Senate Commerce Probes Patent Trolls
     

Consumer groups, manufacturers, industry representatives and others have said the patent troll problem has become a lot worse over the past two years.

Today at a congressional hearing, more of the details about the problems have come to light and some possible solutions were discussed.

The issue is of interest to radio because of the ongoing litigation regarding DigiMedia/MAD and several radio groups over music storage and automation patents, and this week, Wyncomm/Delaware Radio Technologies sued many of those same radio groups over their use of the HD Radio technology.

Experts testifying before a Senate Commerce Subcommittee explained that patent trolls buy old patents from various sources, including large companies that want to sell old patents, or from new inventors who need capital to help them commercialize a product. Many times, these companies don’t intend to do anything with the patents, they just send out demand letters, telling the recipient they’ve infringed on a patent and demanding money, said the experts.

Attorney General for Nebraska John Bruning told the Subcommittee on Consumer Protection, Product Safety, and Insurance the patent troll problem is huge. “This about a nationwide scheme. They send scatter-shot vague demand letters that include a vague description of the supposed patent violation.”

Bruning called the practice “silent extortion” because many of the smaller companies targeted pay what the trolls demand, thinking the problem will go away. However the trolls come back for more money, according to Bruning. He encouraged Congress to use its subpoena powers to call in such companies to explain their actions.

Jon Potter, president of the App Developers Alliance, said demand letters cause developers to stop hiring engineers and stop work. He called the trolls “the patent equivalent of the penny stock boiler room.”

Cisco Systems holds more than 10,000 patents. SVP/General Counsel Mark Chandler urged lawmakers to require any company that’s sending more than 10 demand letters to file information about themselves at an online registry to make it more clear who is behind the letter and exactly what patent the recipient is supposed to have violated, including the model numbers of the product. “These steps would provide basic transparency,” he said.

The Electronic Frontier Foundation created such an online website called Trolling Effects, we’ve reported, however it’s not getting as much use as the group hoped for, according to senior staff attorney Julie Samuels. She said those who get the letters or who pay to settle such cases are afraid to publicize their plight.

The EFF would like to create a registry of demand letters. “These trolls conduct their business behind a veil of secrecy,” said Samuels.

That’s because many times settlements contain non-disclosure agreements, according to Larry Sinewitz, executive vice president of retailer BrandsMart USA. His company has paid half a million dollars in legal fees defending itself against eight such letters.

George Mason University law professor Adam Mossoff cautioned against big changes that could rock the current patent protection system, noting that evidence of troll abuse is “anecdotal.”

When asked about how to get at the problem by Subcommittee Chair Claire McCaskill (D-Mo.), Bruning said his office believes the practice of sending vague demand letters is illegal. “This is fraud. We’re looking at whether it’s criminal fraud,” said Bruning, who suggested Attorneys General across the country could unite to combat the issue.

Samuels told the committee that the EFF believes the FTC has the authority to act on the vague patent demand letters and said a nudge from Congress wouldn’t hurt.

McCaskill ended the hearing by saying the committee isn’t looking for “massive change” in the patent system and urged Bruning to educate attorneys general across the country about the issue. “I believe a lot of this work can be done on a state-by-state basis more effectively than what we can do here in Washington.” She’s also keeping the hearing record open for further testimony and information.

 


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