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Direct Marketers Look for Quick Passage of a Law to Curb Patent Trolls

Last week’s passage of the Innovation Act by the House of Representatives gave direct marketers hope for speedy enactment of a law that would stymie the efforts of “Non-Practicing Entities” (aka patent trolls) to squeeze quick settlements from alleged patent violations. Sen. Patrick Leahy (D-VT), chairman of the Senate Judiciary Committee is holding a hearing on his own version of the bill on December 17, and the Obama administration is expected to quickly sign the resulting legislation.

“Senator Leahy is working hard to get a markup on his bill done soon, and the Administration appears to be supportive,” says Peggy Hudson, SVP of government affairs for the Direct Marketing Association.  “We think this will get done in the first quarter.”

Patent trolls stockpile patents for process details and then file nitpicking lawsuits against companies for violations, using the threat of expensive legislation to force settlements from the defendants. This year a shell company called SMS set up by an NPE sued three clients of Grayhair Software, a direct mail provider, for using a feature of the Intelligent Mail barcode that allows tracking of the sender—something that was originally designed to root out terrorists.

NPEs’ assail on clients puts undue stress on companies like Grayhair to fight the suits at great cost or pay off the NPE. Because NPEs can bring suits to court without discovery, they don’t even have to detail specific violations of their patents.

“Grayhair has spent a significant amount of money on legal fees and they don’t even know what, specifically, they’re accused of violating,” says Dennis Carleton, an intellectual property attorney with Fox Rothschild, who is representing Grayhair. “If the new legislation passes, the discovery portion will be moved up and the NPEs will have to say, ‘This part of your product violates parts 14 and 15 of my patent.’ The winning party will also have to pay the legal fees of both sides, and that will make it hard on the patent trolls.”

Often, patent trolls hit pay dirt simply by sending complaint letters to the Federal Trade Commission. Leahy’s proposed legislation spells out restrictions on what it calls “Bad Faith Letters,” such as that their authors must be people, or legal representatives of people, holding current licenses to the patents in question.

“The Senate bill language provides clear language to the FTC on how to handle these letters,” Hudson says.

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