Patent trolls go to Washington, or how U.S. politicians are rallying against extortionist demand letters

Adam Carolla, one of the most popular podcasters in the U.S., is sued by a patent troll. The story goes viral. Across the country, state Attorneys General are using consumer protection laws to guard their small businesses from the predacious patent trolls. And here’s something previously unthinkable: the President of the United States, in the 2014 State of the Union address (“It’s the country’s most valuable political real estate,” noted one D.C. veteran), urged Congress to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation.” Our industry is under fire.

Yet former USPTO director David Kappos has described the U.S. patent system as “our country’s investment plan – a giant 401k through which we pay a little extra now form more great innovations in the future.” As a vital guarantor of our nation’s future, the patent system certainly warrants that description. Let’s not forfeit our future by allowing patent trolls to corrupt it today.

So what are our politicians doing about the issue? They are listening… and acting.

The National Federation of Independent Businesses (NFIB) and many other retail business groups and trade associations have demanded that the government act. Washington is listening. Only several years ago, very few members of Congress ever gave any thought at all to patent issues. Today, anti-patent sentiment is rampant and Congress seems determined to enact some sort of anti-troll legislation, having been besieged over the last couple of years by thousands of very angry Main Street constituents to do something.

In December 2013, the House of Representatives easily passed the Innovation Act. This act targeted the use of shell companies, required greater details about infringement allegations, and included a “loser pays” provision.   However, the Senate’s companion bill, the Patent Transparency and Improvements Act, stalled repeatedly and was ultimately withdrawn by Senator Patrick Leahy (D-Vermont) owing to justifiable concerns that it would have severe unintended consequences on legitimate patent holders.

The enthusiasm for new laws curbing patent trolls hasn’t waned. In June 2014, only two weeks after Sen. Leahy withdrew his bill, the House of Representatives launched another attempt. Rep. Lee Terry (R-Nebraska) unveiled a draft demand letter bill that would clarify the power of the Federal Trade Commission (FTC) and state Attorneys General to regulate patent demand letters sent in bad faith. The bill is winning broad support.

At the state level, meanwhile, a dozen states have already enacted laws to curb abusive patent demand letters, and 14 other states are actively considering legislation to do the same. In addition, the Attorneys General of several states have brought suit against trolls who send these letters using existing consumer protection laws against making false claims to extort money.

One of the most successful suits took place in New York, where in January 2014 state Attorney General Eric Schneiderman forced MPHJ Technologies, LLC to sign a consent decree requiring it to repay all the money it received from businesses in the state. MPHJ, using various shell companies, had falsely claimed in demand letters it sent to businesses that it had analyzed each target company’s scanning systems and determined these to be in violation of its patents. In fact, MPHJ had merely sent form letters to hundreds of companies of a certain size and industry classification without investigating or uncovering any evidence whatsoever of infringement.

What is this if not outright extortion? This is what so many ordinary citizens and small business owners are so furious – and with good reason.

If they know history, they will be wondering, “Where is the patent system of Thomas Edison? What happened to a patent system that helped transform a largely agrarian United States in the 19th century into the global leader of the Industrial Revolution, and in the 20th and 21st centuries, into the world’s most prosperous and economically powerful nation?

Have patent trolls now turned it into little more than a protection racket and a tax on small businesses?

As an industry and as professionals, we should forthrightly condemn the practices of bad actors that are victimizing the innocent– just as responsible members of other industries condemn the predatory practices of bad actors in their fields. Then we must do our part to root them out. Only by doing so can we revitalize and reaffirm the demonstrable truth that the American patent system plays a vitally important role in the innovative process and the economic strength we all enjoy.

But instead, many in our industry sit silently on their hands, fearful of getting embroiled in controversy or of giving opponents of the patent system more ammunition with which to criticize and attack it. At the recent Global IPBC industry conference in Amsterdam, many speakers condemned patent trolls, yet no action plans were proposed. Some licensors even continue to write about “the so-called” patent troll problem, as if thousands of small business victims were somehow merely imagining it all. Denial should not be tolerated in our industry.

That’s why we’ve launched a “Stand Up to the Demand” campaign designed to help small businesses identify and respond to extortionist patent demand letters. The first phase of our campaign features a web site with an infographic quiz that helps business owners distinguish a bad demand letter from a legitimate notice letter, and view sample demand and notice letters as well as a video. We’re inviting the public to share their stories of how they are dealing with patent trolls. We’re also linking to other resources, such as the website, operated by the U.S. Patent and Trademark Office (USPTO), that’s designed to offer advice to small businesses that believe they have been the victims of abusive demand letters. And there’s a link to a free web-based tool launched by RPX, a provider of patent risk management solutions, that helps small business owners research the background and litigation history of the senders of demand letters, to the extent these are known.

To access the resources, visit