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From Antitrust Law Daily, May 22, 2014

FTC comments on deceptive patent demand letter legislation before House Subcommittee

By Linda O’Brien, J.D., LL.M.

The FTC testified at a hearing today held by the House Energy and Commerce Committee’s Subcommittee on Commerce, Manufacturing, and Trade on consumer protection issues involving patent demand letters, patent assertion entities (PAEs), and proposed legislation to prohibit deceptive patent demand letters.

Testifying on behalf of the Commission, Lois Greisman, Associate Director of the FTC’s Division of Marketing Practices, stated that the agency is examining PAEs and patent demand letters from both a policy and enforcement perspective.

In a prepared statement, entitled “Discussion Draft of Patent Demand Letter Legislation,” the FTC provided lawmakers with comments on a draft bill regarding federal and state enforcement with respect to deceptive patent demand letters, and recognized that demand letters raise broader issues about patents and the U.S. patent system.

The testimony noted that the activities of PAEs and the related issue of demand letters have been a topic of increasing interest and concern. The information about PAEs, how they operate, and their overall impact is limited and PAE activity may include a number of different business models. PAEs may also have incentives to exploit flaws in the patent system, which is harmful to innovation. The Commission is proceeding with a proposed study announced in September 2013 to gather information from approximately 25 companies that are in the business of buying and asserting patents and use the information to examine how PAEs do business and develop a better understanding of how they impact innovation and competition.

Concerns with patent demand letters have emerged with the growth of PAE litigation activity, according to the testimony. The Commission believes that its authority under Section 5 of the FTC Act can and should be brought to bear with respect to demand letters where appropriate. Even with enhanced authority, the FTC would not be in a position to address the broad and complex issues that underlie many businesses’ grievances about patent demands. Although there are limits on the FTC’s ability to address concerns with patent demand letters, the agency can take action against unfair and deceptive conduct, including obtaining permanent injunctive relief and equitable monetary compensation.

The testimony also addressed proposed legislation that would grant the FTC civil penalty authority in this area. Since such authority would have potential benefit and may deter some violations, the agency supports draft legislation that would give the FTC this authority. The testimony also noted potential concerns about a knowledge requirement that would apply to some violations under the proposed legislation.

“The Commission shares this Subcommittee’s goal of stopping deceptive patent demand letters while respecting the rights of patent holders to assert legitimate claims, and recognizes that achieving this goal is not easy,” the testimony stated.

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