Senate Judiciary Committee Takes Patent Trolls to Task

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Passing the privacy bill is a Leahy priority.
Passing the privacy bill is a Leahy priority.

Prior to 2013 the printing business didn't know from patent litigation, said Michael Makin, president and CEO of the Printing Industries of America. But in the past year, several of his association's members have been hit with “demand letters” for printing QR codes or using workflow software. In its history, Adobe Systems had only 19 patent infringement suits filed against it in total until this year, when it found itself the target of 22 suits, said Dana Rao, an intellectual property litigation lawyer for the company. 

Small printers and large software companies alike fall victims to so-called “patent trolls,” who use the high cost of litigation and the limited requirements for filing lawsuits to blackmail businesses—including many in the direct marketing sector—into paying settlements.

“We have been astounded by the thuggish action of these enterprises,” Makin testified in a hearing on patent trolls held by the Senate Judiciary Committee today. “One printer in Kansas received a letter demanding  $75,000 to avoid a suit, with the threat that in two weeks it would go up to $90,000. This puts undue stress on an industry already facing low profits and lower demand.”

During the first week of December the House of Representatives took aim at patent trolls—known formally as non-practicing entities—with the passage of the Innovation Act. The legislation aims at taking the game advantage away from trolls by requiring them to file claims stating specific patent violations, delaying the expensive discovery phases of trial until after courts had establish validity of claims, and shifting of legal fees to the winning party. 

Judiciary committee chairman Patrick Leahy (D-VT) is now trying to push through a similar bill in the Senate that comes down harder on demand letters. His bill, coauthored with Sen. Michael Lee (R-UT), attempts to nip many of the suits in the bud by giving the Federal Trade Commission powers to enforce limits on them.

“Many of them are vague form letters with no description of how the recipient infringes on a relevant patent,” Leahy said in his opening statement before the committee. “I have also heard examples of patent assertion entities sending letters through dozens of differently named shell companies, so that businesses that receive the letters cannot easily find out who sent them.”

Judiciary Committee Ranking Member Chuck Grassley stressed the importance of the hearing and the legislation, saying that patent trolls “impose a high cost on American business” and that their demand letters present “an extremely expensive distraction” from normal business operations.

Witness John Dwyer, president of the New England Federal Credit Union, pointed up the indiscriminate nature of a patent troll seeking redress for supposed ATM violations. “They sent the same demand letter to almost every credit union in Vermont, including one without any ATMs,” he testified. “The first letter demanded $2,000 for each ATM, and a later one upped the demand to $5,000.”

Like the Innovation Act, the Senate bill includes a fee shifting provision, which was questioned by committee members Richard Blumenthal (D-CT) and Dick Durbin (D-IL), as well as Grassley. Asked whether fee shifting would hamper the ability of small inventors to enforce their patent rights, Rao replied that the proposed law could only aid entrepreneurs holding proprietary patents.

“The fee shift could have a beneficial effect on them by allowing a small company to retain a contingency fee lawyer,” Rao said. “Small inventors with a valid patent and a belief in their positions in the case are not going to have fees shifted to them [by the courts].”

Committee member Chuck Schumer (D-NY) summed up the patent troll problem by saying that two entities were being abused: poor quality patents and small businesses. “It's like being forced onto a highway with only two exits, both of which exact a high toll. You pay the license fee or the lawyer,” he said. “And since we all know that patent litigation costs a fortune, it's no surprise there is a cottage industry of patent trolls.”

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