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93–896 PDF 2015

PATENT REFORM: 

PROTECTING AMERICAN INNOVATORS AND JOB 

CREATORS FROM ABUSIVE PATENT LITIGATION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COURTS, INTELLECTUAL PROPERTY, 

AND THE INTERNET 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

MARCH 25, 2015 

Serial No. 114–17 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 
(II) 

COMMITTEE ON THE JUDICIARY 

BOB GOODLATTE, Virginia, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

RAU ́ L LABRADOR, Idaho 

BLAKE FARENTHOLD, Texas 

DOUG COLLINS, Georgia 

RON DeSANTIS, Florida 

MIMI WALTERS, California 

KEN BUCK, Colorado 

JOHN RATCLIFFE, Texas 

DAVE TROTT, Michigan 

MIKE BISHOP, Michigan 

JOHN CONYERS, JR., Michigan 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

HAKEEM JEFFRIES, New York 

DAVID N. CICILLINE, Rhode Island 

SCOTT PETERS, California 

SHELLEY HUSBAND, Chief of Staff & General Counsel 

PERRY APELBAUM, Minority Staff Director & Chief Counsel 

SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET

DARRELL E. ISSA, California, Chairman 

DOUG COLLINS, Georgia, Vice-Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

STEVE CHABOT, Ohio 

J. RANDY FORBES, Virginia 

TRENT FRANKS, Arizona 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM MARINO, Pennsylvania 

BLAKE FARENTHOLD, Texas 

RON DeSANTIS, Florida 

MIMI WALTERS, California 

JERROLD NADLER, New York 

JUDY CHU, California 

TED DEUTCH, Florida 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

HAKEEM JEFFRIES, New York 

DAVID N. CICILLINE, Rhode Island 

SCOTT PETERS, California 

ZOE LOFGREN, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

JOE KEELEY, Chief Counsel 

HEATHER SAWYER, Minority Counsel 
(III) 

C O N T E N T S 

MARCH 25, 2015 

Page 

OPENING STATEMENTS 

The Honorable Darrell E. Issa, a Representative in Congress from the State 

of California, and Chairman, Subcommittee on Courts, Intellectual Property, and the Internet .......................................................................................... 1 

The Honorable Jerrold Nadler, a Representative in Congress from the State 

of New York, and Ranking Member, Subcommittee on Courts, Intellectual 

Property, and the Internet .................................................................................. 2 

The Honorable Bob Goodlatte, a Representative in Congress from the State 

of Virginia, and Chairman, Committee on the Judiciary ................................. 4 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Ranking Member, Committee on the Judiciary ......... 7 

WITNESSES 

Mark Griffin, General Counsel, Overstock.com, Inc. 

Oral Testimony ..................................................................................................... 8 

Prepared Statement ............................................................................................. 11 

Kathryn G. Underwood, President and CEO, Ledyard National Bank, Norwich, VT 

Oral Testimony ..................................................................................................... 17 

Prepared Statement ............................................................................................. 19 

Todd Moore, Founder and CEO, TMSoft LLC. 

Oral Testimony ..................................................................................................... 23 

Prepared Statement ............................................................................................. 25 

Bryan Pate, Co-Founder and CEO, ElliptiGO, Inc. 

Oral Testimony ..................................................................................................... 29 

Prepared Statement ............................................................................................. 31 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 

Congress from the State of Virginia, and Chairman, Committee on the 

Judiciary ............................................................................................................... 5 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Ranking Member, Committee 

on the Judiciary ................................................................................................... 64 

Response to Questions for the Record from Kathryn G. Underwood, President 

and CEO, Ledyard National Bank, Norwich, VT .............................................. 66 

Prepared Statement of the American Hotel & Lodging Association (AHLA) ..... 67 

Letter from Steven K. Berry, President & CEO, Competitive Carriers Association (CCA) ............................................................................................................. 69 

Letter from JUlie P. Samuels, Executive Director, Engine ................................. 71 

Prepared Statement of the Financial Services Coalition ..................................... 78 

(1) 

PATENT REFORM: PROTECTING AMERICAN 

INNOVATORS AND JOB CREATORS FROM 

ABUSIVE PATENT LITIGATION 

WEDNESDAY, MARCH 25, 2015 

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET

COMMITTEE ON THE JUDICIARY

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:04 a.m., in room 

2141, Rayburn Office Building, the Honorable Darrell E. Issa 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Issa, Goodlatte, Smith, Jordan, Poe, 

Marino, Farenthold, Collins, DeSantis, Nadler, Conyers, Lofgren, 

Johnson, Chu, Deutch, DelBene, Jeffries, and Peters. 

Staff present: (Majority) Vishal Amin, Senior Counsel; Eric 

Bagwell, Clerk; and (Minority) Jason Everett, Counsel. 

Mr. ISSA. Good morning. The Subcommittee on Courts, Intellectual Property, and the Internet will come to order. Without objection, the Chair is authorized to declare recesses of the Subcommittee at any time. 

As a point of interest, at exactly 11:00, the Subcommittee will recess for a Joint Session of Congress. I ask the audience to be aware 

that this is a rule of the house and not negotiable for us. Many 

Members will leave prior to that in order to get seated prior to the 

start. 

Today we welcome everyone to a hearing on ‘‘Patent Reform: Protecting American Innovators and Job Creators From Abusive Patent Litigation.’’ In 2011, the America Invents Act became the most 

substantial reform in U.S. patent law since 1836. The AIA reestablished the U.S. patent system on a global standard. I was proud to 

be part of that effort, and I am proud to be here today to continue 

our work to uphold the comprehensiveness and competitiveness of 

the American patent system. 

Our work, however, is not finished. I am convinced that Congress 

must do its part to stop patent litigation abuse from occurring. We 

stand ready to work with any and all stakeholders that are interested in helping us improve the patent system. Last Congress, the 

Innovation Act passed this Committee by a 33 to 5 margin, and 

went on to pass out of the House on a bipartisan basis with 325 
2 

votes. Today I am confident that H.R. 9, the ‘‘Innovation Act,’’ will 

become the law and build on the work of the AIA to protect the 

American patent system. But before it does that, we want to take 

one more round of opportunity to hear from stakeholders both publicly and privately to see if, in fact, in every way possible we have 

addressed the maximum benefit with minimum disruption of existing systems that are working. 

As anyone who has worked in patent litigation either as a plaintiff or a defendant or has prosecuted patents themselves, they 

know that for every patent troll, there is an independent inventor 

who is inventing, but looks exactly like a troll. Our challenge in 

this legislation is to make sure that we change the behavior of 

trolls without overly changing the behavior of those whose business 

models and real innovation are working to help America today. 

Today we will learn more about the cost to our economy by those 

who engage in patent trolling here in America. This is the land of 

opportunity. It is the land of innovation. I have said often innovation is done by inventors everywhere, and sadly it is done by lawyers in our court system. It has become too easy for individuals 

seeking to exploit loopholes in the patent system, bullying inventors and small businesses with frivolous lawsuits that amount to 

litigation extortion. 

Our work here is designed to address fundamental flaws in the 

patent system, flaws that affect the system as a whole, flaws that, 

quite frankly, devalue existing patents and hurt innovators. Those 

who are trying to make it seem like we have written a clumsy bill 

for the most part have had their say and offered no solutions. It 

is important that if you come before this Committee, either here or 

in private sessions, that, in fact, you come with real plausible language. You can come to Republicans. You can come to Democrats. 

As a matter of fact, you can come to almost every person on the 

dais here today, and they want to hear your suggestions of how to 

make this better. 

My charge as the Subcommittee Chairman is, in fact, to work 

with my Ranking Member to make sure that we exceed the 325 

votes we had last year on the floor. I believe we can do that by 

carefully making minor changes and putting in report language 

that, in fact, will help define this bill in a way that overcomes some 

of the areas of concern. I look forward to doing that while, in fact, 

closing loopholes in our litigation system. 

The provisions of the Innovation Act will inject transparency, 

fairness, and effectiveness into the system. That is our goal. We 

want to work with good actors to make that happen. And I clearly 

am pleased to have a panel today that have real firsthand expertise. And with that, I recognize the Ranking Member for his opening statement. Three hundred and twenty-six or bust I am told. 

Thank you. 

Mr. NADLER. Thank you, Mr. Chairman. Today we will continue 

our discussion of how to address abusive patent litigation. I continue to believe that we must pass legislation that will address the 

scourge of patent trolls which continue to burden businesses across 

the country. Abusive patent litigation has become a problem not 

only for large corporations, but for small and mid-sized companies 

as well. 
3 

Legitimate patent litigation is necessary, but too often litigation 

or the threat of litigation is used as a tool to extort settlements 

from defendants. Unfortunately, small and medium-sized businesses are especially burdened by these abuses. 

Many of the witnesses here today will explain that responding to 

demand letters and abusive litigation practices decreases the 

amount of time and resources they can spend on research and development. Most small and mid-sized businesses cannot afford inhouse counsel and cannot afford to keep a high-priced attorney on 

retainer. They need to focus their limited resources on creating 

what is hopefully the next great innovative. That is what makes 

them so susceptible to vague, but threatening, demand letters and 

frivolous, but costly, litigation that prey on their fear of litigation 

and ignorance of the legal system. 

Abuses of the patent system can undermine confidence in the entire system. I am a co-sponsor of H.R. 9, the ‘‘Innovation Act,’’ because it is my hope that it will reduce and discourage abusive litigation. The key word is ‘‘abusive.’’ I respect that the vast majority 

of patent cases involve arguably valid claims, but we want to reduce the effects of harmful actions by bad actors. If there are situations where the patent system is being abused, we should do everything we can to correct that situation and make it better for all 

participants in the patent system. 

The Nation’s economy depends on effective and enforceable patent rights. The amount of abusive litigation has continued to increase over the years and has now trickled down to small and midsized businesses. As we examine ways to address the problem, we 

must ensure that we limit unintended consequences and provide 

protection for the enforcement of patent claims brought in good 

faith. 

I have heard from many stakeholders and businesses who have 

given firsthand accounts of the burdens of abusive patent litigation. 

I look forward to hearing from today’s witnesses about how patent 

trolls have harmed their businesses and stifled innovation. For example, I would like to hear how small businesses respond to demand letters and bogus lawsuits that are filed against them. What 

kind of pressure do they feel to settle rather than to fight the demands of patent trolls? I would also like to hear how small businesses will benefit from the proposed changes in the Innovation 

Act. 

I remain a vocal advocate for a strong patent system, and do not 

want a system that can be exploited by abusive tactics. As we will 

hear today, the patent troll problem is real and is having real consequences. Once we acknowledge that the problem is real, we must 

address it. We must find ways to discourage bad actors from filing 

case after case and gaining settlement after settlement. 

This hearing will provide some of the answers to the questions 

I hear about why we need legislation to deal with patent trolls. 

Patent trolls often take many businesses by surprise because usually they have had no communications with the plaintiffs prior to 

being served with the complaint. Surely we can all agree that the 

system as currently structured needs to be fixed. I look forward to 

working with colleagues on both sides of the aisle to continue to 

improve the legislation to ensure that it is fair to all parties and 
4 

gets at the root problem of abusive patent litigation. And I hope 

the statements, stories, and explanations we will hear today will 

further our efforts to deal with abusive patent litigation. 

I thank the Chairman for holding this hearing. I look forward to 

hearing from the witnesses. And I yield back the balance of my 

time. 

Mr. ISSA. I thank the gentleman. The Chair now recognizes the 

Chairman of the full Committee, Mr. Goodlatte, for his opening 

statement. 

Mr. GOODLATTE. Well, thank you, Mr. Chairman. Addressing 

abusive patent litigation, particularly the reforms set out in the Innovation Act, are critical to our Nation’s future economic competitiveness. At today’s hearing we will learn more about the toll that 

abusive patent litigation has taken on our economy. And I would 

like to put my statement into the record and use my time to play 

a short video showing the stories of folks that have faced this form 

of litigation abuse. 

[Video shown.] 

Mr. GOODLATTE. Mr. Chairman, thank you very much. I apologize for the volume, and we will also make it available on our 

website. 

[The prepared statement of Mr. Goodlatte follows:] 
5 
6 
7 

Mr. ISSA. Thank you, Mr. Chairman. It was a powerful message. 

And with that, we go to the gentleman from Michigan, Mr. Conyers, for his opening statement. 

Mr. CONYERS. Thank you, sir. I do not have a video, so I apologize to everybody in advance. If you heard—— 

Mr. ISSA. We can replay it. 

Mr. CONYERS. No, do not replay it. [Laughter.] 

Thank you very much. A transcript might be better. One of the 

important issues that I think should be considered is legislative 

ways to stop abusive patent litigation because it affects small businesses, and startups, and innovators more profoundly than anybody else. And they rely, these small businesses, on patents. They 

rely on patents for strong intellectual property protections, and we 

must not weaken those rights. 

Our innovators, whether they create in their garage or basements or as a group in an incubation hub, recognize their patents 

and their ability to protect them through enforcement in the courts 

is critical in determining whether their businesses will succeed or 

fail. Indeed, some angel investors and venture capitalists require 

ideas to be patented before investment. And they may well be dissuaded from investing if there is a risk that a court will not uphold 

the validity of those patents or, at a minimum, that there will be 

substantial litigation costs entailed. And this means that fledgling 

entrepreneurs will never get off the ground and become a flourishing business employing many Americans, sometimes even thousands of Americans, such as Overstock, which is one of our witnesses today. 

Overly broad legislation could engender more, rather than less, 

litigation and weaken patent enforcement protections, thus discouraging investments in innovation. Instead, I think we should take 

a cautious approach and not push solutions such as H.R. 9, the socalled Innovation Act, that may end up doing more harm than good 

to our startup ecosystem. And one way to stop abusive patent litigations is to address the problem of the use of demand letters, so 

I want the witnesses, and I hope they will discuss how we can curb 

this demand letter problem as I see it. 

Patent litigation opportunists exploit the patent process and the 

patent litigation system. In particular, they attack patents of weak 

quality in order to obtain quick settlements, or to bleed the alleged 

infringers. Individual inventors and small businesses have to decide whether to risk incurring potentially overwhelming litigation 

costs or enter into a settlement which could make them liable to 

attack by other abusive patent litigants. 

So I look forward to our testimony from the witnesses, and yield 

back the balance of my time. Thank you. 

Mr. ISSA. I thank the gentleman for his kind opening statement. 

We now have a distinguished panel before us. The witnesses’ written statements will be entered in the record in their entirety, and 

so you may summarize within 5 minutes anything you would like 

to say. Before you, you have a set of red, yellow, and green lights. 

This is an early innovation. We all know that green means go, yellow means go faster, and I will not get into what red means. 

I would ask, though, that you stay within your 5 minutes as close 

as possible. I would also further announce that after we recess, we 
8 

will reconvene promptly at 12 and take Members that are back as 

soon as they are at least two Members on the dais. 

Pursuant to the Committee rules, I would ask now that all four 

of you please rise to take the oath. Please raise your right hands. 

Do you swear or affirm that the testimony that you are about to 

give will be the truth, the whole truth, and nothing but the truth? 

[A chorus of ayes.] 

Mr. ISSA. Please be seated. Let the record reflect that all witnesses answered in the affirmative. 

It is now my pleasure to introduce our witnesses. Ms. Kathryn 

Underwood is president and CEO of Ledyard—thank you. Different 

opening statement. Okay. 

In the correct order, Mr. Mark Griffin is general counsel at Overstock.com. Ms. Kathryn Underwood is president and CEO of 

Ledyard National Bank. Mr. Todd Moore is founder and CEO of 

TMSoft LLC, an app manufacturer. And my constituent from 

Solana Beach, Mr. Bryan Pate, the CEO of ElliptiGO, Inc. And you 

will see here, I am sure as we go through here, Mr. Pate’s very innovative sort of bicycle product, when seen is very memorable. And 

I would like to thank him for coming from California today so that 

we would have a panel that included some hometown favorites. 

So with that, I will go down the aisle. Mr. Griffin, please. 

TESTIMONY OF MARK GRIFFIN, GENERAL COUNSEL, 

OVERSTOCK.COM, INC. 

Mr. GRIFFIN. Thank you, Chairman Goodlatte, and Ranking 

Member Conyers, and Chairman Issa, and Ranking Member Nadler, and Members of the Judiciary Committee. Thank you for the 

opportunity to testify today on behalf of Overstock.com and United 

For Patent Reform about patent litigation abuses. 

Dr. Patrick Byrne, the founder of Overstock, recognized that the 

internet presented some unique opportunities for liquidating excess 

inventory, and in 1999 founded and launched Overstock.com for 

that purpose. And at launch we provided excess inventory to retail 

consumers at significant savings. Since then, since 1999, we have 

grown from just a handful of employees and suppliers and $1.8 million in revenue to today. We now have 1,500 employees, and over 

$1.5 billion in revenues, and 3,200 suppliers. The Overstock story 

exemplifies what is best in the American innovative spirit. 

We are a strong respecter of intellectual property. Let me be 

clear. We own patents ourselves, and we spend much of our annual 

budget in licensing intellectual property from inventors. Innovation 

and intellectual property are at the center of our business. 

We know innovation, and we also know what abuse is of innovation. It is patent trolls extorting money from productive and profitable businesses by suing on weak patent claims. Patent litigation 

defense is brutally expensive. The patent trolls know that these excessive defense costs will lead many of their victims to settle rather 

than fight. Despite the high cost of defense, however, at Overstock.com, we believe that feeding abusive trolls only attracts more 

trolls, so we follow a spend and defend strategy. We would rather 

pay real dollars and high defense costs than pay a single dime to 

a patent troll. 
9 

Overstock has been sued 32 times for patent infringement, and 

we have spent approximately $11 million in our defense. Management and development teams have also spent countless hours supporting our litigation teams instead of spending time at their days 

jobs in creating innovation and more jobs. In our history, we have 

settled a few abusive cases, but in doing so we have been instructed that our fight strategy seems to be the better of the two 

strategies. 

While expensive, our fight strategy is a good investment. Coming 

to understand our history and policy, patent trolls have begun to 

realize that they need to simply dismiss their cases when they discover that we will fight instead of settle. They simply walk away. 

Last year when two of these trolls, Execwear and Eclipse, walked 

away from us empty handed and a bit bruised, our CEO, Patrick 

Byrne, said ‘‘In abusive lawsuits, we spend our legal budget in defense, not on unjust settlements.’’ 

But many other retailers and others cannot afford to spend tens 

of millions of dollars to scare off trolls off their bridges. Moreover, 

a well-functioning patent system should not impose this kind of tax 

on innocent operating companies. Congress must intervene to restore balance. Overstock is proud to be a member of United for Patent Reform, which is a broad coalition of diverse American businesses which are pursuing comprehensive solutions to abusive patent litigation. They are businesses across many industries—realty, 

construction, auto manufacturers, Main Street, and Wall Street 

alike. We would all rather provide jobs and invest in innovation. 

Multifaceted reforms like the following will help us cure economic asymmetries that make patent trolls’ extortionate approach 

profitable. First, it is critical to raise the pleading standards. Patent trolls should say what they are suing over. Many defendants 

do not know until they have spent hundreds of thousands of dollars 

to find out. Second, where possible, it is imperative that claims of 

infringement proceed first against the patent owner and a manufacturer before claims are allowed to proceed between the patent 

owner and the manufacturer’s customers. Trolls often pick on users 

of products rather than the manufacturers understanding that they 

will not put up a vigorous defense, and they lack defense information to put up a vigorous defense. 

Third, trolls exploit the discovery process to drive up defense 

costs to force settlements. Requiring patentees to explain and 

judges to decide what a patent means at a markman hearing before 

much discovery gets underway would certainly drive early resolutions and avoid unnecessary costs. Fourth, making patent trolls responsible for the costs of their discovery requests that go beyond 

core documents will stop unreasonable discovery demands made 

solely for negotiation leverage. 

And finally, we need better cost shifting options. Defendants’ fees 

to battle trolls in court range from $1 to $6 million. Trolls do not 

face such cost risks. They often use contingency lawyers, and they 

often are set up to be precisely judgment proof. Where a suit is not 

reasonably justified, the defendant should be able to seek and be 

able to secure reasonable reimbursement of its reasonable defense 

costs. Legitimate patent holders should not fear this standard. 
10 

One solution will not solve the problem. We need a multifaceted 

solution. Overstock appreciates the opportunity to come and testify, 

and I welcome your questions. 

[The prepared statement of Mr. Griffin follows:] 
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Mr. ISSA. Thank you. 

Ms. Underwood? 

TESTIMONY OF KATHRYN G. UNDERWOOD, PRESIDENT AND 

CEO, LEDYARD NATIONAL BANK, NORWICH, VT 

Ms. UNDERWOOD. Chairman Issa, Ranking Member Nadler, and 

Members of the Subcommittee, my name is Kathy Underwood, and 

I am president and CEO of Ledyard National Bank in Norwich, 

Vermont. And I testify today on behalf of ICBA and the more than 

6,000 community banks they represent, and I welcome the opportunity to share my bank’s experience with an abusive patent troll 

and to discuss legislative solutions to the problem. 

Ledyard is a $400 million asset community bank with seven 

branches in New Hampshire and Vermont and just over 100 employees. We are primarily a small business lender, though we are 

active in mortgage and consumer lending also. We are an integral 

part of our economic life in the communities we serve. 

In 2011, we received a letter from a patent troll’s lawyer informing us that he filed a complaint against us in the District Court 

of Vermont. The complaint, which was 2 inches thick, asserted that 

our nine ATMs were infringing on his client’s patent. However, the 

troll was willing to settle the litigation on ‘‘exceptionally favorable 

terms’’ if we responded within 2 weeks. This is a fairly typical demand letter. Similar letters have targeted hundreds and perhaps 

thousands of community banks. 

On its face, the claim was absurd. The patent covered a process 

of connecting an ATM to the internet. Ledyard’s ATMs being older 

models connect to the bank via closed circuit telephone. Infringement was impossible. We informed the troll of this fact through our 

lawyer, but he was not interested. His sole interest was enticing a 

costly settlement from Ledyard and other community banks. 

Our lawyers advised us that defending ourselves in patent litigation could be very costly, in excess of a million dollars. We ultimately chose to settle for a significantly smaller amount. Settling 

was a painful decision that violated my basic sense of fairness. On 

the other hand, I had to consider the best interests of my shareholders, employees, customers, and the communities that we serve, 

and I felt it was my duty to view it as a simple economic decision. 

Litigation is risky and uncertain, and the costs in terms of dollars and staff time can run much higher than estimated. The settlement demand was a known cost. The risk could be monetized 

and quickly put behind, allowing us to get back to serving our customers. Sadly, this is exactly the calculation that the patent troll 

counted on us making. Vaguely-worded demand letters wreak 

havoc on small businesses where every dollar counts. And to put 

it plainly, patent trolls practice a legal form of extortion. 

Apart from the hard-dollar cost of litigation and settlement, the 

drain on our management’s time, the opportunity costs are also significant. Unchecked, demand letters will deter banks like mine 

from using new technologies at all. The technologies that support 

customer access and keep us competitive with other banks—ATMs, 

online and mobile banking, remote check deposit just to name a 

few—have become common targets for demand letters. Community 
18 

banks have to decide whether they are worth the risk, and if not, 

our customers lose. 

ICBA recommends that this Committee prioritize three solutions 

that will provide relief for community banks. First, demand letters. 

Demand letters often lack specific information about the patent, 

such as the owner and what exactly has been infringed. This Committee can ensure that demand letters contain greater detail. Enhanced transparency will help curb frivolous and abusive lawsuits. 

ICBA supports legislation that will provide that if a demand letter 

does not contain clear, detailed, and accurate information about the 

patent, any civil action brought later would be dismissed. 

Second, the covered business model, or CBM Program, should be 

made permanent. It has proven to be a successful, low-cost alternative to litigation of covered business method patents. In fact, 

there are several CBM proceedings currently underway that could 

benefit banks and credit unions of all sizes. The director of the 

PTO should have discretionary authority to waive the filing fee for 

the CBM Program, and this would ensure that institutions of all 

sizes have access to the program to invalidate dubious business 

method patents. 

Third, end users of technologies, such as community banks, 

should not be on the hook for the infringement claims of trolls. In 

our case, the vendor assured us that their contracts protected them 

from an infringement suit against us. Because the vendor develops 

the product and is best positioned to refute the infringement 

claims, Congress should ensure that vendors provide appropriate 

warranties and indemnification to protect the end users. 

Thank you, and I look forward to your questions. 

[The prepared statement of Ms. Underwood follows:] 
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Mr. ISSA. Thank you. 

Mr. Moore? 

TESTIMONY OF TODD MOORE, FOUNDER AND CEO, 

TMSOFT LLC. 

Mr. MOORE. Good morning. I am Todd Moore. I am a mobile app 

developer, and my small company is TMSoft. We published the 

White Noise app that is available for your smartphone and is helping millions of people sleep better at night. It is important to note 

that I am a named inventor on four patents, but I am here today 

to tell you my story of being attacked by a patent troll, and speak 

out about the critical importance of the Innovation Act and how it 

can help app developers like me and startup innovators nationwide. 

I founded my company in 2008 to create smartphone apps. I 

worked nights and weekends on different ideas while keeping a 

full-time job to pay the bills. Finally, my White Noise app gained 

traction and became the number one app on iTunes. It allowed me 

to quit my job, focus on my startup full time, and hire employees. 

I was living the entrepreneur’s dream, but I never dreamed my biggest danger in my business would be a patent troll. 

In 2011, Lodsys sent me a demand letter claiming my app was 

infringing its patents. Lodsys is a patent monetization firm that 

does not make any products. The demand letter included White 

Noise screen shot showing a webpage inside the app with a button 

that linked to the internet, essentially a hyperlink. I assumed this 

was a mistake because hyperlinks are common technology. They 

are the building blocks of the web. Later I discovered numerous 

other app developers had received similar demand letters. Lodsys 

wanted us all to pay a licensing fee, or they would sue for patents 

infringement. 

In 2013, Lodsys did sue me and many other app developers. Although the lawsuit was clearly frivolous, I was forced to defend myself. Patent litigation usually costs millions. I did not have that 

sort of money, and the patent troll knew it. Lodsys was quick to 

offer me a way out. If I just wired $3,500 to an overseas bank account and agreed not to speak publicly about it, they would dismiss 

the lawsuit. 

Most companies would take that deal, but companies that settle 

with patent trolls risk catching the attention of other patent trolls 

to make a quick buck. Thankfully, a non-profit group agreed to defend my company pro bono. Once Lodsys understood we had a free 

lawyer who would challenge the patent’s validity and that we 

would never pay, it dropped the lawsuit. Trolls are not interested 

in asserting valid patents and obtaining fair royalties. They are interested in easy settlements and quick paydays that will fund their 

next set of lawsuits. 

Some may testify that weak patents, like the Lodsys patent, 

would not be approved by the PTO today, but we cannot wait 20 

years for thousands of weak patents to expire. Patent quality, however, is not the only issue. Frivolous litigation can be initiated by 

trolls that unjustly assert infringement when an activity is way 

outside the scope of the patent. Congress should encourage courts 

to crack down on this behavior. 
24 

The patent troll business is low risk and high reward because 

patent trolls get free lawyers, and they hide their junk patents in 

shell companies. They are destroying small businesses while offering society absolutely no benefit. The problem is not with patent 

licensing, it is with patent abuse. 

I have license technology from many companies, and in return 

we get something useful that improves our own products. That is 

how legitimate companies use patents to build value. In contrast, 

with patent trolls you do not get useful technology. You get an 

agreement that they will not sue you. That is not how our patent 

system is supposed to work. 

Finally, I have heard claims that patent reform legislation will 

harm small inventors. This is nonsense. I risked my capital to 

build a business and intent great apps. I support reforms that promote legitimate patents, legitimate licensing, and legitimate enforcement. I am a small innovator, and what harms me is that litigation opportunists are exploiting the patent system. The only way 

to protect true inventors with real inventions is for Congress to reform the system so it works as intended. 

What patent trolls are doing to small businesses like mine is 

simply wrong. We need common sense reform, like the Innovation 

Act, that will force patent trolls to think twice about bringing baseless and frivolous lawsuits. The problem is serious, but it is also 

solvable. Please, shut down the patent troll racket and let small 

businesses like mine get back to innovating, creating jobs, and 

building great products that people love. 

Thank you. 

[The prepared statement of Mr. Moore follows:] 
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Mr. ISSA. Thank you. 

Mr. Pate? 

TESTIMONY OF BRYAN PATE, CO-FOUNDER AND CEO, 

ELLIPTIGO, INC. 

Mr. PATE. Thank you, Mr. Chairman, Mr. Nadler, and Members 

of the Subcommittee. It is an honor to be here today to share my 

views on protecting American innovators with you. I am an American innovator. I have spent the last 10 years of my life in a concerted effort to create and build a new industry here in America. 

ElliptiGO introduced the first elliptical bicycle to the world in 

2010. A photo of our product is on the screen. We currently employ 

15 people in our Solana Beach, California headquarters, and we 

have additional employees in Virginia, Illinois, and New York. Over 

the past 5 years, we have sold more than 10,000 ElliptiGO cycles, 

generated more than $20 million in revenue, and in 2013 we were 

named the sixth most innovative fitness company in the world by 

Fast Company magazine. 

From the beginning, we knew that while our idea was novel, 

overseas manufacturers could easily copy it and destroy our market 

by flooding it with cheap, poor quality knockoffs. Indeed, there are 

a number of Chinese manufacturers who have already replicated 

our product and are currently advertising it for sale on Alibaba.com 

and other websites. Photos of them, their factories, and their listings on the screens. They area a real threat, and it is only a matter 

of time before these knockoffs will hit our shores. Once that happens, the only viable weapons we will have to stop them from destroying the market are our patents. 

As an entrepreneur, I am by definition a risk taker and an optimist. Few things scare me. Since learning of H.R. 9, I have spent 

a significant amount of time trying to understand how it could impact my business. I am here today because there are parts of the 

bill that scare me. I believe if the bill passes as written, it will have 

the unintended consequences of adversely impacting American 

innovators, while perversely protecting unscrupulous competitors. 

It appears that in an attempt to address one form of abusive patent litigation, H.R. 9 will create new ways for infringers to abuse 

the patent system. I will touch on each of my concerns briefly now 

in hopes of a fuller discussion with you. 

Customer stay. I agree that we should stay litigation against innocent end users of an infringing product. However, H.R. 9’s stay 

provision is much broader than that. In fact, it should be called the 

‘‘manufacturer, trading company, supplier, seller, and end user 

stay,’’ because it protects all of these actors equally, innocent or 

not. 

Shockingly, the very factories in China that are making exact 

replicas of our product today and anyone who profits from importing or selling these blatantly infringing copies of our patent and invention here in the U.S. are considered customers and could be protected. I say ‘‘protected’’ because in practice the stay provision permits the companies who profit from manufacturing and selling infringing products to shield themselves from ever being held accountable. This is the provision I fear the most for my business because it presents an enormous risk to companies like mine. I hope 
30 

we get to explore it in more detail today. The bottom line is that 

if the stay provision was law in 2005, I would not have started 

ElliptiGO. 

Joinder. If the joinder provision was law in 2005, I likely would 

not have been able to start ElliptiGO. Small technology companies 

like ElliptiGO not only need founders, they also need investors, employees, and, in our case, a licensor to get off the ground. The joinder provision exposes all these individual to personal liability. That 

is right, personal liability, if the company they support loses a patent enforcement action and is unable to convince the judge that 

their position was justified. We could not have guaranteed anyone 

back in 2005 or in 2015 for that matter that this will not happen. 

Even if my co-founder and I were willing to take this risk, I 

know for certain that we would not have been able to secure our 

patent license, and it would have been incredibly difficult to find 

investors and employees willing to get involved. At the time, we 

were pitching these people, Brent worked out of his garage, and I 

worked in a storage shed. Our only non-human assets were a pending patent and some prototypes. If the folks we were pitching believed that they could end up losing their house because of a future 

patent litigation involving our company, there is no way our licensor would have licensed his patents to us, and it is very unlikely 

we would have found enough investors and employees to launch 

the company. It is one thing to lose $50,000 in an investment you 

have made on a small, promising company. It is another thing to 

lose your house because of that investment. 

Finally, the fee shifting provision and the heightened pleading 

standards add complexity to patent enforcement and raise the 

stakes of patent litigation, making patent enforcement more expensive and protracted. I believe this change disproportionately impacts small companies, and I hope we get to explore these sections 

as well. 

As written, H.R. 9 introduces several incalculable and entirely 

new risks to the startup ecosystem. I believe that the few people 

who are willing to take the risks of investing their money, skills, 

and ideas into a startup today will choose differently if H.R. 9 becomes law. American innovators cannot succeed without these people, so I strongly urge you to address these issues with H.R. 9 before moving it forward. 

Thank you for your consideration of these issues, and I look forward to discussing them further. 

[The prepared statement of Mr. Pate follows:] 
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Mr. ISSA. Thank you. Thank you all. I am going to recognize myself first, and there are a great many items there that do bear 

some looking at. Mr. Pate, I am going to use some of your examples 

and play off of it since apparently it is a 3-to-1, three like it, you 

have not yet come around to liking it. But we are going to get you 

here. You know, if you want someone’s vote, first you have to get 

them on your bill, so there is a little of that. 

Scott, I want you to remember that this is close your district, too. 

He could have employees in your district. 

VOICE. I am sure we do. 

Mr. ISSA. Yes, listen hard. Mr. Griffin, the amazing thing about 

this is the provision that I am most concerned about, and I think, 

Ms. Underwood, it affects you, is, in fact, the idea that a stay on 

the customer is somehow preventing Mr. Pate from having effective 

litigation. Ms. Underwood, in your case if the manufacturer had 

weighted in your nine ATMs, could you give us a range on what 

this troll was willing to settle for for your products that were not 

connected to the internet in a patent that required it be connected 

to the internet? 

Ms. UNDERWOOD. The range of the settlement was in the midfour figure range to settle for those nine ATMs for which we were 

not violating the patent. 

Mr. ISSA. So for me, mid-four figures is $50 grand? 

Ms. UNDERWOOD. No, in the $6 to $7,000. 

Mr. ISSA. Oh, one more down. 

Ms. UNDERWOOD. Yes. 

Mr. ISSA. So basically they wanted a nuisance amount that was 

probably less than you had already spent just having a conversation with your counsel and getting the advice of a patent attorney. 

Ms. UNDERWOOD. Exactly, and that was the decision we had to 

make at that time. 

Mr. ISSA. Okay. And, you know, I was in business a long time, 

and Mr. Moore made a different decision for certain reasons. But 

it is not uncommon as long as they offer you a settlement cost that 

is less than your cost of calling your lawyer, you often end up doing 

it. Mr. Griffin, your company has chosen not do that, not to make 

these settlements by and large, but you deal with 3,200 manufacturers. 

Mr. GRIFFIN. 3,200 manufacturers who manufacture probably 

over a million products that we offer, any component of which could 

be subject to patent infringements. 

Mr. ISSA. And if there were a stay, knowing that ultimately if 

your manufacturer lost, did not defend the case properly, you 

would find yourself at a greater disadvantage, how would you handle that? Let us just assume that a manufacturer under the law, 

H.R. 9, if the manufacturer agreed to it and you were stayed, how 

would that affect your participation in the case and your willingness to just forget about it and let it go to the manufacturer? I just 

want to make sure we get the practical part of what really happens. 

Mr. GRIFFIN. As a practical matter, we are usually willing to run 

the risk. It depends on the situation, but these stays have happened. Judges do stay cases where a manufacturer has agreed to 

the indemnification, has come in and defended fully the actions. 
43 

And my understanding is that the legislation calls for that type of 

situation. Where there are two cases going on, why should we litigate both? Let the manufacturer that has the best defenses take 

it. 

Mr. ISSA. Now, one quick follow-up because, Mr. Pate, I want to 

make sure that he has a fair chance to be involved in this, too. If 

the legislation required that the manufacturer have at least one 

additional customer, I mean, in other words, if you are the exclusive customer, you would not get a stay. Would that bother you in 

your situation if you are literally the only customer, the exclusive 

customer? 

Mr. GRIFFIN. I do not think it would bother us all that much. 

Some relief is better than none, and we think that it is a good 

thing to have the manufacturer take the defense. 

Mr. ISSA. Well, is it not true, to your understanding, that, in fact, 

in common law, these stays are already part of the process? The 

legislation is simply codifying what in the Southern District of 

California, San Diego, already is the practice? 

Mr. GRIFFIN. Yes. Yes. 

Mr. ISSA. So to your knowledge, do most places around the country grant these stays anyway, let us just say, with the possible exception of the Eastern District of Texas and Delaware? 

Mr. GRIFFIN. With the possible exception of the Eastern District 

of Texas. 

Mr. ISSA. Okay. Mr. Pate, I want to be fair to you, but I do want 

to mention to you that if you go before Judge Moskowitz in the 

Southern District, Barry is going to grant that stay in all likelihood 

because that is common law and it is commonly done in most parts 

of—— 

Mr. PATE. That is great, and I am really glad we get to talk 

about this because there is a huge nuance here that I think is 

being missed. What everyone here on the panel has talked about 

is being an end user of a product that was the accused infringing 

product. 

Mr. ISSA. Well, Overstock is a seller and distributor. 

Mr. PATE. But actually his testimony, sir, was about being an 

end user, and all the demand letters have been related to being an 

end user. For things that he sells, he typically has an indemnification agreement with the manufacturer, and I think that is what he 

was referring to at the end. 

The reality, though, is the end user that is getting these demand 

letters is very different from the Chinese manufacturer of knockoff 

goods in my mind. Those are two very different actors. If I buy 

these glasses and get a demand letter that says whoever made 

these glasses was infringing on a patent, that is a problem. If I 

make these glasses as an exact rip-off of Hugo Boss or whoever 

makes these glasses, and then Hugo Boss tries to sue that manufacturer, the Chinese manufacturer, and then that manufacturer is 

entitled to a stay of the lawsuit? That is where I think the problem 

is. 

Mr. ISSA. So in a nutshell, you are okay if I am using a Wi-Fi 

or some other product as an end user being stayed. 

Mr. PATE. Yes. 

Mr. ISSA. Okay. 
44 

Mr. PATE. If you are the mom and pop coffee shop, yes. But what 

my challenge is, as you saw on the screen, there are factories in 

China with my product on their walls ready to come to the U.S. 

They are going to get imported. They are going to get distributed 

to a seller. The person I want to collect from is really everybody 

in the chain making profits, but in particular the seller. 

Mr. ISSA. Okay. And I have got to go to the Ranking Member, 

and we are going to have a full discussion on this. Just one quick 

question. Have you been to the ITC, which is the venue that deals 

with overseas entities and can give you injunctive relief where, in 

fact, the courts cannot give you injunctive relief? 

Mr. PATE. Well, I believe the courts can give me injunctive relief. 

Mr. ISSA. Rarely. 

Mr. PATE. That is part of the patent—— 

Mr. ISSA. Under eBay, you are not likely to get it. You will get 

reasonable royalties. 

Mr. PATE. That is an arguable point, sir. But the reality is an 

injunction is still a part of the monopoly provision of a patent, and 

the damages provision is attractive. And there are U.S. potential 

manufacturers—— 

Mr. ISSA. My time has expired. I just had one question if you 

could give me a yes or no. 

Mr. PATE. Sure. 

Mr. ISSA. Have you explored the International Trade Commission, the ITC? 

Mr. PATE. I have looked into it. I have not gone—— 

Mr. ISSA. Okay. So you have not gone to the only court that effectively deals particularly with overseas companies that are offshore 

and outside the reach of Article 3 courts. 

Mr. PATE. That is correct. 

Mr. ISSA. Okay, thank you. Mr. Nadler? 

Mr. NADLER. Thank you. Let me start by saying that in this 

whole area, I find myself in an unusual situation. I normally react 

rather negative to talk about abusive litigation and abusive lawsuits because I am normally in a situation where I believe that lack 

of access to Federal courts at variable costs to the little guy is the 

real problem, that the courts have shut off access, narrowed class 

actions, et cetera. But here in this field of patent trolls, I think the 

weight is on the other side, and so I talk about abusive litigation 

and dealing with it. 

But I am concerned about some of what Mr. Pate has said, and 

I want to continue on this end user business. Now, clearly the end 

user ought to be protected. 

Mr. PATE. Absolutely. 

Mr. NADLER. But you are saying that we cannot get at the guy 

in China, the Chinese manufacturer. 

Mr. PATE. I cannot get at anyone in the supply chain. 

Mr. NADLER. Why can you not get—— 

Mr. PATE. They all are entitled to a stay. 

Mr. NADLER. You cannot jurisdiction in an Article 3 court against 

them? 

Mr. PATE. No. It is because the way the customer is defined in 

H.R. 9, it applies to anyone who can be subject to a patent infringement lawsuit. 
45 

Mr. NADLER. Could you think of a way that we could define the 

customer in this bill? 

Mr. PATE. Yes, sir. 

Mr. NADLER. In this bill in a way that would do what we wanted 

to do—— 

Mr. PATE. Yes, sir. 

Mr. NADLER [continuing]. And we protect the end user. I mean, 

the whole point really is if I make a new chip and I invent something in the new chip and I get patent on it, and that chip gets 

put into a bigger chip, which gets put into a device, which gets put 

into a different device, which gets put into a car or into a jukebox— 

jukebox, that shows my age—in the restaurant. [Laughter.] 

In the restaurant or in the iPhone, you should not sue the guy 

at the restaurant. 

Mr. PATE. Exactly. 

Mr. NADLER. Nor should you sue the guy who put in the car, nor 

this one, nor that one. You should sue the guy who infringed the 

patent in the chip. How can we do that without subjecting it to the 

problems that you are saying? 

Mr. PATE. I think the key is to focus on the end user. Who do 

we think of as a customer? I mean, when we say ‘‘customer stay,’’ 

we think of end user, and everybody here is an end user of a lot 

of things. And I believe all the demand letters that I have read—— 

Mr. NADLER. If we said only the end user, what about the guy 

four steps down the chain who is not infringing on anybody’s patent. He is putting an iPhone in the car, you know, let us say. And 

we are not talking about the guy who buys the car. We are talking 

about the guy who manufacturers the car. But the guy who infringed the patent was the guy who made the chip that was then 

put into a device that was put in an iPhone that was put in the 

car. Should we be able to sue the car manufacturer? 

Mr. PATE. I mean, that is a great question. I make bicycles, so 

my world is a lot simpler than that. 

Mr. NADLER. Well, one day you may want to put an iPhone on 

your bicycle. 

Mr. PATE. I may, but it seems to me the fundamental philosophy 

should be whoever is making a profit off of my invention should not 

be able to do so without a license from me. 

Mr. NADLER. But wait a minute. You are the end user. You are 

making a profit. 

Mr. PATE. No, no, no, the ElliptiGO. So we have 23 patents. We 

invented this bike. 

Mr. NADLER. No, no, but the mom and pop restaurant that has 

a modern iPhone or radio or whatever in the restaurant is making 

a profit off that. You do not want him sued? 

Mr. PATE. No. So maybe it is the profit on the sale of the item. 

If it is a mom and pop coffee shop using a Wi-Fi router and selling 

the router as part of their business—— 

Mr. NADLER. All right, but let us assume it is the guy who made 

the router, but he is three steps down from the guy who infringed—— 

Mr. PATE. Can we not cover that with indemnification? Can we 

not use the indemnification process to cover that? I mean, I have 

not thought deeply about it because I make bicycles and it is a dif-
46 

ferent situation. We have Chinese knockoffs that are going to flood 

the retailers—— 

Mr. NADLER. Let me ask Mr. Griffin what you would say to the 

same question. 

Mr. GRIFFIN. We are an end user. The same question. I believe— 

I believe—that it is structured right in this legislation where there 

is a manufacturer in a lawsuit. We are talking about a separate 

situation where he cannot reach a manufacturer. That is different. 

I do not think that is covered by this bill. This is a situation that 

requires that there be a manufacturer in the lawsuit. In other 

words, some court has jurisdiction. Why not stay it against the sellers, against the end users, and all down the line? I do not think 

it goes as far as Mr. Pate believes it does. 

Mr. NADLER. Mr. Pate, if we were to put in some sort of an exemption or a carve out here for foreign manufacturers in terms of 

the stay because the courts do not have jurisdiction over them, do 

you think we could handle your problem that way? 

Mr. PATE. I think the challenge is for all the companies that 

could be knocked off by U.S.-based companies. The issue in my 

mind for tangible goods that are going to flow through the supply 

chain, I need to be able to enforce my patents here in the U.S. 

against a real company in the U.S. And the challenge when you 

deal with the Chinese companies is there are a lot of shell companies. So they can file a declaratory judgment action against me on 

the patent, create a lawsuit, and then the real party in interest actually gets to stay it. And there could be 30 of those companies 

over in China that qualify under the language of H.R. 9. 

Mr. NADLER. Thank you very much. My time has expired, and we 

have to—— 

Mr. ISSA. For all Members, it is now 10:59 and 45 seconds. 

Mr. NADLER. Fifteen seconds to get to the chamber. 

Mr. ISSA. I will gavel in about 15 seconds. So we will return 

promptly at 12:00, and I commend to all of you whatever you would 

call a lunch, it will be served right around the corner in the basement. Thank you. 

[Recess.] 

Mr. ISSA. The Committee will come to order. It is now my pleasure to yield time to the Chairman of the full Committee, Mr. Goodlatte. 

Mr. GOODLATTE. Well, thank you, Mr. Chairman. I appreciate the 

hearing, and I appreciate the witnesses’ testimony, and I have a 

question for all of them. First of all, a yes or no question. Do you 

believe that an inventive company that has patents, employees, 

builds a product, and sells it to consumers would be considered a 

shell company? We will start with you, Mr. Griffin. 

Mr. GRIFFIN. No. 

Mr. GOODLATTE. Ms. Underwood? 

Ms. UNDERWOOD. I would guess not. 

Mr. GOODLATTE. Mr. Moore? 

Mr. MOORE. No. 

Mr. GOODLATTE. Mr. Pate? 

Mr. PATE. No. 

Mr. GOODLATTE. Okay. The good news for you, Mr. Pate, is that 

as a result of that, your concerns about the joinder provisions in 
47 

this bill should be eased considerably because unless you are a 

shell company, you are not going to be able to be concerned about 

that joinder provision. 

Mr. PATE. Can I respond to that? 

Mr. GOODLATTE. Sure. 

Mr. PATE. Great. There are two elements about it. I think the 

joinder provision is particularly damaging to companies in their 

very early, early stages. So when we secured our very first license 

to a patent—— 

Mr. GOODLATTE. If you have got some parts in the garage that 

you are going to start assembling, you are not a shell company. If 

you have got an idea that you are working on yourself, you are not 

a shell company. 

Mr. PATE. Where is this shell company language if I can ask, because I do not recall that. 

Mr. GOODLATTE. Well, the Innovation Act’s fee shifting—— 

Mr. PATE. Is it in fee shifting or joinder? 

Mr. GOODLATTE. Both. The bill’s joinder provisions only apply to 

a plaintiff who has no substantial interest in the subject matter at 

issue other than asserting such patent claim in litigation. So if you 

have anything beyond the interest in asserting a patent claim in 

litigation, you do not have a concern about the joinder provision. 

Mr. PATE. So what happens if my operating entity goes bankrupt, and 2 years later my holding company that has all my intellectual property seeks to enforce the patents? 

Mr. GOODLATTE. You are still not a shell corporation because you 

have an interest in perfecting that product. 

Mr. PATE. What is my interest? 

Mr. GOODLATTE. Your interest is in being remunerated for the 

idea that you have advanced and you have perfected. 

Mr. PATE. So even though my operating company no longer exists, I would still not fall under the joinder provision? 

Mr. GOODLATTE. Well, you would fall under the joinder provision 

in those circumstances, but not an entity that is ongoing. And if 

you are simply an entity advancing something like that, then you 

have got to be able to stand behind your product. And then, bear 

in mind here is the other important part about this. As long as 

your claim, and basically what you are talking about is a claim 

based upon your patent that you obtained and you perfected. That 

claim is only going to be resulting in attorney’s fees being awarded 

against you if your claim has no reasonable basis in law or in fact. 

So this is designed to help protect companies like yours, not 

harm them. And that is why lots of small businesses, including lots 

of app developers, lots of internet startup companies and so on, 

want this protection because the flip side of that is that if that 

shell company that you are trying to describe for me only acquired 

something from somewhere somehow and is trying to advance it in 

ways to garner funds that go way beyond what the validity of the 

patent is, and may, in fact, be why it is a company in bankruptcy 

because it does not have anything of significant value. That is a situation in which then you the developer of another that is being 

sued by an entity like that has the protections here. 
48 

Mr. PATE. But I do not think the protections are that valuable 

to a company like mine, the fee shifting, because if I win a patent 

case, I am going to win big. 

Mr. GOODLATTE. Yes, but you are going to be more likely to win 

if your opponent knows that they have no reasonable basis in law 

or fact for the defense that they are asserting against you, and, 

therefore, they are going to be subject to attorney’s fees? And by 

the way, both joinder and attorney’s fees, they exist in current law 

already, and all this bill does is provide greater certainty. 

And when you are talking about investors, and when you are 

talking about inventions, and you are talking about small businesses, the more certainty you can bring to the table, the better off 

your business is going to be. You have a much, much better ability 

to determine what the liabilities are and a much greater ability to 

assert a valid claim and not have to assert it as aggressively or as 

expensively because somebody is not going to hang around if they 

are going to have to pay not only their attorney’s fees, but yours 

as well, because they have no reasonable basis in law or fact for 

the defense that they are asserting. 

Mr. PATE. I agree with that. I think certainty is a fantastic thing, 

and the more certainty we can get, the better. The challenge here 

is that patent litigation, in my opinion, by definition is very uncertain. What appears obvious to some people is novel to others. 

Mr. GOODLATTE. We do not disagree with you. That is why we 

are doing this bill, and that is why this bill is called the Innovation 

Act, to bring greater certainty to patent litigation. That is the purpose of this legislation. 

Mr. PATE. But I think the certainty goes, in a way, against a legitimate company like mine—— 

Mr. GOODLATTE. I do not think so. 

Mr. PATE [continuing]. In enforcing for a patent. 

Mr. GOODLATTE. I do not think so. For all the reasons I just 

cited, I think it creates greater certainty. 

Mr. PATE. And I think—— 

Mr. GOODLATTE. My time has expired, so I am going to yield 

back to the Chairman. But I would be delighted to work with you 

further on this because we want to create the kind of certainty that 

you desire. 

Mr. PATE. Great. 

Mr. GOODLATTE. We think, in fact, that is what this bill does. 

Mr. PATE. Great. Thank you, sir. 

Mr. ISSA. Lively discussion. I thank both of you. We now go for 

a lively discussion to the Ranking Member of the full Committee, 

Mr. Conyers. 

Mr. CONYERS. Thank you, Mr. Chairman. I wanted to welcome 

again and thank the witnesses, our general counsel, Ms. Underwood, Todd Moore, and Mr. Pate. Let me ask you, Mr. Moore, 

would you have succeeded if H.R. 9, as you understand it, had been 

the law when you started out? 

Mr. MOORE. I think if H.R. 9 was already passed, there is a highly likely chance that my company, my small company, would not 

have been targeted. I truly believe that my small business, as you 

know, we do not have the means to fight these litigation battles 

and these frivolous lawsuits. 
49 

Mr. CONYERS. Okay. All right. 

Mr. MOORE. So I believe that I would have been able to focus on 

my business. 

Mr. CONYERS. What say you, Mr. Pate? 

Mr. PATE. Well, again, I think that the two biggest concerns I 

would have had back in 2005 when I thought of this elliptical bicycle was I am going to get knocked off, so I have got to be able to 

defend my market, and number two, I have got to be able to raise 

money, attract employees. And at the time we figured out there 

was another inventor who had a patent that already issued, so we 

had to license it from him. 

And my concern with the first issue is at the end of the day, if 

someone is making profits off of my invention here in the U.S., that 

is wrong. And I should be entitled to seek relief from them, injunctive and damages. And I think the customer stay provision I believe would prohibit me from doing that, and I do not think in 2005 

I would have had the confidence to move forward and take all this 

risk if I did not think I had a very good chance of being able to 

defend it here in the U.S. 

Mr. CONYERS. Let me ask you about the demand letter. How 

would that have impacted or even addressed abusive patent litigation in your view? 

Mr. PATE. Well, I think the demand letter is a great place to 

focus just listening to the conversation and reading the testimony. 

It still seems to be the crux of where these extortion settlements 

come from, and it seems to be an unfair business practice. It is like 

false advertising or bait and switch. We just had a back and forth 

with a dealership we were trying to buy a vehicle from and they 

pulled a bait and switch on us. And I looked at the code for their 

State, and there was a bait and switch law about it, and it was an 

unfair business practice. And it seems like if there are businesses 

out there using fraudulent tactics to extort money from other businesses, it should be able to be handled by the FTC and the courts 

through an unfair business regime. 

Mr. CONYERS. I agree with you. Now, how would the joinder provision have impacted the creation of your company and other 

startups? It seems that it might have made somebody less likely 

to want to invest. 

Mr. PATE. That is my second biggest concern and why I do not 

think we would have been able to get off the ground is because to 

your point, all we had at the time was a pending patent and a prototype. And so, to convince investors, employees, and a licensor to 

back us was really, really hard. And if we had to tell them that 

if they give us money, or if they join our company, or if they give 

us a license to a patent, and we enforce our patent, which is really 

the only thing we would have at that point, and we lose, then they 

could be personally liable, lose their house, I do not think we would 

have gotten investments. I know we would not have gotten the license to the patent. I do not think I would have taken that risk 

candidly, and I do not think my wife would have let me take that 

risk. 

Mr. CONYERS. Well, what about the discovery limitations in the 

bill, H.R. 9? When you limit discovery, you are actually starting a 

suit without getting all the information that you need. And it 
50 

seems to me that that is not the best way to go about going into 

a courtroom. 

Mr. PATE. The way I see it is when I go to enforce our patents, 

which we are going to do because we are going to get knocked off, 

the more information I can have about what the products are, who 

is doing it, how they are going about selling it, how much money 

they are making, the better from my perspective. I see my role as 

trying to defend our company, so the more information I can get 

at the outset, the better off I am. 

Mr. CONYERS. Now, is heightened pleading going to help you 

any? The Supreme Court is likely to sign off on this somewhere between now and the end of the year. What do you think? Will that 

help or hurt in terms of small business? 

Mr. PATE. I think the current level of pleading at the Twombly 

standard is reasonable for patent filings. The level to which disclosure is required up front in H.R. 9 I think would cause more lawyers’ fees and just sort of dotting I’s and crossing T’s out of the 

gate, and is not necessary. I feel like I could deliver a complaint 

that has the salient requirements without having to get quite as 

specific as within—— 

Mr. CONYERS. Thank you for your discussion. 

Mr. PATE. Thank you. 

Mr. CONYERS. Thank you, Mr. Chairman. 

Mr. ISSA. Thank you, Mr. Conyers. The gentlelady from California, Ms. Chu, is next. 

Ms. CHU. Ms. Underwood, your experience is a familiar story for 

so many small entities throughout our country. I know of credit 

unions in Southern California who were targeted because of certain 

features on their websites, and they have to settle given the high 

cost of litigation. I understand that your bank had to settle, but 

you know of other community banks that chose to litigate in court 

and were successful. Despite these losses in court, why do you 

think the patent troll that targeted you continued to send out demand letters to other parties? 

Ms. UNDERWOOD. We were one of the first small community 

banks in our market to be targeted, and we had not heard of this 

trolling because it had not hit our State. And there were only four 

of us that were targeted initially, and we were all very, very small 

banks. And when we talked to our attorney and he told us what 

the cost was going to be, could be, in the millions of dollars, in our 

mind there was no need to begin the process. 

I do know that other banks months later after many banks that 

had been identified were successful in fighting this. But there were 

a lot of settlements that were far greater than ours afterwards 

also. 

Ms. CHU. And even though they lost in court, they continued to 

send demand letters out. Why do you think they do that? 

Ms. UNDERWOOD. Because they were becoming successful. 

Ms. CHU. Because of those large settlements with the others. 

Ms. UNDERWOOD. When you weigh the costs of the attorney’s fees 

versus the settlement, it is, as my kids would call it, a no-brainer 

in making that risk decision. And I think they recognize that, that 

banks my size cannot afford to fight. And so, the more that they 
51 

were successful, and their settlements did increase as time went 

on, it was worth continuing. 

Ms. CHU. You also hold up the Covered Business Method Program at the Patent and Trademark Office as a low cost alternative 

to litigation. You state that there are several CBM proceedings 

that are underway at the PTO that can be helpful to banks and 

credit unions of all sizes. Could you describe how they would benefit? 

Ms. UNDERWOOD. How they are benefitting? Well, I think the 

fact that they are reviewing the patent outside of the suit process 

certainly does go to benefit the smaller banks. And the fact that 

many of these patent reviews are being brought by larger organizations who can afford to pay to get the process going does benefit 

the community banks. As a matter of fact, there is one very wellknown DataTreasury patent process that is currently being reviewed, and the list of banks that are involved run from the very 

large to the very small. And there are many banks that are members of the ICBA that are involved in that that will benefit from 

that process at the end of the day. 

Ms. CHU. Mr. Griffin, Overstock.com is no stranger to patent infringement suits. You have been sued over 30 times in the last 10 

years, and it sounds like your company is developing a reputation 

in which you are known to fight back. In fact, 12 patent trolls 

abandoned their cases against you when they realized you would 

pursue litigation. Can you talk about how this strategy is turning 

out to be a good investment? 

Mr. GRIFFIN. It has turned out to be a good investment because 

we count on our brand as being a fighter in these cases, such that 

we become an unappetizing target. A lot has been said about demand letters today. Demand letters in my mind are in a different 

silo than full-blown litigation with a troll. For example, we do see 

demand letters, but frequently they are unsuccessful and they are 

not followed by a suit. Many of the trolls who sue us do not file 

any kind of a demand letter because they know that we might attempt to gain jurisdiction by a declaratory action in our own jurisdiction rather than a favorable venue for the troll. 

So for me, these two issues are separate. Yes, we should have 

more disclosure in demand letters, but it is not any kind of manageable line to correct the problem with patent litigation abuses 

that we see today. 

Ms. CHU. Thank you. Well, actually could I ask—— 

Mr. ISSA. The gentlelady, please continue. 

Ms. CHU. And you won a large case in 2011 where the patent in 

question was invalidated. Could you give us some details on that 

case, and what was the effect of that case? 

Mr. GRIFFIN. It is a case that we were litigating in the Eastern 

District of Texas. The demand was for millions of dollars. We were 

litigating patents that were dating from 1998. In fact, I remember 

one of the jurors, who wound up being the foreman, stood up in 

jury selection process and said, ‘‘I cannot imagine any patent from 

1998 being applicable to the internet today,’’ and that held to be 

true. The technology was completely inapplicable to what we were 

doing, and the jury saw it. We were fortunate in that case. 

Ms. CHU. Thank you. I yield back. 
52 

Mr. ISSA. I thank the gentlelady. We now go to the gentlelady 

from Washington, Ms. DelBene. 

Ms. DELBENE. Thank you, Mr. Chairman, and thanks to all of 

you for being here with us today. We appreciate it. One of the most 

frequent complaints that we hear is that companies are shelling 

out large amounts of money to lawyers to defend themselves from 

abusive patent litigation, and that is just to get through discovery. 

In your testimony, Mr. Pate, you said that discovery limits may put 

patent holders at a disadvantage against infringing companies, 

making a patent suit riskier for patent holders. And in many cases, 

the patent holder requires lengthy discovery to learn the details of 

the infringer’s product and business. The first question, have you 

ever been a party to patent litigation yourself? 

Mr. PATE. No, I am not. 

Ms. DELBENE. Okay. So I am going to ask you this maybe a little 

bit theoretically. But first, could you elaborate on why it is so difficult to put together a more detailed claim? And then second, could 

you comment on how you would react to another company making 

extensive demands from you to share specifics about your products 

in business if you one day find yourself on the receiving end of a 

patent lawsuit? 

Mr. PATE. Those are great questions. On the filing a detailed 

claim, I think we all agree that Form 18 is too wide open, and that 

there is no reason patent litigation should not be at the same level 

of notice pleading as every other Federal litigation where you have 

to actually state a claim that you can show you deserve relief from. 

And I think for patent litigation, that should include what the patent is and what products appear to be infringing. 

The issue I have with H.R. 9 is I just look at it and think to myself, there are a lot of attorney’s fees, and crossing T’s and dotting 

I’s, and is there going to be a little side litigation about did we fill 

the complaint out correctly? I mean, it just seems very enumerated. 

And when I see things that are very different enumerated, I 

think of lawyers, you know, finding ways to show that you screwed 

up the way the enumerations were done. And I think that is a 

problem. I do not think the philosophy of bringing patent litigation 

to the level of where all other Federal litigation is in terms of a 

complaint is a problem. I just think the specificity can get abused, 

especially if you are a small company. 

And if it takes me 4 months to get my complaint in order because my attorneys are not that good or whatever the case may be, 

I just see that as unnecessary. It is an unnecessary hurdle for me 

to have to jump over. 

Ms. DELBENE. And, Mr. Moore, could you give me your view as 

well on both of those, on either side, if you are on either side of 

litigation? 

Mr. MOORE. Yes. So my company, you know, was very small 

when it got sued. We were three people. So when that happens, you 

are faced to make some difficult decisions, and you reach out to a 

lot of people in the community, other CEOs, and everyone tells you 

the same thing. They go, I know how you are feeling and you want 

to fight back, but let me tell you, they are going to bleed you dry, 

and there is no way you can win. And when I got a pro bono law-
53 

yer, which is unheard of, I was ready to go all the way through the 

entire process, discovery, all the way to the end. 

But my lawyer actually convinced me, because I wanted to recover his fees, and I wanted to fight. And he said, well, it is going 

to take years of time. It is a very intrusive process. You are going 

to have to open up your bank records, everything, files, emails. You 

have got to realize what you are committing to, and I will tell you 

this. I have won awards before, and I have not gotten paid. 

So when he said that, it infuriates you. As an engineer you want 

to solve problems, and you want to fix things, and it does not seem 

like we can do that on our own, and that is why Congress really 

needs to help and fix this broken system we have. 

Ms. DELBENE. But on discovery, in particular, whether you are 

the one who has a patent litigation against you, but what if you 

were also trying to defend patents of your own? Do you feel the 

same way about the discovery provisions? 

Mr. MOORE. Yes. I believe that if you have good patents, I do not 

believe you are going to be affected by this bill. In no way does it 

say that you are not going to be able to go after people that are 

infringing on your intellectual property, and I am someone who is 

listed on numerous patents. So I can tell you I have worked with 

the patent system, and I think it is valuable, I really do. But I see 

it today, especially with my company, how it can be abused. 

Ms. DELBENE. Thank you. Mr. Chair, I yield back. 

Mr. ISSA. Thank you. We will now go to a second round. Mr. 

Pate, you made some statements, and I want to try to elaborate because I want the record to be clear. In your experience, you have 

been a law clerk, right, for a Federal judge? 

Mr. PATE. That is correct. 

Mr. ISSA. So you have seen what Federal judges go through trying to move cases along, right? 

Mr. PATE. Yes, sir. 

Mr. ISSA. Did you ever clerk while the judge was doing a patent 

case? 

Mr. PATE. No, sir. 

Mr. ISSA. But a similar white collar—— 

Mr. PATE. Many. 

Mr. ISSA [continuing]. Civil tort claim normally is broken into 

two major parts. Did you or did you not do something wrong, and 

if so, what are the damages, right? 

Mr. PATE. That is correct. 

Mr. ISSA. And then the second part, we will take down the did 

you do wrong. It is do you have the ability to pay? What are the 

assets? How do we get them? What should the judgment read? And 

we all understand that. 

So you mentioned something that concerned me, which is you 

said you have not actually sued anyone under your patent, but you 

said you want all the information. And because this is part of the 

Innovation Act, should not the plaintiff is interested in proving 

that the patent is, in fact, valid and being infringed, should not the 

discovery to the greatest extent possible in the shortest period of 

time get to that question? In other words, as Mr. Griffin, I believe, 

said in the opening, the markman. Is your patent and their product 

a match or vice versa. Would you not agree? 
54 

Mr. PATE. I am probably not educated enough on the actual flow 

of a patent litigation, but I think that sounds reasonable. 

Mr. ISSA. Okay, thank you. And the reason I ask that is, and I 

will go to Mr. Griffin or any of the other folks that have been 

mugged by a patent troll. Normally the troll presents an extensive 

amount of discovery—who are your investors, what are your contracts, who do you buy from, who do you sell to. In other words, 

a lot of information that might be interesting, but it does not have 

anything to do with do you infringe or not. 

So I would open it up to each of the witnesses that has some experience about what the discovery process was like to the extent, 

and I would start with Mr. Griffin because you got the most of it. 

Mr. GRIFFIN. We have litigated a lot. Let me just tell the Committee that we have had several cases in which a patent suit was 

dismissed after markman, but only after we spent hundreds of 

thousands of dollars in discovery to get to that point. So it makes 

sense to kind of flip that because that is a legal determination that 

can precede the discovery. 

Mr. ISSA. And for all the audience and people that are trying to 

understand the record, a markman is determined exclusively by 

the judge who interprets what the real meaning of the patent is. 

Is that correct? 

Mr. GRIFFIN. That is correct. That is correct. And so, that the 

facts of the case can then be applied, it makes sense to do that before because then the discovery can be focused, and the parties 

know what they are doing. We had a case recently in which we received 39,000 pages of infringement contentions that were photo 

shots that simply came out. And so, even after these very light and 

thinly-developed complaints are filed, we have enormous allegations. 

Why could they not have been more specific to start with? And 

that particular case was narrowed down to only two claims by the 

time we got to trial. That is the extent of the work that a defendant has to do to discharge his discovery obligations under current 

law. 

Mr. ISSA. Ms. Underwood, in your case, had you gotten to 

markman on your case, an element of the patent as you told us 

was internet connectivity, and you did not have it, right? 

Ms. UNDERWOOD. Exactly. 

Mr. ISSA. Did your attorneys tell you that you probably would 

have been able to get the judge to dismiss the case at that point 

based on not having an element of the patent? 

Ms. UNDERWOOD. The attorney’s opinion was, yes, that eventually it probably would be dismissed, but after the attorneys’ costs 

exceeded what the costs were to settle. 

Mr. ISSA. It was financially reasonable on behalf of your stockholders to settle even though you failed to have an element that 

in an early markman would have determined that you did not fall 

under the patent. 

Ms. UNDERWOOD. Exactly. There was no research done. The demand letter was very unclear, and clearly just mass mailed. 

Mr. ISSA. Mr. Moore? 
55 

Mr. MOORE. We never reached that point. As soon as they found 

out that I had a pro bono lawyer, they were very quick to dismiss 

the case. 

Mr. ISSA. I guess we need more pro bono lawyers. 

Mr. MOORE. That would solve a lot—— 

Mr. ISSA. Anyone in the audience that wants to contact their 

friends, Washington has no shortage of lawyers. It is the pro bono 

that is hard to get. Let me just briefly make some people aware 

of something, and I mentioned my good friend, Judge Moskowitz. 

I had such a case early on in the 90’s at a time in which markmens 

were new, and the judge did his markman essentially as we were 

impaneling a jury. And one element of the claim was it had to have 

a normally open relay that closed in order to do X, Y, and Z. That 

was my industry. And I only had one relay on the board, and it 

was normally closed. 

But to be honest, the plaintiff in this case—I was a defendant— 

had my entire customer list, had deposed all of my staff, including 

my sales staff, not just engineering, had detailed schematics of all 

my products. And, in fact, the judge, and I do not believe this was 

incompetence, told me after the fact that once he had made his 

markman, he knew we had won. He just felt bad not letting it go 

to the jury, and I am paraphrasing. 

That is the reason that I asked you this question is part of the 

Innovation Act is to try to streamline the process to lower for both 

the plaintiff and the defendant if, in fact, the plaintiffs believe they 

really do have a patent that is being infringed, and the defendant 

quite frankly may really believe that they are innocent, to get to 

that determination. And, Mr. Griffin, because you have had this experience and you have undoubtedly worked with other people, is it 

not true that even in the Eastern District of Texas, markmens 

often make cases settle because either the defendant realizes that 

they are going to lose, or, quite frankly, the plaintiff realizes they 

do not have a case? 

Mr. GRIFFIN. That is true. That is true. And certainly it narrows 

the focus of discovery if discovery happens after the markman 

hearing. 

Mr. ISSA. And I will rest my case with that, and yield. We have 

no other Democrats at this time, so I yield back and go to the 

Chairman of the full Committee, Mr. Goodlatte. I will not only 

yield, I will yield the Chair. 

Mr. GOODLATTE [presiding]. The Chair recognizes the gentleman 

from Texas, Mr. Farenthold, for his questions. 

Mr. FARENTHOLD. Thank you very much, Mr. Chairman. I appreciate you all being here and say thanks for sharing your experience. One of my concerns with the Innovation Act is that it weakens one of the best tools for weeding out patents, the interparty review and post-grant review process, by replacing the Patent and 

Trademark Office standard of the broadest reasonable interpretation of the patent claim with the district court construction. Mr. 

Griffin, as someone who has been directly attacked by weak patents, does this change concern you? 

Mr. GRIFFIN. In the cases that we have been involved in so far, 

we have not used that provision. 
56 

Mr. FARENTHOLD. Mr. Moore, do you want to weigh in on that 

at all? 

Mr. MOORE. I am not a lawyer, so I will leave it to Mr. Griffin 

to answer that one. 

Mr. FARENTHOLD. All right. So, Mr. Moore, one of the more disturbing parts of your testimony is the patent troll case you were 

in, you were asked to send thousands of dollars by wire transfer 

to an overseas bank account. I mean, this sounds like one of these 

scams you get in your spam email, not like the American patent 

system at work. Is this something that happens regularly and that 

you have heard about, and can you tell me a little bit more about 

how that happened? 

Mr. MOORE. Yes, absolutely. The patent troll instructed my lawyer that the reason was to wire to an international, and it was a 

different bank account overseas. It was a different company, so we 

were paying an entirely different company, not the company that 

was suing my company. He said the reason was to avoid U.S. 

taxes. He said if we were going to pay domestically through a regular transfer that we would have to pay the taxes. 

Mr. FARENTHOLD. That seems like a scam, which kind of brings 

me to the overall demand letter issue. You have seen a lot of small 

businesses sue and settle under these demand letters, as Ms. 

Underwood’s bank does. At some point you start to wonder, or at 

least I start to wonder, if we are going to run out of small business 

to sue, and we get into the end user. Obviously we have talked 

about the end user stay provisions and moving it up exhaustively 

during this hearing. 

But you get to the point of you can beat the rap, but you cannot 

beat the ride, and that is really a good description I think of a lot 

of litigation, and what the patent trolls rely on. All right, it is going 

to be hundreds of thousands if not millions of dollars to hire a lawyer. I can beat the rap, but I am going to end with a million-dollar 

ride. 

So let us talk a little bit about demand letter forms. One of the 

things that we want to do is actually be able to from the demand 

letter determine the scope of the appropriate and who the true parties are. And I think there is some misunderstanding about the intent. It is not so much to get at the investors, as Mr. Pate has 

talked about. It is to actually know who the inventors are and what 

the grounds of the patents are. How do you feel about tightening 

up on demand letters, Mr. Pate? 

Mr. PATE. So I think there is some confusion in terms of where 

the investors come in as through the joinder and fee shifting as opposed to the demand letter. 

Mr. FARENTHOLD. But the idea behind the demand letters is you 

want to know who is really behind this. And some argue that this 

is going to chill investors in small businesses. If that business is 

sued for patent, do they end up having to be, you know, wrapped 

up in the process even beyond joinder at the demand letter level. 

Mr. PATE. So I have not thought deeply about that. My focus on 

investors and personal liability has always been tied to the joinder 

provision. 

Mr. FARENTHOLD. And do any of the other panelists want to 

weigh in on the reform of the demand letters? Ms. Underwood? 
57 

Ms. UNDERWOOD. I think reforming the demand letter process is 

key to stopping most of these frivolous attempts to extort money 

from small businesses. And I think if the letters were more transparent, if they had more detail about the particular patent that 

was being violated, and identify where or how, what grounds that 

they have to begin this process—— 

Mr. FARENTHOLD. So you can make some intelligent decisions—— 

Ms. UNDERWOOD. Exactly. 

Mr. FARENTHOLD [continuing]. Even possibly before a lawyer. 

One last question with the investors with Mr. Pate. So there is a 

study out that 55 percent of trolls target small businesses that do 

not have the resources to fight back. I think that is the reason we 

got a letter up on the Hill from 140 venture capitalists actually in 

support of patent reform. This week it came to us. 

Since their interests are specifically in the growth and success of 

small businesses across the country, it seems like venture capitalists should be concerned on both sides of that. It seems at odds 

with your testimony today. Even though you may not have already 

been targeted by bad acting plaintiffs, could you help me understand what kind of small business or inventors are targeted by bad 

actors in the current system and why they are targets? 

Mr. PATE. Sure. So venture capital is an interesting thing. I 

know the National Venture Capital Association is actually opposed 

to the bill, and I am not sure the number of members they have. 

I know it is in the multi-hundreds. And a lot of independent companies, large companies have their own venture capital arm, so 

Intel has a venture capital arm, Google has a venture capital arm. 

And so that arm may be acting to take a position that is beneficial 

to the overall organization and not necessarily beneficial to the 

venture capital wing of the organization. So it will be interesting 

to see who those venture capital firms actually were. 

I think the element that is so concerning for the investors is the 

personal liability piece in the sense that no investor in my company 

thinks they have personal liability for anything. And so, to introduce potential personal liability to investors in my company I think 

is a huge issue. To introduce it for me is a huge personal issue. I 

am not personally guaranteed anything in my company anymore. 

I like that. I do not want to go back to a position where I could 

lose my house because I do something stupid with my company. 

Mr. FARENTHOLD. All right. I see I am out of time. Thank you 

for your indulgence, Mr. Chairman. 

Mr. GOODLATTE. Thank you very much. The Chair recognizes the 

gentleman from Florida, Mr. Deutch. 

Mr. DEUTCH. Thank you, Mr. Chairman. And I thank the witnesses for their testimony, and thanks for sticking around so that 

we could come back and continue this. I just want to say this. I 

have the same visceral reaction to your stories that I think my colleagues have. And it is clear that too many small businesses and 

developers have been targeted by intimidating letters, with bogus 

claims, about vague patents that would not stand scrutiny today. 

Would not stand scrutiny already. 

The media has documented many examples from entities claiming they own patents on shipping confirmation emails, for the on-
58 

line purchases, to the concept of online shopping carts. We get it, 

and that has to be addressed. Patent trolls send demand letters to 

hundreds of small businesses, as you have already pointed out, 

that some of their targets will pay up instead of defending themselves in court. 

But unfortunately for them, but thankfully for all of us, some of 

those targeted by patent trolls have actually had their day in court, 

and as a result, many of the problems that H.R. 9 claims to address are actually being resolved now by the court system and at 

the U.S. Patent and Trademark Office. And my concern today 

about this entire hearing and a lot of this debate all together has 

been the sense that we have two choices. We have a system where 

patent trolls are able to do damage to innovators, and creators, and 

small businesses on the one hand, or we have this bill on the other, 

and that you would have to choose. I think all of us, including Mr. 

Pate, would absolutely agree we have to do something about patent 

trolls. 

I would say Florida, not unlike the Chairman’s home State, 

Chairman Issa’s home State, is home to world class research institutions who rely on patents to turn their innovations into life-saving and profitable products. Last year in my home district, Florida 

Atlantic University entered into a licensing agreement with 

PortNexus and AT&T to bring a professor’s technology to market 

that will disable texting functions in cell phones when a car is in 

motion and in the driver’s seat. Texting while driving makes crashes 23 times more likely. And the licensing of this technology will 

help bring in revenue for the university. It will create jobs, and, 

most importantly, it will save lives. 

And the abuses that we have been speaking about, that I spoke 

of earlier, against developers and businesses by patent trolls have 

little in common with legitimate patent disputes that are vital to 

universities, that are vital to inventors, and they are vital to researchers. And yet it is those patenting innovations across every 

brand of technology and life sciences who are going to be dragged 

into court and into this over broad litigation reform in H.R. 9. 

If we go forward with something that is too broad, then that will, 

I believe, as Mr. Pate said, scare off investors, in this case from investing in the next great discovery like at my own university or 

universities around the country. Tipping the scales too far in a justified, but overbroad, attempt to stop patent trolls runs the serious 

risk of undermining one of the great strengths of the American 

economy. 

So I would just ask this question of panel. Is the problem how 

our entire litigation system works not just for the violator rights 

of legitimate patent holders, or is the problem bad actors who 

abuse the system by taking advantage of obscure, overly broad patents that PTO, we all now know, regrets awarding in the first place 

and would never issue under today’s standards? And if the problem 

is patent trolls, why would we target these bad actors in abusive 

behaviors with procedural changes that will wind up harming 

innovators who rightfully expect to be able to defend their property 

rights in court? Mr. Griffin? 

Mr. GRIFFIN. I would love to answer that question. That is a good 

question. The difference is in the tactics. There are abuses that are 
59 

exploited because of the existing state of procedures in the law, and 

I disagree that these provisions are overly broad. These are narrowly tailored to take care of the abuses. 

Mr. DEUTCH. I am sorry. I just realized I do not have a lot of 

time. I agree completely that trolls should not be able to hide behind shell corporations, and I introduced legislation to address 

that. There are provisions that I think everyone believes can address that, and we ought to. Likewise, I absolutely think that this 

idea that a patent troll can send a demand letter and expect to 

pressure a developer or small business into paying up is also problematic. 

But this legislation does not address that at all. There is legislation that addresses the demand letter issue. This does not do it. 

This only refers to demand letters once we are in litigation. 

Mr. GRIFFIN. This is more substantive. 

Mr. DEUTCH. It is not more substantive. It only addresses—— 

Mr. GRIFFIN. I believe it is more substantive. 

Mr. DEUTCH. The concern with demand letters is that they are 

sent—before we get to that point, I just would suggest, Mr. Chairman, that I would urge the Chairman, and I would strongly urge 

the community that cares so much about these issues that this 

does not need to be either/or. It does not need to be a current system which has abuses that must be addressed for the benefit of our 

economy, or a bill that goes so far in the other direction that it will 

stifle innovation, and that it will prevent the kinds of investments, 

and will prevent the creators in this country from being able to defend their intellectual property through the patents that they own. 

And I would yield back. 

Mr. GOODLATTE. Well, I thank the gentleman, and I share his 

concern. That is why we are doing this bill. But I do want to give 

Mr. Griffin an opportunity to answer the question that you asked 

him. So we will give him an opportunity to do that right now. 

Mr. GRIFFIN. Thank you, Mr. Chairman. No, this is a comprehensive thing. The issue of the demand letters, it seems to me that certain people are focusing altogether too much on demand letters. 

Demand letters are a problem, and that problem should be fixed. 

But they are not nearly the universe of problems associated with 

patent troll litigation abuses. 

The economics are all skewed toward the plaintiff, and the defendant is burdened with a lot of costs that are escalated in the 

manner of the litigation. I think that defending against 30 different 

actions entitles me to say that. It is very difficult to defend under 

the current system of litigation that we have. I have seen complaints that are only 6 pages long with no specificity whatsoever, 

leaving us to try to discover what is going on. 

We spend hundreds of thousands of dollars before we can get to 

a markman hearing. That is simply wrong. A markman hearing 

that says that this patent does not apply to our processes. That is 

unfair, and that eats up jobs, it eats up development costs. It eats 

up innovation in this country. $29 billion are spent annually in this 

type of abusive litigation. To say this is a demand letter problem 

is understating the problem. 

Mr. DEUTCH. I agree completely. Can I just ask a follow-up, Mr. 

Chairman? 
60 

Mr. GOODLATTE. Sure, go ahead. Go ahead. 

Mr. DEUTCH. I agree completely. I am not suggesting for a moment that that is the only problem. What I am suggesting, just to 

focus on the issue of discovery, if a change is made that prevents 

any discovery, that prevents the patent holder from learning in discovery that not a patent troll, but an infringer not in a patent troll 

case, but in a real case where the patent holder’s patent is being 

infringed upon, why would you shut off the possibility of having 

that patent holder go forward with a claim when something comes 

up during discovery that they were unaware of because the infringer hid it from them and because it was not apparent? Why 

would you take that away from the patent holder? 

Mr. GRIFFIN. The answer is that in a markman hearing, the determination of what the patent covers is a legal determination. And 

if the patent does not cover the process that is in question, then 

the defendant ought to be entitled to dismiss that case before irrelevant discovery takes place, as it does now, over millions of pages 

of discovery that is unnecessary. Trolls do this to ramp up the costs 

of the defendants so that they will settle before going trial. 

Mr. DEUTCH. I am sorry, Mr. Chairman. I would love to continue 

this conversation, Mr. Griffin, in my office. I would suggest when 

we talk about the steps that this legislation goes that are just a 

bit too far, barring the discovery of electronic communications, for 

example, strikes me as something that will make it more difficult, 

again, for the patent holder, a patent holder who is trying to protect his property from upholding that patent against an infringer. 

But I would welcome the opportunity to discuss it. 

Mr. GOODLATTE. And I would love to join in that conversation. 

There is nothing in this bill—— 

Mr. DEUTCH. Let us do it in the Chairman’s office. 

Mr. GOODLATTE. There is nothing in this bill that bars the discovery of electronic communications. 

Mr. DEUTCH. We will look forward to having that conversation. 

Mr. GOODLATTE. Sure. While we are at it, I am going to ask Ms. 

Underwood to address another subject here that is of interest. One 

of the major sources of abusive patent litigation stems from the 

Federal court’s 1998 State Street decision, which opened the door 

to dubious business method patents, a decision that has brought 

real harm to our patent system. In recent years, the Supreme 

Court has helped to repair this damage and reverse the tide of 

such weak patents through its Bilski and Alice decisions. 

Can you speak more to the importance of the American Invents 

Act transitional program for covered business method patents, and 

also talk about the amount of capital that community banks invest 

in startups and small businesses in America, and the real costs of 

abusive patent litigation on investment in those communities? 

Ms. UNDERWOOD. The Covered Business Method Program has 

been a great program for the banking industry, but clearly for all 

industries, as you know. It covers any financial transaction, and it 

has addressed a number of the very large patent suits. And our position is that it would be wonderful to see that become a permanent 

program available to us, and it would be wonderful to have the 

PTO have the opportunity to waive any fees so that the community 

banks could take further advantage of that program. 
61 

Mr. GOODLATTE. Thank you. And, Mr. Griffin, are the problems 

surrounding patent trolling the result of certain plaintiff friendly 

judicial districts, and what can Congress do to help rebalance the 

scales so venue is no longer a weapon of choice for those engaging 

in patent trolling? 

Mr. GRIFFIN. I think that is a difficult issue. There are certain 

dockets that are known to have more patent troll type litigation in 

them. It might be a good idea to study that to see how many cases 

are filed. The process, as you know, Mr. Chairman, the judges, and 

they have local districts and rules that make these districts, I 

think, more favorable to the patent bar. And that is why we get 

sued occasionally in remote districts. 

But I think these narrow changes that are in the Innovation Act, 

these targeted things will be useful not only to the courts in those 

jurisdictions to follow the law, but also to the court of appeals that 

reviews these decisions. I think that Congress needs to make statutory some of the changes about fee shifting and other things to 

make this more palatable to these local judges and to specify and 

give some certainty to a defendant who may wind up spending $1, 

$2, $3 million to defend a case that was unjustified in the first 

place, to be able not only to get an order for those fees, but also 

to be able to recover them at the end of the day, because one without the other is no good. 

Mr. GOODLATTE. And that implies conversely your company is 

probably most often in the position of defending these cases, but 

there are people with legitimate patent claims who would want 

those same principles applied to them when they are trying to perfect and protect their intellectual property rights. 

Mr. GRIFFIN. And my understanding since the Supreme Court 

had clarified in the Octane Fitness case this whole idea of fee shifting and other things. My understanding is that 30 of those cases, 

of the 30 cases that have been filed, actually the orders were 30 

percent for plaintiffs. So plaintiffs do recover for unjustified defenses. 

Mr. GOODLATTE. As well they should. 

Mr. GRIFFIN. As well they should. 

Mr. GOODLATTE. And finally, I had a dialogue with Mr. Pate, and 

my time ran out. I want to give you an opportunity to respond to 

some of his concerns with regard to the joinder provisions in the 

legislation, and my point that unless you are essentially a shell corporation, you do not have reason to fear the joinder provisions because they will not apply to you. 

Mr. GRIFFIN. I think your point is correct that, in essence, the 

current business and favored business model of trolls is to have a 

shell corporation that has no other business other than litigation. 

As long as we have that distinguishing feature, Mr. Pate should 

not be concerned. I cannot tell him what his investors ought to be 

concerned about, but my experience in innovation, and technology, 

and investors, and everything else is like a law of nature. If there 

is something to be eaten, there will be something there to eat it. 

And someone will be interested in funding a company that might 

have to enforce its patents. 
62 

I do not think that it is only one quality, a fearful venture capitalist that will do something on a wonderful product like his. I am 

going to go out and buy one. 

Mr. GOODLATTE. They do it right now, and, in fact, it does not 

happen with the frequency that I would like to see, and that is why 

we have this industry of patent trolling. But the courts have the 

authority right now to pierce the corporate veil and do these things 

right now. 

Mr. GRIFFIN. Yes, they do. Yes, they do. 

Mr. GOODLATTE. Thank you very much. Does anything prompt 

any further questions from the gentleman from Florida? 

Mr. DEUTCH. No, thank you. 

Mr. GOODLATTE. Thank you, and I want to thank all the witnesses for their testimony today. I think this has been a very helpful hearing. Get the magic words here to end it. And I want to invite all of you to continue to have dialogue with not Mr. Deutch, 

but other Members of the Committee and the Committee staff. This 

has been a very open and transparent process for about 2 years 

now that we have produced this legislation. And it is a very strongly bipartisan legislation that has been transparent in its formation. 

And it is, I think, important that we keep it that way as we work 

our way through the process. 

We are going to proceed with this legislation. The Senate will 

proceed with theirs. We will have to work out differences, and then 

we will work with the Administration as we have, by the way, 

throughout this whole process. The President endorsed this bill as 

it came out of this Committee in the last Congress. And that is how 

you get bipartisan legislation, which is really the only kind of legislation that gets signed into law. 

So this concludes today’s hearing. I thank all the witnesses for 

attending. And without objection, all Members will have 5 legislative days to submit additional written questions for the witnesses 

or additional materials for the record. 

And this hearing is adjourned. 

[Whereupon, at 1:02 p.m., the Subcommittee was adjourned.] 
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