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Polis, Marino, and Deutch Introduce Demand Letter Transparency Act to Tackle Growing Problem of Patent Trolls
Today, Representatives Jared Polis (D-CO) and Tom Marino (R-PA), along with Rep. Ted Deutch (D-FL) introduced the Demand Letter Transparency Act to tackle the growing problem of patent trolls. Increasingly, businesses of every size are finding themselves on the receiving end of patent infringement demand letters. These letters, which seemingly come out of nowhere, often make allegations that the use of everyday technology, such as wireless email, digital video streaming, and the interactive web, is in violation of a patent holders’ rights. While it is estimated that the Patent Assertion Entities (PAEs) behind these demand letter lose 92% of the merits judgments in courts, retailers, advertisers, marketers, and other often simply settle these nuisance claims rather than running the risk of complicated, expensive, and protracted discovery and litigation in federal court.
According to the Congressional Research Service, PAEs generated $29 billion in direct costs from defendants and licensees in 2011, a 400% increase over $7 billion in 2005. Another study reported that 62% of all patent suits filed in 2012 were brought by PAEs.
“Businesses are increasingly coming under attack by entities abusing current patent law by sending vague, overbroad and threatening demand letters to businesses that are playing a vital role in our economy. As a result of this threat of litigation, consumers are forced to pay more and many companies are diverting significant dollars from R&D and other activities promoting job growth to simply cover their increasing legal fees,” said Rep. Jared Polis. “The Demand Letter Transparency Act strikes the right balance in protecting the rights of legitimate patent holders to enforce their patents while protecting consumers and businesses against non-legitimate abusers of the patent system.”
“Chairman Goodlatte’s Innovation Act makes significant strides to dismantle the fraudulent business model that is otherwise known as “patent trolling. I believe it is imperative that we also take on the issue of demand letters, which is at the very root of the problem,” stated Rep. Marino. “Demand letters target family-owned businesses and entrepreneurs who are essential for creating jobs and generate revenue for the economy. Small businesses in my district cannot afford the legal fees associated with litigation and they should not have to sacrifice valuable resources to defend themselves against such vague and unsubstantiated claims. Shell companies and trial lawyers are running amuck, frauding the courts and businesses alike. It is time Congress address this hostile practice.”
“Intimidating small businesses, entrepreneurs, and nonprofits with vague demand letters has become one of the most common ways that patent trolls take advantage of the lack of transparency in our patent system,” said Congressman Ted Deutch. “The targets of these demand letters are often left to decide whether or not to enter into expensive litigation without knowing any of the details regarding the patent in question, whose rights are being infringed, or how often similar demand letters are sent. I am pleased to join Reps. Polis and Marino to introduce a bipartisan bill that uses to transparency to solve a growing problem.”
The Demand Letter Transparency Act aims to assist small companies and end users who lack the money, time, and resources to fight demand letters they receive from PAE’s by putting additional information about the PAEs claims at their fingertips enabling them to determine whether to ignore, settle with or defend against assertions made by a PAE. It would be a very necessary first line of defense before they are forced to spend valuable resources to hire a patent specialist. This bill will help erase the “asymmetry of information” problem, collect data, improve transparency, and promote information sharing among those who receive demand letters from non-legitimate companies who hide behind vague, overboard and threatening demand letters. Specifically, the bill would:
The legislation is supported by a variety of businesses and organizations including Dish Network, Public Knowledge, the National Restaurant Association, Application Developers Alliance, the Electronic Frontier Foundation, the National Retail Federation, the Direct Marketing Association, the Mobile Marketing Association, and the Association of American Advertising Agencies.
"DISH applauds Rep. Polis and Rep. Marino for introducing the Demand Letter Transparency Act. The bipartisan legislation, if passed, will help spur innovation, and address the growing problem of patent trolls," said Jeffrey Blum, Senior Vice-President and Deputy General Counsel.
“Patent trolls have placed a restrictive and unnecessary burden on the restaurant and small business community as they look to build towards the future. This continued assault on innovation is draining billions of dollars from our economy and inhibiting job creation. The Demand Letter Transparency Act will help millions of restaurateurs nationwide fight these frivolous claims, and clear the pathway for enhancing their customer experience,” said Scott DeFife, Executive Vice President of Policy and Government Affairs, National Restaurant Association
“The Demand Letter Transparency Act is an important bill that will bring the most abusive actors to account. It will protect innovators, small businesses, and end users who face dangerous patent troll threats. The bill provides a much-needed response to opportunistic patent trolls blanketing the nation with deceptive letters," said Julie Samuels, Senior Staff Attorney for Electronic Frontier Foundation.
A section by section of the bill follows.
SECTION BY SECTION- POLIS/MARINO DEMAND LETTER TRANPARENCY ACT
Today, too many start-ups and end user businesses, such as restaurants, retailers, and grocery stores, are facing threatening demand letters from Patent Assertion Entities (PAE’s) – who typically do not make or sell anything, but use patents to threaten litigation. Many small companies lack the legal expertise and resources to respond to complex patent infringement claims, and thus, end up devoting significant resources they could be spending on R &D and other business and job growth opportunities, to cover their legal fees. This diversion of resources is harming American innovation, businesses, and consumers, and stifling our economy.
According to a recent study, one third of those responding start-ups had received patent assertions; of those 60% came from entities whose primary business is asserting and litigating patents. The study further found that the cost to startups to defend such patent demands regularly exceeds $100,000, and can ultimately end up reaching millions of dollars in litigation costs.
While other proposals seek to curb abusive patent litigation, this bill will assist the smallest companies who face demand letter challenges (which are not legal complaints) before litigation even commences. This legislation will provide these companies a very necessary first line of defense before they are forced to spend valuable resources to hire a patent specialist.
This legislation aims to assist small companies and end users who lack the money, time, and resources to fight demand letters they receive from PAE’s by putting additional information about the PAEs claims at their fingertips enabling them to determine whether to ignore, settle with or defend against assertions made by a PAE.
This bill will help erase the asymmetry of information problem, collect data, improve transparency, and promote information sharing among those who receive demand letters from non-legitimate companies who hide behind vague, overboard and threatening demand letters.
Section 2: Demand Letter Disclosure
These provisions will ensure improved transparency and accountability in demand letters to the PTO, providing greater certainty to businesses and better reporting of the problem.
a. Monetary sanctions: provides courts with discretion to sanction an entity that brings an alleged patent infringement case and does not meet the demand letter disclosure requirements above. The court is required to consider good faith mistakes in failing to comply with these demand letter disclosure requirements when determining such sanctions.
The database will not only assist with information sharing among demand letter receivers, but also provide additional pre-complaint data to relevant agencies and academics to further understand the scope of the problem. Current statistics are only available for patent infringement litigation in federal courts.
Section 3: Demand Letter Requirements
Section 4: Remedies for Non-Compliance