Testimony Before the House Committee on Energy and Commerce, Hearing on Patent Demand Letter Practices and Solutions

Abstract

A small number of patent holders have been abusing the patent system. These patent holders blanket the country with thousands of letters demanding that the recipients purchase a license for a few thousand dollars or else face an infringement suit. The letters are usually sent to small businesses and nonprofits that do not have the resources to investigate allegations of patent infringement. And the letters often contain false or misleading statements designed to scare the recipient into purchasing a license without investigating the claims of infringement. In an attempt to address this problem, eighteen states have recently passed statutes that, generally speaking, outlaw bad faith assertions of patent infringement. Any federal legislation on this issue should recognize that state governments and the federal government each have unique strengths that they can contribute to solving the problem of abusive patent enforcement. The strengths of state governments include both the quantity of law enforcement resources that could be provided by dozens of states’ attorneys general offices and the accessibility of state governments to those most likely to be targeted by deceptive campaigns of patent enforcement: small businesses, nonprofits, and local governments. By contrast, federal legislation on patent demand letters would provide the obvious benefits of legal uniformity and greater predictability for patent holders about whether or not their enforcement actions are legal. In addition, federal legislation could clarify difficult jurisdictional issues that currently arise in cases challenging the lawfulness of patent enforcement conduct. Any legislation regulating patent enforcement, however, will be constrained by a line of Federal Circuit cases holding that patent holders are immune from liability for their enforcement conduct unless the patent holder made allegations of infringement that it knew to be objectively baseless. This broad immunity rule has already immunized two notorious trolls, Innovation IP Ventures and MPHJ Technology Investments, from legal challenges to their enforcement campaigns under state consumer protection laws. But it is possible that the Federal Circuit could revise its immunity doctrine to accommodate greater regulation of patent enforcement conduct. The Federal Circuit keeps close watch when Congress is considering amending patent law, and, in the past decade, the court has repeatedly revised its case law to align with proposed legislation.