The U.S. Congress should take action to slow a skyrocketing number of "deceptive" patent infringement demand letters sent from patent licensing firms to small businesses, witnesses told a Senate committee.
During the past 18 months, PAEs (patent assertion entities), those firms with patent licensing as their primary business model, have been flooding U.S. businesses with letters alleging patent infringement, threatening lawsuits and demanding settlements in the tens of thousands of dollars, witnesses told the consumer protection subcommittee of the U.S. Senate Commerce, Science, and Transportation Committee Thursday.
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In many cases, the patent demand letters have accused recipients of infringing "every-day technology" such as online shopping carts and Wi-Fi routers, said Julie Samuels, a senior staff attorney at the Electric Frontier Foundation. "These letters really had nothing to do with patent law," she said. "They merely used the guise of patent law to conduct, frankly, run-of-the-mill extortion."
The PAE demand letters often don't identity the owner of the patent or the patent the letter recipient is alleged to have infringed, said Mark Chandler, general counsel at Cisco Systems. Some PAEs are "charlatans, dressed up as innovators," he said.
"This is all about fraud," said Jon Bruning, attorney general in Nebraska. "This is about extortion. This is about fear. For little companies ... it's their life or death. For some guy who invested his last $100,000, this letter will take him down."
Chandler called on Congress to take action to rein in PAEs, often called patent trolls. Congress should require PAEs that send more than 10 demand letters to submit those letters to a proposed online registry run by the U.S. Federal Trade Commission, and lawmakers should require PAEs to identity the alleged infringing technology in the letters, he said.
PAEs should also be required to disclose the names of the patent owners and to disclose all previous licensing agreements covering the patents, including any commitments to license the patents on fair and reasonable terms, he said.
No PAEs appeared at the hearing, but some committee Republicans and witness Adam Mossoff, an intellectual property professor at the George Mason University School of Law, questioned the need for changes in patent law. Complaints about PAE demand letters are "anecdotal," Mossoff said, and there's little evidence of major harms to innovation or to consumers.
Patent licensing is a legitimate business that's been around for over a century in a U.S. patent system that has helped create a huge innovation-based economy, Mossoff added. "Systemic changes to the patent system should not be based on rhetoric, anecdotes, invalid studies and incorrect claims about the historical and economic significance of patent licensing," he said. "If there ever was a case where caution was called for, this is it."
Senators aren't looking to write a major overhaul of patent law, but instead, to find remedies targeting PAE demand letters, said subcommittee Chairwoman Claire McCaskill, a Missouri Democrat. Without some ways to identify PAE practices, it will be difficult to measure the problem, she said.
Without new requirements to publish demand letters and identify patent holders, "how do we get beyond anecdotal?" she said. "How do we get at the problem?"
If Congress addresses the issue, it needs to protect small inventors who may have patent licensing as their primary business option, said Senator Kelly Ayotte, a New Hampshire Republican. "How do we make sure we aren't harming, by trying to address the patent trolls, or decreasing the value of legitimate small innovators," she said. "These people that start out of a garage and have such great ideas, that's what America is all about."
Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is email@example.com.