The Impact of Patent Troll Demand Letters
The Impact of Patent Troll Demand Letters
The Impact of Patent Troll Demand Letters

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    We should call for changes so that patent assertion entities (patent trolls) can’t threaten and extract money from small businesses and individuals.

    Our Patent
    Reform Project has been busy lately. Among other things, we’ve filed two
    Supreme Court amicus
    , submitted comments
    to the USPTO, and written several op-eds,
    in just four months. And now, Charles, our Patent Reform Project’s director, will
    be testifying tomorrow
    in the House’s Energy and Commerce Committee hearing
    on “The Impact of Patent Assertion Entities on Innovation and the Economy.” 

    As Charles
    will discuss then, many entities, including so-called patent assertion entities
    (PAEs) and “patent trolls,” abuse demand letters to the detriment of the
    economy. To repair this part of the patent system, knowing more about demand
    letter senders, their patents, and their demand letters would be incredibly
    useful, not only for policymakers but for the broader public as well.

    letters are letters patent owners send to unsuspecting businesses or
    individuals alleging patent infringement and threatening a lawsuit. But this is
    problematic when those letters are frequently vague, misleading, and deceptive. 

    As one
    recent court document highlighted, MPHJ Technologies sent out numerous demand
    letters to businesses but didn’t tell them which of their products infringed on
    MPHJ’s patents, nor did they even allege that these businesses infringed on
    MPHJ’s patents at all. Instead, the letters provided a checklist of possibly infringing technologies, based
    on what “a substantial majority of companies like yours utilize.” 

    demand letters even allege infringement of a patent already invalidated by a
    court. In those cases, the senders hope that small businesses and individuals
    choose to just pay up. 

    And often,
    they do. Whereas a large technology company would likely hire attorneys to
    investigate patents, small businesses and individuals tend not to have those
    kinds of resources. Faced with a demand letter, these businesses may see no
    other option but to pay an unnecessary tax on their innovation or end use of

    witnesses for tomorrow’s hearing provide illustrative examples in their written
    testimonies. Justin Bragiel, representing the Texas Hotel & Lodging
    Association, discusses
    how almost 100 hotels in Texas have recently received demand letters alleging
    infringement — because the hotels provided WiFi to guests. These kinds of
    demand letters simply demand that the hotel pay $5,000 or risk a lawsuit. But
    when the legal advice to even think about what to do costs much more than
    $5,000, a hotel might be inclined to just pay $5,000. Another witness in the
    hearing, Professor Robin Feldman from the University of California, Hastings, describes
    this common PAE strategy as “the assault rifle approach.” 

    there’s a dearth of data about these letters. Demand letters are sent and
    received in private, so most of what we know is anecdotal. (To that end, Trolling Effects has proven especially
    useful for Charles’s testimony, and we hope that its database continues growing
    so that it can become even more useful.) But with what we do know we can make
    some initial suggestions for how to improve the situation.

    requiring transparency regarding the patents being asserted and the entity
    asserting the patents, as well as the number of demand letters being sent,
    would be useful for everyone. For example, individuals and small businesses
    receiving demand letters would understand much better what exactly they face.
    Policymakers would be able to make sound policy to preserve competition and
    protect consumers.

    setting specific requirements to create “truth in demand letters” would also
    help demand letter recipients make informed decisions. For example, a demand
    letter sender currently doesn’t need to explain to recipients either which
    products might be infringing on their patents or how they might be infringing.
    Requiring these kinds of explanations would help the targeted business smartly
    decide whether they need to pay for a license without hiring an attorney.

    letters are prone to abuse, causing serious problems for businesses and
    consumers. Setting requirements on information in these letters would mitigate
    this abuse and help the letters’ recipients, who are often small businesses and
    individuals. Stay tuned tomorrow to hear Charles discuss the issue and answer
    questions from members of Congress. You’ll be able to watch the hearing live on
    the House
    Energy and Commerce Committee’s website


    Image: Flickr user rubber cat, by way of the Creative Commons Attribution-NonCommercial