Second House Draft on Patent Demand Letter Legislation Addresses Patent Owner Concerns

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By Tony Dutra  

July 2 — Rep. Lee Terry (R-Neb.) distributed on July 1 a second draft of a bill aimed at curbing the “demand letter” abuse, attributed to patent trolls, of sending hundreds of letters to small firms demanding a royalty for use of patented technology in products the firms bought off the shelf.

The new draft comes after a May 22 hearing, held by the House subcommittee that Terry chairs, that reviewed his May 15 first draft.

That hearing ended with Terry committing to “threading the needle” between competing interests—those wanting broader language to capture more letter senders as acting in bad faith and patent owners wanting narrower language because of a fear that the first draft captured current, legitimate letters seeking a patent license.

The second draft reflects a reaction to some, but not all of the complaints the subcommittee heard. In general, though, the changes were tilted toward patent owners' concerns.

A July 2 news posting on the Intellectual Property Owners Association's website said the second draft was “generally consistent with an IPO resolution favoring federal legislation on demand letters.”

The Coalition for 21st Century Patent Reform, a pro-patent owners lobbying group, issued a statement saying it “is pleased with the progress” reflected in the new draft.

Feds Fiddle While States Sizzle

Congress generally had put resolving the demand letter problem on hold while addressing patent troll abuses related to infringement litigation. But the litigation-related legislative activity appears to be dead for the current term.

In the House, Reps. Jared S. Polis (D-Colo.) and Thomas A. Marino (R-Pa.) tried to deal with the demand letter problems in the Demand Letter Transparency Act, introduced last November. But that bill stalled in the House Judiciary Committee.

Sen. Claire McCaskill (D-Mo.) introduced a patent demand-letter bill, similar to Terry's draft bill, in the Senate in February. It was referred to McCaskill's Committee on Commerce, Science, and Transportation and has not been acted upon, presumably in deference to the Senate Judiciary Committee's litigation abuse-related deliberations that are now tabled.

In the absence of federal enforcement, states' attorneys general have been moving ahead to curb the practice under consumer protection laws and in light of new state legislation.

Terry, who chairs the Subcommittee on Commerce, Manufacturing and Trade of the House Energy and Commerce Committee, sought to step into the void at the federal level.

FTC Would Regulate

Terry's “Bill to Enhance Federal and State Enforcement of Fraudulent Patent Demand” would call for the Federal Trade Commission to regulate the demand letters under Section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. §45(a)(1). In contrast, Polis and Marino would have required the Patent and Trademark Office to maintain a registry of demand letters and to void a patent owned by a sender in bad faith.

In general, the Terry draft defines the conditions for finding bad-faith sending of a demand letter. It would make clear that engaging in those activities is presumptively “an unfair or deceptive act or practice.”

The act would preempt state laws, but it would allow state attorneys general to enforce the terms of the bill, on behalf of any of the state's citizens.

Changes to Provisions in New Draft

The second draft included the following changes:

  • Detailed disclosure. The bill would target misrepresentations or omissions in the letter, requiring it to disclose such details as patent numbers, ownership and specific infringing products. The second draft favored patent owners by deleting attributions of bad faith to omissions about licensors and patent owner subsidiaries. But for those wanting more disclosure, it added a requirement to allege infringement at the patent claim level, in Section 2(a)(3)(d). However, the broad bill proponents also wanted a “catch-all” for unspecified disclosure abuses, which the new draft does not provide.
  • Protected recipients. The first draft limited recipients to “consumers, end users, or systems integrators.” The second draft refers only to “recipients” and makes no attempt to define them further. That was a concession to those seeking FTC enforcement against a broader selection of letter senders.
  • Affirmative defense. The first draft allowed the sender to claim the rebuttable presumption that a letter was sent in good faith. The second draft turns that claim into an affirmative defense. In favor of patent owners, it adds: “Evidence of a pattern or practice of sending written communications that do not violate provisions of this Act shall be sufficient to demonstrate good faith.”
  • State enforcement. The second draft still allows state attorneys general to enforce the act on behalf of the state's citizens, but it adds a maximum civil penalty of $5 million.
  • Bad faith. The first draft found bad faith only if “the sender made such representations with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such representations were false.” The second draft slightly favored the patent owners by deleting the implied knowledge language, replacing it with a requirement to show reckless indifference or a “high probability” that the recipient would be deceived “and the sender intentionally avoided the truth.”

    Draft bill is available at

    Subcommittee review information is at

    To contact the reporter on this story: Tony Dutra in Washington at

    To contact the editor responsible for this story: Naresh Sritharan at

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