WASHINGTON – Yesterday, the House Energy and Commerce Subcommittee on Commerce, Manufacturing and Trade held a hearing, titled “Update: Patent Demand Letter Practices and Solutions.” The hearing focused on how patent trolls are sending abusive patent demand letters — letters sent to inform a business of another entity’s patent rights and initiate cross-licensing negotiations — to alleged infringers, and scaring those businesses into licensing agreements or quick settlements as a way to avoid the high costs of patent litigation.

Patent trolls, also known as “patent assertion entities,” own the patents allegedly infringed in these letters, but they do not themselves use the patent to manufacture products or supply services. Rather, trolls send out hundreds (even thousands) of demand letters to many alleged patent infringers, which are often end-user customers (including retailers). These customers are generally using an everyday technology product (e.g., WiFi, wireless email and credit card processing technology) with no knowledge of any potential patent issues — and are effectively induced by these very ambiguous and threatening letters to paying off the troll in order to avoid exorbitant litigation costs.

Many committee members expressed concern about how much money businesses are losing to patent trolls and were eager to hear from witnesses about how this problem could be addressed. In particular, members asked how to differentiate between legitimate and deceptive patent demand letters and wondered how Congress could curb this abusive practice without limiting a legitimate patent holder’s rights. The hearing also examined state efforts to address this problem and whether a federal demand letter law should preempt state laws.

Committee members heard from four witnesses: Vince Malta, law and policy liaison for the National Association of Realtors, who also testified on behalf of the United for Patent Reform Coalition of which NACS is an executive committee member; Professor Paul Gugliuzza from Boston University School of Law; Laurie Self, vice president and counsel for government affairs at Qualcomm; and Vera Ranieri, an attorney at the Electronic Frontier Foundation.

Demand letters are one small issue in the patent reform debate that continues to gain momentum on Capitol Hill. Most patent reform issues center around the patent litigation process, which falls under the jurisdiction of the House Judiciary Committee — and that committee is planning on holding a hearing in the coming weeks to focus on Judiciary Chairman Bob Goodlatte’s (R-VA) patent reform bill, the Innovation Act, which addresses many litigation reforms.