Thursday, November 7, 2013

Senators appear determined to take measures against deceptive demand letters by patent trolls

The current U.S. patent reform debate involves many different proposals, but most of them aren't closely related to the specific problem of "patent trolls", which merely serve as a bogeyman and pretext in some respects. One such example is the Goodlatte "Innovation Act", which received mixed reactions at a Congressional hearing last week. Today the United States Senate (to be precise, the Subcommittee on Consumer Protection, Product Safety, and Insurance, which is part of the Committee on Commerce, Science, and Transportation) held a hearing on an issue that is clearly troll-specific: abusive and deceptive demand letters.

The panel of witnesses was unbalanced (quite unlike the panel at last week's Goodlatte hearing): four advocates of measures against patent troll demand letters and only one defender of the status quo, George Mason Law Professor Adam Mossoff. Not only was Professor Mossoff outnumbered but he was also outperformed by each of the four pro-reform speakers (Nevada's state attorney general, the head of the Application Developers Alliance, Cisco's general counsel, the EFF's Julie Samuels, and -- in my view the one who made the best points -- the general counsel of a regional retailer named BrandsMart).

Basically, Professor Mossoff criticized the evidence of abusive patent troll practices as unscientific and unreliable, pointing to a report by the Government Accountability Office), but the evidentiary standard in Congress is not the one of a federal court of appeals or an academic institution. If politicians hear from voters in their electoral district that there is a problem (such as the Ranking Member on this Subcommittee, Sen. Dean Heller, a Republican from Nevada who expressed concern over demand letters sent to Las Vegas casinos), that can be enough evidence for them to take action, and it certainly has more weight than someone who dedicates his professional life to IP law and appears to be an adamant denier, somewhat detached from, and insensitive to, the worries of small business owners on Main Street. He also warned against "systemic" change, and while it's true that the driving forces within the reform movement have such an agenda, the Consumer Protection Subcommittee of the Senate clearly does not, as its chairwoman, Sen. Claire McCaskill (D-MO), stressed (and a couple of other senators also indicated).

Sen. McCaskill just had to ask Cisco how many patents it holds (the answer: more than 10,000 U.S. patents) and whether its concerned about weaker IP protection if certain requirements and restrictions are imposed on demand letters. The answer was no, and that took care of Professor Mossoff's testimony. Maybe the subcommittee should have invited a well-respected inventor who sends legitimate royalty demand letters to infringers. I don't know whether it couldn't identify such a speaker, or whether it didn't even try.

The pro-IP camp needs to be realistic. There's no point in trying to prevent some reasonable measures against abusive practices by patent trolls in connection with their demand letters. State AGs are already taking action. Any argument that there isn't enough evidence in a narrow sense of the word can be turned around by reform-friendly politicians and activists, as it was today, by demanding some kind of public registry of patent assertions.

It's a much smarter strategy for pro-patent organizations to demand that any measures be focused and not overreaching. For example, the Innovation Alliance, an organization with which I sometimes disagree, released a tactically very clever statement that I, too, support:

"The Innovation Alliance abhors abusive, frivolous demand letters, and we are very sympathetic to those who receive them. Where there are abuses, policymakers should adopt targeted measures to address those abuses. While the Innovation Alliance supports efforts to educate consumers and small businesses in responding to abusive demand letters, we believe that expanding the Federal Trade Commission's regulatory authority under Section 5, potentially giving it unprecedented and unwarranted power to decide the validity of patents and the merits of infringement claims and commercial licensing negotiations, is the wrong approach."

All of the senators who spoke at the hearing were on the reasonable side. No one hijacked the event to push for unrelated or overreaching measures. Two of them particularly emphasized the need to avoid harm to IP protection and innovation: Sen. Amy Klobuchar (D-MN), whose positions on standard-essential patents I also like, and Sen. Kelly Ayotte (R-NH).

The patent troll problem is real and rampant, and it's simply true that most recipients of demand letters (Cisco mentioned a case of a troll who sent letters to almost 14,000 WiFi users) lack the knowledge and resources to defend themselves against demands no matter how illegitimate. The example that Cisco gave involved a standard-essential patent that had even been licensed to major network hardware manufacturers, so there were exhaustion and FRAND issues, but a restaurant owner won't know what FRAND stands for and thinks that exhaustion is how he or she feels at the end of a long day of hard work.

The EFF runs the TrollingEffects website and is contacted all the time by recipients of demand letters. I also referred a number of app developers who had been contacted by Lodsys to the EFF. But most recipients are afraid to provide their letters for a public registry. That's why such initatives, no matter how well-meant, can't solve the problem in the current environment.

Jon Potter from the Application Developers Alliance talked about the contribution of app developer to innovation and growth, and gave some examples (less specific than Cisco's example, however) of how app developers are affected by patent trolls. He said that those app developers dream of an IPO but typically have very limited resources.

I hope that whatever measures Congress will adopt against patent troll demand letters will also benefit foreign recipients of letters from American trolls. For example, Lodsys sent letters to developers in Europe Asia, and Australia.

Admittedly, I'm not impartial here. I already mentioned last month that I could picture myself as an app developer, and that was an understatement. I have a concept for an app that I definitely will create in the very near term. Development will begin later this month or next month. The question is not if I do it, but how I reconcile that project with my work as a consultant. If I continue to do as much consulting as in recent years, then I'll hire developers to write the app under my direction. It's also possible that I'll do considerably less consulting in 2014 so I have more time and energy available for my app. In that event, this blog, which is basically a by-product of and promotional tool for my consulting business, would also be affected. For example, it could be that I spend only one or two days per week on litigation monitoring, and that I update this blog only once or twice a week (except when highly important rulings come down or major settlements are announced). It's theoretically even possible that I'll focus 100% on app development in 2014, but that's the least likely one of the three scenarios. The decision will be made soon. Anyway, I supported app developers' interests in connection with the Lodsys issue, and I'll do so in the future.

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