Targeting Rogue and Opaque Letters (TROL) Act

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H.R.2045: Targeting Rogue and Opaque Letters (TROL) Act (2015)

The TROL Act was introduced on April 28, 2015, by Representative Michael Burgess (R-TX) and was referred to the Subcommittee on Commerce, Manufacturing, and Trade. Currently the bill has 6 cosponsors. (5 Republicans and 1 Democrat). (Congress)

The TROL Act is intended "to stop the practice of fraudulent and abusive patent demand letters while preserving the ability of patent holders to legitimately protect their intellectual property." (House) The full title of the bill is "To provide that certain bad faith communications in connection with the assertion of a United States patent are unfair or deceptive acts or practices, and for other purposes."

GovTrack predicts the TROL Act has a 24% chance of being enacted.

Summary

• Requires demand letters to include specific details about the person with the rights of the patent, parent companies, contact information, and information on how the recipient is infringing the patent
• Establishes that sending demand letters that misrepresent patent rights is an unfair or deceptive act or practice under the Federal Trade Commission Act and allows the Federal Trade Commission (FTC) and State Attorneys General to fine violators
• Directs the Federal Trade Commission, and authorizes state attorneys general, to enforce against written communications (commonly referred to as demand letters) that represent in bad faith that the recipient bears liability or owes compensation for infringing an asserted patent. Requires the pattern or practice of sending such bad faith demand letters to be treated as an unfair or deceptive act or practice in violation of the Federal Trade Commission Act.
  • Bad faith is defined as "'clear and convincing evidence' that the infringement assertions are 'objectively baseless' to avoid dismissal on summary judgment or a motion to dismiss"[1]
• Sets forth the types of bad faith representations, compensation requests, or omissions that are considered to be unfair or deceptive.
• Provides an affirmative defense if the sender can show that statements, representations, or omissions were mistakes made in good faith, which may be demonstrated by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.

Reactions

Supporting

• The American Intellectual Property Law Association (AIPLA) argues that "widespread sending of demand letters containing vague allegations and minimal information" takes place before lawsuits are filed. AIPLA "commend[s] the Subcommittee for taking an approach that seeks to target the abusive behavior in this manner while not inhibiting free speech or legitimate patent licensing and enforcement."[2]

• The Innovation Alliance issued a statement "applaud[ing] the House Energy and Commerce Committee for their work over the past several months to achieve a meaningful, balanced bill on the issue of demand letters that will address the abusive behavior that small businesses and retail interests face."[3]

• An open letter by 51 economists and professors cited the social costs of patent litigation as a hindrance to small businesses and innovation.[4]

Dissenting

• A reply to the letter written by 51 scholars in support of restricting patent litigation states that studies claiming large problems with patent litigation misconstrue the issues. Adam Mossoff is one of the co-authors for the reply letter. [5]

• The Electronic Frontier Foundation (EFF) has stated that TROL act does not do enough in regard to patent reform for reasons listed below:

1. TROL Act provides FTC power it already has to pursue patent trolls
2. TROL Act would strike down state laws on patent reform

Similar Legislation (State Level)

Several states have passed legislation combating "patent trolls" by specifically targeting demand letters written in bad faith. Vermont became the first state to pass a bad faith demand letter bill. State legislators of Nebraska, Oregon, and Kentucky have introduced similar pieces of legislation.

Hrdy (2013) argues for state patents over U.S. patents to boost innovation spillover and encouraging patent reform from the bottom up.[6]

Demand Letters

Quantifying the number of demand letters may feel like a Sisyphean task. The nature of demand letters creates a private relationship between a Patent Assertion Entity (PAE) or a law firm representing them and the company that allegedly infringed on a patent. These letters are mailed directly to the alleged infringer, and do not fall under a required part of discovery in the event of a lawsuit. Letters may warn or threaten a lawsuit from the PAE, but are not legally binding documents. Although the official number of demand letters related to patent infringements does not exist, several online resources host example of demand letters.

• Trolling Effects

The website Trolling Effects hosts a collection of demand letters. As of March 7, 2016, 54 demand letters from 2008 to 2015 are available. Of those, eight are from subsidiaries of MPHJ Technology Investments, LLC.

Costs to Economy

Bessen & Meurer (2012) estimate that patent asserting entitites non-practicing entities have accrued $29 million of direct costs to businesses during 2011.[7][8] "The authors used a database of 1,630 patent troll lawsuits compiled by Patent Freedom. Because many of the lawsuits had multiple defendants, there was a total of 4,114 plaintiff-defendant pairs. The median defendant over all of these pairs lost $20.4 million in market capitalization, while the mean loss was $122 million."[9]

The two Boston University faculty members have also published a book, Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk [10], where they claim patent trolls "cost publicly traded defendants $500 billion since 1990."[11]

MPHJ Technology Investments, LLC

One of the biggest motivations behind the TROL Act is the 2014 Federal Trade Commission investigation into MPHJ Technology Investments, LLC (MPHJ). The investigation revealed that MPHJ had sent demand letters to "16,465 small businesses located in all fifty states and the District of Columbia."[12]