Attention whistleblowers at patent monetisation firms that threaten the elderly, non-profits and small businesses: the US Senate wants to talk to you.
Democratic Senator Claire McCaskill, head of a Senate consumer protection subcommittee, promised anonymity on Thursday for employees at patent assertion entities that step forward to privately share trade secrets with the panel as it investigates allegations of abusive litigation tactics.
“We would welcome a whistleblower that is inside one of these entities,” the senator said at a hearing on “deceptive practices” by patent firms. "We are very used to, in my office, protecting whistleblowers.”
McCaskill's request came as both chambers of Congress intensify scrutiny of the patent industry, with a steady stream of hearings and bills aimed at dissuading meritless lawsuits and requiring more transparency by litigants.
The main legislative action is in the judiciary committees, with Senate Judiciary Chairman Patrick Leahy, a Democrat, prepping legislation to be paired with a comprehensive measure introduced on October 23 by House Judiciary Chairman Bob Goodlatte, a Republican.
An FTC registry for demand letters
McCaskill said her subcommittee is targeting the “bottom feeders” and “scam artists” that send hundreds or thousands of “demand” letters to businesses and customers seeking settlement payments for outrageous claims - such as use of common technologies like Wi-Fi and office scanners. Patent holders with legitimate infringement grievances are not a concern, she added.
While the subcommittee, part of the influential Senate Commerce Committee, does not have broad jurisdiction over patent issues, McCaskill told reporters that she might pursue a narrowly focused patent bill. Such legislation could require parties that send demand letters to share details about their ownership and allegations with a Federal Trade Commission “registry”.
The hearing was notable for the blunt criticism leveled at patent asserters that engage in these sorts of practices. “It’s a silent extortion,” said Nebraska Attorney General Jon Bruning, who accused firms behind demand letter schemes of using Mafia-like tactics and engaging in “fraud”.
He urged lawmakers to use their subpoena powers to haul top executives with the most abusive patent companies before Congress to force them to respond to questions about tactics that include sending demand letters to elderly people who live in nursing homes. The attorney general added that he’s exploring whether some patent asserters may have engaged in criminal behavior.
The victims bear witness
The costs that small- and mid-sized businesses incur when they’re broadsided unexpectedly with threats of patent litigation were underscored by Larry Sinewitz, executive VP at BrandsMart USA, who testified on behalf of the National Retail Federation.
The appliance retailer has received six demand letters over the past decade, forcing it to spend $500,000 on attorney fees and settlements with patent trolls, he said. Most of the claims, Sinewitz added, were frivolous, such as a request that the retailer pay license fees for using widely available technology that processes debit and gift card transactions.
“What do you do? Consult a patent lawyer?” he testified. “BrandsMart does not have in-house patent lawyers, and we did not have a patent lawyer on retainer,” he said. Picking up the phone to consult a patent attorney to determine the validity of a claim could cost “tens of thousands of dollars”.
Mark Chandler, senior VP, general counsel and chief compliance officer at Cisco, said that his company, which rarely accuses others of violating its extensive patent portfolio, would have no problem complying with an FTC registry.
Also critical of trolls were Jon Potter, president of the App Developers Alliance, which represents creators of apps and coding software, and Julie Samuels, senior staff attorney with the Electronic Frontier Foundation, a non-profit advocacy group that promotes civil liberties. Both groups have teamed together to fight trolls through the court system.
A lone supporter
The hearing’s only supporter of patent assertion firms was Adam Mossoff, a law professor at George Mason University just outside Washington, DC, and co-director of the school’s Center for the Protection of Intellectual Property.
While there are bad actors and frivolous lawsuits, it’s unclear whether there’s evidence of a “systemic” problem that warrants the attention of Congress, he argued. A rush to rewrite patent laws, he warned, could have the unintended effect of harming innovation.
But Mossoff's arguments didn't resonate with McCaskill, who told the professor that after listening to his testimony she was more convinced of the need for a demand letter registry to ensure greater transparency.
Photos (c) Senator Claire McCaskill
