Advocates find flaws in patent demand letter bill

Draft legislation to crack down on abusive patent demand letters still needs work, some lawmakers and outside advocates said Thursday. 

They pointed to a number of potential flaws in the legislation, from its preemption of state laws to its requirement that the Federal Trade Commission prove "bad faith" or a pattern of abuse in order to take regulatory action against so-called patent trolls. 

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"The goal of this legislation might be well-intentioned, but the drafting is seriously flawed," said Rep. Frank Pallone Jr. (D-N.J.), the ranking Democrat on the Energy and Commerce Committee. 

About 18 states around the country have enacted their own laws to regulate demand letters. The current version of the legislation would override those laws with federal legislation. 

"If Congress seeks to pre-empt specific state laws ... the federal effort should be at least as strong as those laws," Pallone said during a Energy and Commerce subcommittee hearing. 

Demand letters can often be the first step toward patent infringement litigation. Lawmakers on the Judiciary Committee are working on broader legislation to cut down on patent abuse in the court system. 

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. Advocates for reform say these patent trolls many times target businesses that lack expertise in patent law, giving them the upper hand. 

The Targeting Rogue and Opaque letters Act would give the Federal Trade Commission more authority to crack down on abusive letters, under the commission's mandate to regulate unfair and deceptive practices. 

The FTC took its first enforcement action against a patent troll last November, but it is limited in what penalties it can impose. The House draft would allow the commission to levy fines at the outset. 

The House Energy and Commerce subcommittee on Commerce, Manufacturing and Trade approved similar legislation last year but did not advance past that. 

The advocacy group Public Knowledge on Thursday similarly took issue with the bill's preemption of state laws. The group said federal legislation should serve as a minimum protection that could be enhanced by states. 

But other observers of patent law say that the dozens of different state requirements put a strain on businesses and create inefficiencies when sending legitimate demand letters. Others, like subcommittee Chairman Michael BurgessMichael Clifton BurgessTwitter’s Dorsey apologizes to McCain family for ‘unacceptable’ tweet Overnight Health Care: Trump officials move to expand non-ObamaCare plans | GOP fails to block DC individual mandate | Ebola returns to Congo Republican chairman wants FTC to review mergers of drug price negotiators MORE (R-Texas), said the preemption is necessary because state laws do not always hold up in federal court. 

United for Patent Reform, a group that represents retailers and technology companies, recommended making other changes. The requirement that the Federal Trade Commission prove a company knowingly sent a deceptive letter should be removed, it said, as well as the requirement to prove a pattern of abuse. 

Some who testified Thursday also called to remove what they call a "loophole" in the legislation. They want to remove an "affirmative defense" provision that would allow a company accused of abuse to prove it made a good faith mistake, by using past evidence that it generally sends demand letters that comply with the law.