will both provide important tools to fight the use of abusive demand letters. But neither bill is perfect.

The Innovation Act discourages abusive demand letters by removing the possibility of a finding of willful patent infringement in litigation and making it more likely that courts will award prevailing recipients of abusive letters their attorneys' fees. But this approach will not deter patent trolls and other senders that never intend to litigate their patents. Another concern is that the Innovation Act does not expressly preempt state laws that regulate patent demand letters sent to their residents, so federal preemption of such laws will remain an open question if the Innovation Act becomes law.

The detailed provisions in the STRONG Patents Act would likely have a greater impact on limiting abusive demand letters. The STRONG Patents Act preempts all state laws and addresses abusive demand letters directly through FTC activity. The bill also allows 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. These potential penalties seem more likely than the Innovation Act to halt abusive practices. Moreover, if the FTC does not have the resources to adequately pursue all abuse, the bill empowers state attorneys general to bring enforcement actions. The problem with this approach, however, is that it requires the FTC or a state attorney general to step in. The bill does nothing to make it easier for demand letter recipients to directly combat trolls.

If Congress ultimately decides to pass legislation to combat abusive patent demand letters, they should consider combining the demand letter provisions from both the Innovation and STRONG Patents Acts.