Summary

Congress continues to push for patent reform that targets patent trolls. One bill in particular, H.R. 2045, introduced by Rep. Michael Burgess (R-Texas) and referred to as the Targeting Rogue and Opaque Letters Act of 2015 (or TROL), specifically targets patent holders (or those who purport to be patent holders) that send vague, deceptive, and misleading letters alleging patent infringement and "use deception and intimidation to extract a toll from their victims." (April 28, 2015 Opening Remarks of Hon. Fred Upton) On April 29, 2015 the Energy and Commerce Committee voted to advance this bill to the full U.S. House of Representatives by a 30-22 vote. The TROL Act faces challenges both from legislators and interest groups who disapprove of the way the bill was written, as well as from two more wide-ranging bills recently introduced in the House and the Senate.

Background

The pre-litigation tactics of patent trolls have been a significant focus of federal and state legislators for at least the last few years. One area of particular concern is abusive patent demand letters. When the targets of these letters are small businesses or individuals with limited resources, the specter of expensive and lengthy patent litigation often strong-arms the target into a license agreement or settlement. As of April of 2015, twenty states had enacted laws to address abusive patent demand letters. (Majority Memorandum for April 28-29, 2015, Committee on Energy and Commerce Markup) The TROL Act was introduced to "help stop the practice of abusive patent demand letters while protecting the rights of legitimate patent holders to protect their intellectual property" by increasing "transparency and accountability in patent demand letters so businesses can weed out deceptive letters" and establishing "a national standard for the enforcement of abusive patent demand letters." (Committee Approves TROL Act to Squash Patent Trolls, Press Release, Energy Commerce Subcommittee, April 29, 2015)

The "TROL Act" (H.R. 2045)

The TROL Act, as it is currently written, would make sending misleading patent demand letters an unfair or deceptive act or practice. The Act also gives the FTC and state attorneys general the authority to bring civil actions, and levy fines, against those who "engage in a pattern or practice" of sending misleading or deceptive demand letters in bad faith. The "bad faith" requirement would necessitate the FTC or state attorneys general to prove that the senders of these abusive letter made the statements, representations, or omissions at issue with knowledge that they are false or misleading, with reckless indifference as to their false or misleading nature, or the awareness of the high probability that they would deceive and an intentional avoidance of the truth.

The bill also provides an affirmative defense of no bad faith, which, as of April 23, 2015, would be "demonstrated by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." (H.R. 2045, Section 2(b)) Somewhat controversially, the current version of the bill would also preempt current state laws covering patent demand letters.

The Controversy

Both legislators and interest groups have expressed concern about the substance of the bill, including the "bad faith" requirement, the existence of the "affirmative defense," and the fact that the law would preempt state laws addressing abusive demand letters. The group United for Patent Reform, representing retailers, other businesses, and technology companies, has expressed concern that the bill falls short. The bad faith requirement in particular is under fire, because, as stated by United for Patent Reform, "regardless of the intention of the sender, misrepresentations or omissions can be harmful to consumers." (April 21, 2015 Letter to Committee on Energy and Commerce) Another stated concern is that requiring the FTC or state attorneys general to demonstrate bad faith would hinder their ability to enforce the provisions of the TROL Act. Burgess, the author of the bill, has expressed concern that without the bad faith requirement, the bill would be subject to constitutional challenge under the Noer-Pennington doctrine, as it would raise First Amendment issues, as well as preemption by federal patent law.

Another area of contention is the preemption provision. The TROL Act, if passed, may be much weaker than the laws on the books in some states. For instance, in 2013 Vermont passed one of the most robust troll-letter laws, giving both companies targeted by the abusive demand letters and the State Attorney General the ability to bring civil actions and recover compensatory damages, exemplary damages, and even legal fees.

The Upshot

The TROL Act seems to be facing significant challenges. First, it must satisfy lawmakers that it goes far enough to protect victims of abusive demand letters while also balancing the rights of the States to write and enforce their own consumer protection laws. But the Act also faces a challenge from the more wide-reaching bills targeting patent trolls that have recently been introduced in the House and in the Senate. For example, on April 29, 2015 the PATENT Act, a bi-partisan bill, was introduced in the Senate and on February 5, 2015 the Innovation Act was introduced in the House (a previous version of the Innovation Act had been introduced in the House during the previous session of Congress, and passed in the House 325-91 but did not gain traction in the Senate).

While both the PATENT and Innovation Acts address abusive patent demand letters, neither are as wide-reaching or comprehensive at curbing abusive demand letters. The PATENT Act is stronger than the Innovation Act on abusive demand letters as it details requirements for demand letters and does provide for civil penalties under the Federal Trade Commission Act. The Innovation Act, however, only provides that abusive demand letters cannot be relied on during litigation to establish willfulness or enhanced damages and does not provide for any fines or civil penalties. Moreover, the PATENT and Innovation Acts include controversial provisions, including fee-shifting, that may be the source of wide opposition. We expect that, should the PATENT or Innovation Acts stall, the TROL Act will serve as a targeted measure to address abusive demand letters, or perhaps be incorporated into one of the broader bills.