House Republican releases draft 'demand letter' bill

Rep. Lee Terry has released a draft bill aimed at curbing threats from “patent trolls.”

The bill, which the Nebraska Republican first announced in April, would require companies sending “demand letters” to be more specific and transparent when threatening patent infringement lawsuits.

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Vague demand letters have been a focus of the patent reform debate; they are sent by so-called patent trolls to threaten lawsuits in the hopes that the recipients will settle rather than pay the legal fees to defend themselves.

“These bad actors are arrogantly manipulating the intellectual property system — and they’re getting away with it,” Terry said at an April hearing on the issue held by the House Energy and Commerce subcommittee on Trade, which he leads as chairman.

Terry’s bill establishes requirements for information that must be included in the demand letters and codifies the authority of the Federal Trade Commission and state attorneys general to bring charges against companies that send misleading letters in bad faith.

Under the bill, demand letters cannot mislead recipients about who owns and has the right to enforce the patent, the validity of the patent and whether the recipient has a right to use the patent.

The letters must also identify which patent is being infringed, how it is being infringed and contact information to find out more about the alleged infringement.

The bill has protections for demand letters with inaccurate information if they are sent “in good faith,” which can be proven by demonstrating a history of sending accurate demand letters or with “other evidence.”

Terry’s bill comes after a broader patent reform effort has stalled in Congress.

While the House passed a comprehensive patent reform bill from House Judiciary Committee Chairman Bob Goodlatte (R-Va.) late last year, Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) shelved his patent reform bill in May after he was unable to reach consensus among his committee members. 

Abusive demand letters have been one of the less generally contentious measures of the patent reform debate, and a variety of stakeholders expressed optimism about Terry’s’ draft bill.

The Business Software Alliance — which includes Microsoft and IBM and generally advocated for broad patent reform — hailed the draft bill.

"Abusive demand letters are a scourge on the patent system. Well-crafted legislation will help curb these abuses,” the group’s CEO Victoria Espinel said in a statement.

“This is one important piece of the broader patent reform effort we need in order to make life harder for bad actors and better for innovators,” she continued.

The Innovation Alliance — which includes Qualcomm and had opposed measures in the comprehensive reform debate — said it is “generally supportive of the approach the draft takes.”

In a statement, the group’s Executive Director Brian Pomper said the draft bill can “address the vast majority of abusive litigation tactics that small businesses and retail interests are facing while maintaining the integrity of legitimate patent enforcement practices for all patent holders.”

He said the group would work “to ensure that any demand letter legislation is appropriately targeted to abusive behavior and avoids an overly broad approach that could carry with it the unintended consequence of disincentivizing innovation and job growth.”

-- This story was corrected on July 2 to reflect that Rep. Lee Terry is from Nebraska.