House panel moves to crack down on patent trolls’ weapons

Republicans on a House Energy and Commerce subcommittee approved a bill Wednesday that would crack down on abusive patent demand letters. 

The Targeting Rogue and Opaque Letters Act was sent to the full committee on a party-line vote of 10-7, but is still far from being enacted.   

{mosads}The bill would provide more disclosure requirements in patent demand letters and allow the Federal Trade Commission to fine companies that send abusive letters, which advocates say are a major tool of so-called “patent trolls.” 

Demand letters are sent by patent holders to license their patent or to allege infringement. But abusive demand letters can make vague claims to hundreds of different companies, demanding payment to avoid a lawsuit. 

The subcommittee voted to amend a portion of the bill dealing with how companies accused of sending abusive letters can defend themselves. But Democrats and other advocates for patent reform have called for broader changes. 

“The door of course remains open as we continue to move forward,” subcommittee Chairman Michael Burgess (R-Texas) said. “I hope we can do so together as opposed to splintering off and dividing at a crucial time.”   

Groups such as United for Patent Reform, which has called for demand-letter reform, are opposing the bill for now. The group, composed of technology and retail companies, encouraged the committee to make fixes but “none of the changes” were adopted, the group said.  

The group is demanding the removal of provisions that would force the FTC to prove “bad faith” or a pattern of abuse before regulators could take action against a troll. 

Burgess expressed a willingness to narrow the bad faith requirement, noting he is currently working on an amendment. 

Critics also took issue with a provision that offers an “affirmative defense” to companies accused of sending abusive letters. The provision would allow the accused to prove the letters were mistakes made in good faith, based on past action. Advocates, however, say it is a major loophole that could override nearly all other protections in the bill.  

The committee adopted an amendment that would narrow the provision. It would require a more evidence that an abusive demand letter is sent in error, using a standard outlined in the Debt Collection Practices Act. The change was recommended by Public Knowledge last week. 

However, Democrats and other outside groups wanted to kill the provision altogether. 

Democrats specifically opposed to the idea that the federal bill should trump state laws that address demand letters. About 18 states already have laws in place. They said the federal legislation should act as a minimum threshold that can be expanded by the states. 

Democrats offered a pair of amendments to address all their concerns, including one that would allow the FTC itself to draft rules regulating demand letters. Both were rejected.  

The subcommittee approved a similar bill last year, but it stalled after that. 

Lawmakers on the Judiciary Committee are working on broader legislation meant to reform patent litigation practices. That proposal largely avoids the issue of demand letters.