Jessica M. Karmasek Mar. 6, 2014, 6:00pm
ARLINGTON, Va. (Legal Newsline) -- U.S. Sen. Claire McCaskill's patent troll bill, introduced last week, could be even more devastating to the country's patent system than those measures already introduced, one law professor says.
Adam Mossoff, who teaches and writes in the areas of patent law, trade secrets, property law and Internet law at George Mason University, argues the Missouri senator's legislation could end up hurting small businesses and creating even greater costs and problems for innovators.
"Sen. McCaskill's bill has the most potential of being the most destructive to the commercialization of patent licensing," he said Wednesday.
McCaskill said her bill, Senate Bill 2049 or the Transparency in Assertion of Patents Act, would empower the Federal Trade Commission by requiring minimum disclosures in letters sent by trolls to businesses that allege patent violations and make various demands -- often referred to as "demand letters."
Her legislation, she said, also would allow the FTC to specify for businesses exactly what constitutes a deceptive demand letter.
"Acting now and giving the FTC the tools it needs to properly address this serious problem will send a message to these bottom-feeders," said McCaskill, a Democrat and chairwoman of the Senate Consumer Protection Subcommittee. "They will understand that we plan to do whatever it takes to protect American consumers and small businesses from scam artists trying to make a quick buck."
But Mossoff, a senior scholar at GMU's Center for Protection of Intellectual Property, says involving the FTC could prove costly all-around.
"This bill authorizes and mandates the FTC to interject itself into patent licensing negotiations and practices," he explained, adding that none of the other patent troll bills introduced so far do that.
The two most notable are the Innovation Act, introduced by U.S. Rep. Bob Goodlatte, R-Va. So far, it has gained the most traction in Congress. In December, the House passed it with overwhelming bipartisan support. However, the bill has been lingering for months in the Senate, where lawmakers are carefully considering it.
U.S. Sen. Patrick Leahy, D-Vt., introduced his own measure, the Patent Transparency and Improvements Act. The bill, considered by some to be a "less ambitious" version of the Innovation Act, was assigned to a congressional committee in November but has failed to move.
The biggest difference between the two is that Leahy's bill does not include the provisions that would force patent infringement case management rules on the district courts or procedures as to pleading, discovery timing and limits, cost-shifting related to discovery or loser-pays fee shifting.
The Leahy version also contains a demand letter provision and provides the FTC with enforcement power -- though it doesn't go as far as McCaskill's bill does, Mossoff notes.
"It's different than the other bills, but it's certainly not better. It's actually potentially worse," he said of the newly-introduced measure.
Mossoff takes issue with McCaskill's argument that her bill will help cut down on consumer scams.
"Patent trolls are stifling innovation, endangering jobs, and harming businesses and consumers," she said last week.
Generally speaking, a patent troll, or non-practicing entity or patent assertion entity, purchases groups of patents without an intent to market or develop a product.
In some cases, but not all, the entity then targets other businesses with lawsuits alleging infringement of the patents it bought.
But no mention has been made of these trolls' negative effects on consumers, much less legitimate patent holders, Mossoff contends.
"You have to make that connection that it's harming consumers," he said. "No one has shown that this is somehow harming consumers. The implication, left unstated, is (the businesses being targeted) are having to pass the cost of legal fees on to the consumer.
"But no one has explicitly said that, and no study has shown that or shown that the FTC, which is charged with protecting America's consumers, has a legitimate reason to intercede."
Mossoff says McCaskill's bill also is problematic because, like patent trolls themselves, demand letters are difficult to define.
"How you define these letters is an open question within the industry," he explained. "There is no definitive answer as to what counts as a cease-and-desist notice."
He continued, "The problem is -- something these lawmakers don't understand -- is the way commercial actors exchange information and communicate with each other is very multi-faceted. It really varies from firm to firm and individual to individual."
Mossoff argues that federal lawmakers are jumping the gun, responding to rhetoric and big-money lobbying from companies like Google.
"Right now, there's a feeding frenzy going on," he said. "There's been a very successful build up of rhetoric and lobbying by companies who view patents as impediments to their business models. They have created this type of groundswell of support that make people feel like, this has to be done.
"I think that's what Congress has responded to," Mossoff said, again pointing to the lack of credible studies and reports on patent troll litigation.
"There is zero objective evidence that this type of systemic change to the patent system is justified. We could have five, 15 or 20 bad actors in a system of hundreds of thousands of active patent licensing companies who are engaging in perfectly legitimate practices."
He warns that, if signed into law, McCaskill's bill or the others introduced could "upend" the nation's patent system.
"If lawmakers care about the underlying facts and the sanctity of the system, which has made possible incredible innovation in this country, they wouldn't just start making vast changes to the patent system," he said. "They would engage in a proper statistical study first."
McCaskill's bill, co-sponsored by U.S. Sen. Jay Rockefeller, D-W.Va., has been referred to the Senate Commerce, Science and Transportation Committee, which Rockefeller heads.
It was set to be taken up Wednesday, but that has been postponed -- most likely, until next week.
From Legal Newsline: Reach Jessica Karmasek by email at firstname.lastname@example.org.