Another Patent Reform Bill Targets Frivolous Demand Letters

Last week, the House Energy and Commerce Committee approved yet another patent reform bill to curtail misleading and frivolous demand letters sent by patent assertion entities (also known as “patent trolls”). The legislation, approved by a vote of 30 to 20, is known as the Targeting Rogue and Opaque Letters Act, or TROL Act (H.R. 2045). This bill aims to protect businesses from frivolous demands while preserving the ability of patent holders to legitimately protect their intellectual property. The overall goal is to curtail “certain bad faith communications in connection with the assertion of a United States patent [that] are unfair or deceptive acts or practices, and for other purposes.”

The key provisions of the bill are:

Bad Faith Communications Defined – Section 2 of the bill enumerates several instances in which a sender may commit a bad faith communication. Such instances include when a senders represents: (1) he has patent rights, but does not; (2) he has filed a patent infringement action against the recipient or other persons; and (3) he will take legal action soon. Additionally, it includes instances in which the senders unrightfully attempts to obtain compensation from the recipients, such as when a sender seeks compensations for a patent claim that has been held to be unenforceable due to inequitable conduct, invalid or otherwise unenforceable or when sender asserts an expired patent. Lastly, bad faith communications may take place when the sender fails to provide sufficient information about itself, the rightful patent owner (or licensees), the asserted patents and the infringing products.

Affirmative Defenses – Section 2 also establishes that sender may assert an affirmative defense by alleging “statements, representations, or omissions [are] not made in bad faith … if [he] can demonstrate that such statements, representations, or omissions were mistakes made in good faith….” This defense may be established by presenting evidence that the sender does not send letters in violation of this Act in its usual course of business.

Enforcement by FTC – Section 3 of the bill establishes that “violation of Section 2 shall be treated as a violation of a rule defining an unfair or deceptive act or practice prescribed under section 18(a)(1)(B) of the Federal Trade Commission (“FTC”) Act.” This would allow the FTC to seek civil penalties for violations of this bill.

Preemption of State Laws – Section IV of the bill would also preempt any existing state laws and regulations relating to “the transmission or contents of communications relating to the assertion of patent rights.” Additionally, the bill would permit state Attorney Generals to bring suit on behalf of any individual that has been adversely affected by a violation of Section 2. The Attorney General may either enjoin the defendant or obtain civil penalties (maximum $5,000,000). Alternatively, the Attorney General may also request the FTC to intervene by sending a written notice of any action that has been taken to enforce this bill.

It is also important to note here that this bill, in its entirety, is also incorporated in the STRONG Patents Act, which we have previously discussed. Gibbons P.C. will continue to report on developments in patent reform bills.

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