Vedder Thinking | Articles Bipartisan Congressional Reforms Seek to Deter Abusive Patent Demand Letters
In recent years, nonpracticing entities have inundated businesses with slipshod patent demand letters. Designed to coerce quick settlements, these letters are often bereft of basic information that would enable recipients to evaluate meaningfully the sender’s infringement claims. This vexing practice has prompted bipartisan patent demand letter reform efforts in both the House of Representatives and the Senate. These bills foreshadow significant new federal laws regulating the content of patent demand letters to shield businesses from spurious infringement claims.
These congressional measures follow the efforts of multiple state attorneys general to curb abusive patent demand letters through state laws forbidding unfair and deceptive trade practices. The most notable of these enforcement actions was the New York attorney general's against MPHJ Technology Investments, LLC. MPHJ sent scores of demand letters to small and medium-sized businesses accusing them of "likely" infringing dubious scanner-related patents by such routine business practices as using an ordinary commercial scanner on a computer network with email capabilities. MPHJ sent these letters without conducting any meaningful analysis of a targeted company's business and falsely represented that most other demand letter recipients acquired licenses. MPHJ then extracted many settlements from businesses that lacked the experience or sophistication to evaluate the letters' claims.
Congress is now federalizing states' efforts to curb deceptive patent demand letters. Last week, a bill curtailing patent demand letters that are sent in bad faith advanced to the full House of Representatives after approval by the House Energy and Commerce Committee. The measure, known as the Targeting Rogue and Opaque Letters Act (the "TROL Act"), empowers state attorneys general and the Federal Trade Commission to penalize those sending patent demand letters in bad faith. Such abusive letters include those that misrepresent the sender's standing to enforce a patent, a patent's enforceability or the identity of the person asserting the patent claim.
Across the Capitol, the Senate is working on its own version of a patent reform bill, the Protecting American Talent and Entrepreneurship Act (the "PATENT Act"), which contains similar patent demand letter reforms banning misrepresentations in patent demand letters. Moreover, the Senate's bill requires that patent demand letters identify a specific product, service or activity alleged to infringe along with detailed factual support for the allegation. In addition to the patent demand letter reforms, the PATENT Act seeks to heighten pleading standards in litigation, curb discovery costs and require the losing party in patent litigation to shoulder the prevailing party's legal fees if the losing party’s position or conduct was not "objectively reasonable." This fee-shifting standard relaxes a prior House proposal to make fee-shifting presumptive, which had prompted concerns that businesses would be discouraged from seeking redress for legitimate patent claims.
These legislative proposals further the patent reforms of the Leahy-Smith America Invents Act of 2011 and reaffirm Congress's commitment to stop abusive patent practices. These bipartisan, bicameral efforts show a viable prospect of protecting businesses from abusive patent demand letters.
If you have any questions regarding these matters, please contact John C. Cleary at +1 (212) 407 7740, Thomas J. Kowalski at +1 (212) 407 7640, Deborah L. Lu at +1 (212) 407 7642, Charles J. Nerko at +1 (212) 407 6933 or your Vedder Price attorney.