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Senate Introduces Patent Demand Letter Legislation

February 28, 2014

On Feb. 26, Senators McCaskill (D-MO) and Rockefeller (D-WV) introduced legislation that will better equip the nation’s top consumer protection agency with the tools needed to crack down on “patent trolls”—companies that buy patents, but then fail to actually produce goods or services, opting instead to intimidate or sue other small businesses.

The bill, the “Transparency in Assertion of Patents Act” would empower the Federal Trade Commission (FTC) to help fight back against these deceptive practices by requiring minimum disclosures in letters sent by patent trolls to businesses that allege patent violations and make various demands (commonly referred to as “demand letters”) and allowing the agency to specify for businesses exactly what constitutes a deceptive demand letter.

Background

Patent trolls, formally known as patent assertion entities (PAEs), are companies that purchase patents and monetize them by demanding licensing fees or settlements—usually under the threat of litigation—from unsuspecting businesses using similar technologies. Unlike some businesses that assert patent rights over patents that they own and use, PAEs do not produce any goods or services with their patents. Until recently, the rampant growth of PAE demands was limited to patents in the technology sector, with PAEs aggressively targeting innovative technology startup companies that could be seen as violating the relevant patent. In a troubling development, PAEs have begun demanding payments from end users—including REALTORs that use common technologies such as office scanners and website search alert functions.

Most concerning are PAEs that use “demand letters” to unfairly or deceptively target small businesses, including REALTORs which often do not have the resources to engage in protracted and costly patent litigation. To bilk settlements or licensing fees out of small businesses, PAEs will sometimes send thousands of these demand letters—regardless of whether the targeted companies have actually violated any patents—threatening litigation for alleged patent infringement. Despite their threats, these PAEs may have no intention of actually filing a lawsuit, and sometimes misrepresent or obfuscate the patents they own in the demand letters hoping only to intimidate a small business into making a payment for the alleged—but often not real—violation of a patent.

NAR supports comprehensive patent litigation reform including the demand letter reforms contained in S. 2049 we continue to work in the Senate to see a package of common sense reforms passed.

S. 2049

Visit NAR's Patent Litigation Reform page