U.S. Representative Lee Terry (R-NE) opened a recent subcommittee meeting by quoting Thomas Edison: "The most certain way to succeed is to try one more time." The occasion was the meeting of the House's Energy and Commerce Committee's Subcommittee on Commerce, Manufacturing and Trade, for which Rep. Terry is the Chair. Specifically, the subcommittee was marking-up Rep. Terry's discussion draft of the Targeting Rogue and Opaque Letters Act of 2014, more affectionately known as the TROL Act. Indeed, Rep. Terry is attempting "one more time" to pass patent reform legislation this year. However, this time, his bill has received letters of support from such organizations as the Biotechnology Industry Organization ("BIO"), the Intellectual Property Owners Association ("IPO"), the American Intellectual Property Law Association ("AIPLA"), and the Innovation Alliance. (These letters can be found on the committee's website. This wide support is likely due to the narrow focus of the draft legislation -- the sending of abusive demand letters.
The text of the TROL Act is not dissimilar to a comparable bill pending in the Senate, introduced by Sen. Claire McCaskill (D-MO). However, that bill appears to have stalled, so the House may again be the first to pass this version of patent reform legislation. In addition, various state legislative bodies have either introduced or passed similar bills at the state level, and, of course, the attorneys general of some states have been going after the so-called patent troll practice of sending abusive demand letters. The TROL Act specifically preempts these state initiatives. In section 4(a)(1), the "Act preempts any law, rule, regulation, standard, or other provision . . . relating to the transmission or contents of communications relating to the assertion of patent rights." However, the Act does not "preempt of limit" any other provision "relating to acts of fraud or deception, and any State trespass, contract, or tort law." TROL Act, section 4(a)(2). And, with regard to the state attorneys general, the Act provides the authority for them to bring civil actions pursuant to the TROL Act in U.S. district courts, although the provision allows the Federal Trade Commission ("FTC") to intervene if it wishes.
So what specifically does this bill require? It would make it "an unfair or deceptive act or practice" to "engage in a pattern or practice of sending written communications that" allege patent infringement if certain conditions apply. First, if the sender states or represents, in bad faith, that the sender has rights in the patent or is the exclusive licensee, that a civil action has been filed (either against the recipient or other persons), that legal action will be taken, that persons other than the recipient have purchased a license, that an investigation of the alleged infringing activity has occurred, or that a lawsuit had previously been filed when in reality the accused activity had been found not to infringe. Second, it will be "an unfair or deceptive act or practice" if the patent holder, in bad faith, seeks compensation for a patent claim that has been held unenforceable, for activities that occurred after the expiration of a patent, or for activity that was in fact authorized under the patent. Finally, the Act would make it "an unfair or deceptive act or practice" to fail to include the following information, in bad faith: the identity of the person asserting the patent right, including any parent entity unless a public company; at least one patent; at least one product or service that infringes; a description of the infringement; and a name and contact information.
In all of the above-referenced cases, bad faith is required. The Act defines bad faith as (A) making "knowingly false or knowingly misleading statements, representations, or omissions"; (B) making statements with reckless indifference; or (C) making statements with the high probability that they will deceive. Several subcommittee members complained that this provision sets too high a standard by requiring proof of knowledge or reckless indifference. However, defenders of the Act pointed out that nothing has changed with regard to the FTC's Section 5 authority to seek injunctive relief. It was also pointed out that this section allows for civil penalties to be levied directly against corporate officers, and therefore actual knowledge or reckless indifference should be required.
There were additional criticisms levied against the Act during the mark-up, which occurred on June 9-10, 2014. For example, Rep. Jan Schakowsky (D-IL), ranking member of the subcommittee, complained about the preemption of state laws aimed at preventing abusive enforcement. There was the sentiment expressed by several people present that the states are taking active steps to curb the problem, and Congress shouldn't squash these efforts. Another concern was that the Act does not go far enough. While recognizing that an omnibus bill is unlikely from the Senate in the near future, Rep. Peter Welch (D-VT) expressed concern that "the passage [of the TROL Act] is going to become an excuse for the Senate not to act on what is a comprehensive Bill that was a bipartisan-strong vote passed by the House of Representatives." Nevertheless, after the bill was amended to clarify the "Affirmative Defense" section, the bill passed out of the subcommittee with a vote of 13 to 6. A video of the mark-up can be found here, along with other supporting documentation. This bill should now be taken up by the Committee on Energy and Commerce sometime in the near future. We will continue to monitor and report on the progress of the TROL Act.