WASHINGTON (Legal Newsline) -- Vermont Attorney General William Sorrell was among those who urged federal lawmakers last week to take steps to address the growing issue of unfair and deceptive patent "demand letters."

Sorrell testified at the U.S. House Subcommittee on Commerce, Manufacturing and Trade's April 8 hearing, "Trolling for a Solution: Ending Abusive Patent Demand Letters."

"In the competition of ideas -- whether we are talking about a multinational company that spends $8 million per day on research and development or an inventor with a workshop in the basement -- the Constitution treats intellectual property the same," said U.S. Rep. Terry Lee, R-Neb. and chairman of the subcommittee.

"We must respect the arrangements small inventors need to make in order to enforce their patent rights."

Terry said what the subcommittee addressed at its hearing were instances where "bad actors" -- those patent assertion entities or non-practicing entities that purchase groups of patents without an intent to market or develop a product and then target other businesses with lawsuits -- extort money from innocent parties under the pretense of asserting intellectual property rights.

The panel heard from stakeholders about abusive demand letters -- those written communications that attempt to enforce or assert rights in connection with a patent or pending patent -- and explored ways to address what some argue is a growing problem, costing small businesses and threatening innovation.

Among those who testified: Rheo Brouillard, president and CEO of Savings Institute Bank and Trust Company, on behalf of the American Bankers Association; Mark Chandler, senior vice president and chief compliance officer for Cisco Systems Incorporated; Dr. Michael Dixon, president and CEO of UNeMed Corporation; Jason Schultz, associate professor of clinical law at New York University School of Law; Dennis Skarvan, deputy general counsel for Intellectual Property Group, on behalf of the Coalition for 21st Century Patent Reform; and Sorrell.

"Acting on little information, and often without legal assistance because it is not affordable, small businesses pay thousands of dollars in licensing fees for standard products being used for their advertised purpose," Sorrell told the subcommittee.

He emphasized that it is "necessary that both the states and the Federal Trade Commission have the authority to intervene to protect these small businesses and nonprofits when patent demand letters are vague, unclear and misleading."

The attorney general also advised lawmakers of the difficult and confusing analysis that small businesses, especially, face when they receive such demand letters.

Often, the letters -- sent to very small businesses and nonprofits, Sorrell noted -- are sent without an explanation of why the business is believed to be infringing, are vaguely worded, provide limited information and often include intentionally inaccurate or misleading assertions intended to pressure the recipient into purchasing the license.

Last year, Vermont was the first state to sign into law a measure targeting such abusive letters.

Under the Vermont law, a court can consider as evidence a letter that does not provide the patent number, the name and address of the patent owner and/or assignee, or an explanation of how the target company's products or services infringed on the patent.

The court also can consider if the letter demands payment of a license fee or a response in an "unreasonably short" period of time.

Cisco's Chandler suggested that increased transparency and accountability would help expose such patent "predators."

"We need a little sunshine to disinfect this dark corner of the patent world -- because once the practices used by these scam artists are exposed, and the harm to their victims better understood, these rip-off artists will be forced to change their ways," he testified.

Dixon, the head of UNeMed, the technology transfer office for the University of Nebraska Medical Center, said Congress needs to adopt a balanced approach.

He warned against overcorrection, which, he argued, could end up threatening legitimate patent practices.

"As a university with a significant patent portfolio, every day we send letters and communications to established companies in an effort to convince them to license and invest in our innovations and technologies," he testified.

"Overly broad federal regulation would hinder legitimate efforts to market and license inventions on their journey to the marketplace."

Skarvan agreed, stressing the need to protect business-to-business communications but also expressing the need for a "targeted" solution.

"Reasonable and clear rules of the road are needed to guide normal business activities; rules that will not inadvertently deter legitimate patent communications," he told the subcommittee.

From Legal Newsline: Reach Jessica Karmasek by email at patents@legalnewsline.com.

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