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90–884 2015

TROLLING FOR A SOLUTION: ENDING ABUSIVE 

PATENT DEMAND LETTERS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COMMERCE, MANUFACTURING, 

AND TRADE 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

APRIL 8, 2014 

Serial No. 113–138 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

(II) 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

RALPH M. HALL, Texas 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Missouri 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

BEN RAY LUJAN, New Mexico 

PAUL TONKO, New York 

JOHN A. YARMUTH, Kentucky7 

SUBCOMMITTEE ON COMMERCE, MANUFACTURING, AND TRADE

LEE TERRY, Nebraska 

Chairman 

LEONARD LANCE, New Jersey 

Vice Chairman 

MARSHA BLACKBURN, Tennessee 

GREGG HARPER, Mississippi 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVE B. MCKINLEY, West Virginia 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Missouri 

BILLY LONG, Missouri 

JOE BARTON, Texas 

FRED UPTON, Michigan, ex officio 

JANICE D. SCHAKOWSKY, Illinois 

Ranking Member 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

PETER WELCH, Vermont 

JOHN A. YARMUTH, Kentucky 

JOHN D. DINGELL, Michigan 

BOBBY L. RUSH, Illinois 

JIM MATHESON, Utah 

JOHN BARROW, Georgia 

DONNA M. CHRISTENSEN, Virgin Islands 

HENRY A. WAXMAN, California, ex officio 

(III) 

C O N T E N T S 

Page 

Hon. Lee Terry, a Representative in Congress from the State of Nebraska, 

opening statement ................................................................................................ 1 

Prepared statement .......................................................................................... 2 

Hon. Janice D. Schakowsky, a Representative in Congress from the State 

of Illinois, opening statement ..............................................................................

Hon. Jerry McNerney, a Representative in Congress from the State of California, opening statement .................................................................................... 5 

WITNESSES

William Sorrell, Attorney General, State of Vermont .......................................... 6 

Prepared statement .......................................................................................... 9 

Answers to submitted questions ...................................................................... 103 

Rheo Brouillard, President and CEO, Savings Institute Bank and Trust Company, on Behalf of American Bankers Association ............................................ 27 

Prepared statement .......................................................................................... 29 

Answers to submitted questions ...................................................................... 111 

Dennis Skarvan, Deputy General Counsel, Intellectual Property Group, on 

Behalf of Coalition for 21st Century Patent Reform ......................................... 35 

Prepared statement .......................................................................................... 37 

Answers to submitted questions ...................................................................... 114 

Jason Schultz, Associate Professor of Clinical Law, New York University 

School of Law ........................................................................................................ 48 

Prepared statement .......................................................................................... 50 

Answers to submitted questions ...................................................................... 130 

Mark Chandler, Senior Vice President and Chief Compliance Officer, Cisco 

Systems Incorporated .......................................................................................... 54 

Prepared statement .......................................................................................... 56 

Answers to submitted questions ...................................................................... 137 

Michael Dixon, Ph.D., President and CEO, UNeMed Corporation ..................... 69 

Prepared statement .......................................................................................... 71 

Answers to submitted questions ...................................................................... 142 

SUBMITTED MATERIAL

Material submitted by Mr. Terry ........................................................................... 92 

(1) 

TROLLING FOR A SOLUTION: ENDING 

ABUSIVE PATENT DEMAND LETTERS 

APRIL 8, 2014 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON COMMERCE, MANUFACTURING, AND

TRADE, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 10:05 a.m., in room 

2123 of the Rayburn House Office Building, Hon. Lee Terry (chairman of the subcommittee) presiding. 

Members present: Representatives Terry, Lance, Olson, McKinley, Kinzinger, Bilirakis, Johnson, Long, Schakowsky, McNerney, 

Welch, Rush, Matheson, and Barrow. 

Staff present: Charlotte Baker, Deputy Communications Director; 

Kirby Howard, Legislative Clerk; Brian McCullough, Senior Professional Staff Member, CMT; Paul Nagle, Chief Counsel, CMT; Shannon Weinberg Taylor, Counsel, CMT; Graham Dufault, CMT; 

Michelle Ash, Democratic Chief Counsel; and Will Wallace, Democratic Professional Staff Member. 

Mr. TERRY. We are going to go ahead and start, and I want to 

thank our witnesses. This is Paul’s first time in the chair replacing 

Gib Mullen, so, Paul, thank you for your good work. I just want to 

let people know, or the witnesses, I appreciate you coming here 

today, and one of them, extraordinary circumstances, Mr. 

Brouillard, who actually could have attended the NCAA final game 

last night, and is a UConn fan, and from Connecticut. So that is 

a bigger sacrifice than we usually encounter here. 

Mr. BROUILLARD. I gave my tickets up to be here, Mr. Chairman. 

Mr. TERRY. Yes. Now some of us are doubting your ability to 

make good decisions. But we are thankful that you did that. And 

I will introduce all of you before we actually start your testimony, 

and so now I am going to start my opening statement. 

OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA 

Mr. TERRY. Good morning, and welcome, everyone, to today’s 

hearing, called, ‘‘Trolling for a Solution, Ending Abusive Patent Demand Letters’’. As Thomas Edison once said, to invent you need a 

good imagination and a pile of junk. That may be true, but I would 

also add that you also need to fight for your invention because, as 

Thomas Moore said, it is naturally given to all men to esteem their 

own inventions best. 

2 

Now, in competition of ideas, whether we are talking about a multinational company that spends $8 million per day on R and D, 

or an inventor with a workshop in his basement, the Constitution 

treats intellectual property equally. So let me start by saying that 

we must respect the arrangement small inventors need in order to 

enforce their patent rights. And while we are at it, let us emphasize that not all patent assertion entities are trolls. The role of patent assertion entities is very important for small inventors who 

lack the resources to enforce his or her own property rights. Taking 

away or degradating the flexibility to assign enforcement rights 

would do nothing less than encroach on an inventor’s constitutional 

right to exclude others from infringing their property rights. 

With that said, what we address today are instances where bad 

actors extort money from innocent parties under the pretense of asserting intellectual property rights. This kind of activity belongs in 

the same family as other type of unfair and deceptive trade practices. Our job is to separate it from legitimate right assertions. In 

order to do so, we have here today a diverse panel of witnesses 

whose testimony gives us a variety of perspectives on the issue. 

Already we are seeing a set of potentially conflicting considerations. First, patent enforcement differs across industries. According to UNeMed testimony, it considers listing patent claims and demand letters to be standard procedure. Caterpillar, on the other 

hand, would find it difficult in some situations to list the exact 

claim at issue because it often lacks access to the potentially infringing product. 

Second, some argue that we should only address letters sent to 

end-users of patents. Now, this may fail to address situations like 

the one in UNeMed’s testimony, where a small inventor was 

slapped with an abusive demand letter just after clearing an FDA 

approval process. Even so, the majority of complaints on this issue 

appear to come from the end-users who are not versed in patent 

law. 

I will not exhaust the issues before us today, but I want to clarify 

one thing. Some may say that legislative action to curb abusive demand letters would devalue intellectual property rights generally. 

I disagree. In fact, it remains that these bad actors are arrogantly 

manipulating the intellectual property system and getting away 

with it. Several state Attorney Generals, including John Bruning 

of Nebraska, have brought suits under their consumer protection 

statutes tools, and thus have far proven difficult to use. As a result, 

many states are working rapidly to update their laws. 

There is something to be done here, and in order to get it right 

we will need the assistance of all of the stakeholders and witnesses 

here before us today, and I thank the witnesses for being here. 

[The prepared statement of Mr. Terry follows:] 

PREPARED STATEMENT OF HON. LEE TERRY

Good morning, and welcome to our hearing today titled Trolling for a Solution: 

Ending Abusive Patent Demand Letters. 

As Thomas Edison once said, ‘‘To invent, you need a good imagination and a pile 

of junk.’’ 

That may be true, but I would add that you also need to fight for your inventionbecause, as Thomas More said, ‘‘It is naturally given to all men to esteem their own 

inventions best.’’ 

3 

Now, in the competition of ideas-whether we are talking about a multinational company that spends $8 million per day on R&D or an inventor with a workshop 

in the basement-the Constitution treats intellectual property the same. 

So let me start by saying that we must respect the arrangements small inventors 

need to make in order to enforce their patent rights. While we’re at it, let me emphasize that not all ‘‘patent assertion entities’’ are ‘‘trolls.’’ 

The role of the Patent Assertion Entity (PAE) is very important for a small inventor who lacks the resources to enforce his or her own property rights. Taking away 

or degrading the flexibility to assign enforcement rights would do nothing less than 

encroach on inventors’ constitutional right to exclude others from infringing their 

property rights. 

With that said, what we address today are instances where bad actors extort 

money from innocent parties under the pretense of asserting intellectual property 

rights. This kind of activity belongs in the same family as other types of unfair and 

deceptive trade practices-our job is to separate it from legitimate rights assertion. 

In order to do so, we have here today a diverse panel of witnesses whose testimony gives us a variety of perspectives on the issue. Already, we are seeing a set 

of potentially conflicting considerations. First, patent enforcement differs across industries. According to UNeMed’s testimony, it considers listing patent claims in demand letters to be standard procedure. Caterpillar, on the other hand, would find 

it difficult in some situations to list the exact claim at issue because it often lacks 

access to the potentially infringing product. 

Second, some argue that we should only address letters sent to end users of patents. This may fail to address situations like the one in UNeMed’s testimony, where 

a small inventor was slapped with an abusive demand letter just after clearing an 

FDA approval process. Even so, the majority of complaints on this issue appear to 

come from end users who are not versed in patent law. 

I will not exhaust the issues before us today, but I want to clarify one thing. Some 

may say that legislative action to curb abusive demand letters would devalue intellectual property rights generally. I disagree. The fact remains that these bad actors 

are arrogantly manipulating the intellectual property system-and they’re getting 

away with it. 

Several state attorneys general have brought suits under their consumer protection statutes, tools that have thus far proven difficult to use-and as a result, many 

states are working rapidly to update their laws. 

There is something to be done here and in order to get it right we’ll need the assistance of all stakeholders. 

I thank the witnesses for being here today and providing their valuable insights. 

Mr. TERRY. Have one minute. Does anybody want it? Hearing 

none, I yield back my time, and recognize the Ranking Member of 

our subcommittee, Ms. Schakowsky. 

OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman, for holding this important hearing on patent assertion entities, also known as patent 

trolls. And like you, I want to develop a solution to this growing 

issue, and look forward to doing so in a bipartisan manner. 

Trolls assert that the patents they hold have been infringed 

upon, sending vague and threatening letters to hundreds, or even 

thousands of end-users of products, typically small businesses or 

entrepreneurs. Those businesses are told that they can pay the patent troll to continue using the technology. Considering the cost and 

resources needed to vet and fight a patent infringement claim, may 

small businesses choose to settle the claim by paying the troll. Others investigate and fight the claims, draining precious resources, 

and stunting the growth of their businesses. 

It costs patent trolls virtually nothing to send patent demand letters, but it can be incredibly lucrative, and business is booming. In 

2011 patent troll costs U.S. businesses an estimated $29 billion, 

4 

and the number of defendants in patent infringement lawsuits increased about 130 percent from 2007 to 2011, according to the Government Accountability Office. At best, patent trolls are misleading. At worst, they are extortionists. This is fundamentally a 

fairness issue. As the subcommittee charged with protecting consumers and promising fair business practices, we must take action 

to reduce frivolous patent claims. 

I am glad that the FTC, the Federal Trade Commission, is using 

its existing authority to better understand the nature of patent assertion entities, and the demand letters that they issue. I look forward to the commission’s analysis, which I believe will be instructive as we decide how to curb trolling. 

Nonetheless, while we wait for the FTC review, there are steps 

that we can, and should, take now to combat patent trolls. I believe 

there should be more transparency and minimum standards established for patent demand letters. There are many ideas about how 

to increase transparency, including proposals to require the public 

disclosure of egregious patent demand letters. There are also suggestions as to the minimum information that should be included in 

a patent demand letter, including the patent allegedly infringed, 

and the technology used that allegedly infringes on the patent. 

However, it is vitally important that we approach this issue with 

the recognition that many patent infringement claims are reasonable efforts to protect intellectual property. We also need to be 

careful to make sure that universities, research institutions, and 

others that develop and hold patents, but may not develop products 

for sale, are not labeled as trolls. In fighting trolls, we shouldn’t 

undermine the ability of innovators to develop and defend their 

patents. 

While our witnesses today come at this issue from a wide variety 

of perspectives, it was interesting to read in their prepared testimony that each believes that this is an issue in need of attention. 

The details of whatever legislation this committee puts forth will 

be incredibly important, but the fact that our witnesses unanimously agree that we have a problem is an important start. I look 

forward to hearing their perspective about how legislation should 

be structured to make sure that patent demand letters are more 

fair and transparent moving forward. 

Again, thank you for holding this hearing today, Mr. Chairman. 

I yield the remainder of my time to Mr. Welch. 

Mr. WELCH. Thank you very much. I am getting the opportunity 

to introduce our Attorney General in Vermont, and we are very 

proud of Bill Sorrell for the leadership that you have provided, and 

also the other panelists too. This is an incredible issue, and Bill 

Sorrell was very responsive to a lot of the folks, that range from 

businesses that got these unbelievable stick-up letters, to non-profits, where these parents had raised money in the community to set 

up a group home for disabled kids, and next thing you know, their 

threadbare budget is being threatened by these letters, demanding 

payment for—they couldn’t figure it out. 

And, Bill, you worked with Jerry Tarrant and others with our 

legal community there. It was very responsive, and you are working with your fellow Attorney Generals. Mr. Chair, our Attorney 

General was the former head of the Attorney Generals. He has reVerDate Nov 24 2008 11:43 May 22, 2015 Jkt 037690 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-138 CHRIS
5 

ceived numerous awards. I am not going to bore everybody with 

what they are, but I will tell you they are good, and a lot of us wish 

we had them as well. Leader in tobacco legislation, Humane Society issues, champion for kids, taking the fight about prescription 

drug medication abuse, and abuse of drugs in our state. So it is 

great to have Bill Sorrell here, and it is great to have you on the 

patent troll issue, and we look forward to working together to try 

to deal with this. Thank you. I yield back. Thank you, Ranking 

Member Schakowsky. 

Ms. SCHAKOWSKY. And I yield back. 

Mr. TERRY. All right. Does anyone on the Republican side want 

time? I have to talk slow to draw this out. Anybody want to talk 

about the game? All right. Seeing none, no one taking our time, 

then, Mr. McNerney, you are our resident patent holder. Would you 

like the minority’s time? 

Mr. MCNERNEY. I sure would. 

Mr. TERRY. But you are the only one. You are the expert. 

Mr. MCNERNEY. I thank you, Mr. Chairman. 

Mr. TERRY. You are recognized for 5 minutes. 

OPENING STATEMENT OF HON. JERRY MCNERNEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. MCNERNEY. I appreciate your calling this hearing. You 

know, if you hang around here for long enough, you see the advertisements in the Hill rags about patent trolls taking more and 

more money over time, and those will get your attention. If you 

take the Metro, you see, every so often at the Metro stops, big advertisements, so this is clearly an issue. The fact that the so-called 

patent trolls are demanding stick-up letters, as my friend from 

Vermont said, it is an issue. We need to address it. There is a general understanding that this is a problem, and I am glad to see this 

come up in a hearing so that we can hear your inputs, how we can 

move forward together, how we can best address this issue. 

As the Chairman said, I have patents. One of them is a Fat Wire 

patent, and the other a software patent, so I kind of understand 

where we could be with this issue. I understand, as a small patent 

holder, how difficult it would be to assert your rights against a 

large corporation, if that comes to that. 

So there is a place for patent assertion entities. I want to see 

that preserved, but we want to see that the sort of stick-up nature 

of this is curtailed, so it is a balance. It is important to have a well 

thought out and meaningful bipartisan discussion, and I think, on 

this particular issue, we have a good desire to work on a bipartisan 

basis. 

So we have an opportunity to make it better, and I am hoping 

to be a part of that. I am hoping that your testimony can help 

guide us on the decisions that we need to make. So, with that, I 

am going to yield back, Mr. Chairman. 

Mr. TERRY. Anyone else? All right. So Mr. Schultz—— 

Ms. SCHAKOWSKY. Would either of the other members of the committee—no? OK. Mr. Matheson or Mr. Barrow? No? OK. Thank 

you. 

6 

Mr. TERRY. Gentlelady yields back, and so I want to introduce 

our panel now. Bill Sorrell is one of our resident expert witnesses 

from the AG’s office, and we appreciate you being here today. For 

those of you who haven’t testified before us, we go stage left to 

right, so, Mr. Sorrell, as Attorney General of Vermont, will go first. 

Then we now have Mr. Bouillard, the person who gave up his 

tickets last night to be here, and your sacrifice is massive, and well 

appreciated. You represent the Savings Institute Bank and Trust 

Company on behalf of the American Bankers Association. Then, 

next to him, Mr. Skarvan is Deputy General Counsel, Intellectual 

Property for Caterpillar. Appreciate your appearance. 

Then Mr. Schultz, or as we call him, Jason ‘‘Just In Time’’ 

Schultz, Associate Professor of Clinical Law, New York University 

School of Law, and we understand it has been a difficult morning 

for you, and we appreciate that you undertook these heroic efforts 

to get here today. Thank you. 

Then we have Mr. Mark Chandler, Senior Vice President and 

Chief Compliance Officer of Cisco Systems, who has great experience with these type of demand letters. 

Then, last, Mr. Michael Dixon, Ph.D. Dr. Dixon is President and 

CEO of UNeMed Corporation, University of Nebraska’s holding 

business of all of the patents generated by the University. 

So, at this time, Mr. Sorrell, you are recognized for your 5 minutes. 

STATEMENTS OF THE HONORABLE WILLIAM SORRELL, ATTORNEY GENERAL, STATE OF VERMONT; RHEO 

BROUILLARD, PRESIDENT AND CEO, SAVINGS INSTITUTE 

BANK AND TRUST COMPANY, ON BEHALF OF AMERICAN 

BANKERS ASSOCIATION; DENNIS SKARVAN, DEPUTY GENERAL COUNSEL, INTELLECTUAL PROPERTY GROUP, ON BEHALF OF COALITION FOR 21ST CENTURY PATENT REFORM; 

JASON SCHULTZ, ASSOCIATE PROFESSOR OF CLINICAL LAW, 

NEW YORK UNIVERSITY SCHOOL OF LAW; MARK CHANDLER, 

SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER, CISCO SYSTEMS INCORPORATED; AND MICHAEL 

DIXON, PH.D., PRESIDENT AND CEO, UNEMED CORPORATION 

STATEMENT OF WILLIAM SORRELL 

Mr. SORRELL. Thank you, Mr. Chairman, Ranking Member 

Schakowsky, members of the subcommittee. Thank you much for 

the opportunity to appear today and speak about an issue that is 

of great importance to the Nation’s Attorneys General, as evidenced 

by the fact that 42 offices signed on to a sign-on letter that we sent 

to the Senate drafted by General Buling and myself in February 

on these issues. Much of the work in the House and in the Senate 

on assertions of patent infringement have related to abusive litigation tactics, but the truth of the matter is that is just the tip of 

the iceberg, and I want to talk some today about the iceberg, the 

roughly as much as 99 percent of cases that don’t result in the filing of a civil complaint. 

And so I want to talk about, for example, Lincoln Street, Inc., a 

small nonprofit in Springfield, Vermont with 16 direct care workers, 12 or 13 administration and support staff, that provide home 

7 

care to developmentally disabled Vermonters. In the fall of 2012, 

Lincoln Street received a letter from one of the roughly 40 shell 

subsidiary corporations of a parent corporation by the name of 

MPHJ Technology Investments, LLC. Paraphrasing, the letter 

says, we own patents X and Y, we believe you are in violation of 

them, and that you are scanning documents and sending those in 

e-mail through a computer network. Please be in touch with us 

within 2 weeks and prove to us that you are not infringing our patent, or talk to us about resolving this, and paying licensing fees to 

us. We have had a very positive response around the country from 

the business community, many companies agreeing to pay us 

$1,000 per employee. 

A couple weeks later, a second letter comes, this time from a 

Texas law firm by the name of Farney Daniels says, we have been 

retained because you didn’t respond to the first letter. This is serious. We hope that we don’t have to get to litigation, but unless you 

are in touch with us forthwith and resolve this amicably, it is going 

to be trouble, please take this serious. And then there is the third 

letter a couple weeks later, also from Farney Daniels. This one attaches a draft, Federal Court Complaint, against the recipient of 

the letter, and says that, if you don’t resolve this with us within 

2 weeks, we will,‘‘be forced to file a complaint against you.’’ If you 

are not in touch with us in 2 weeks, ‘‘litigation will ensue otherwise.’’ 

Well, it wasn’t just Lincoln Street that received that letter in the 

fall of 2012. We ultimately learned that 75 small businesses and 

nonprofits in the state received letters from one or other of the 

shell subsidiaries. And when we filed the first of its kind in the nation lawsuit in the spring of 2013 against MPHJ, as of that time, 

not one lawsuit had been filed in Vermont, nor had, to our knowledge, a lawsuit been filed by MPHJ, or any of its shell subsidiaries, 

anywhere in the country. The Federal Trade Commission, in a 

draft complaint against MPHJ, has looked outside Vermont, and in 

its draft complaint says that one of the 80 or more shell subsidiaries of MPHJ sent demand letters to 16,450 small businesses and 

nonprofits in all 50 states in this country. 

So that is part of the iceberg. Rest of the iceberg, or other parts 

of the iceberg, are demand letters to smaller financial institutions 

saying, your ATMs use the web, they are in violation of our patent. 

Others go to local coffee houses that have free Wi-Fi, we have patents, you are in violation of those, please pay up. 

We filed our lawsuit in State Court. We were immediately removed to Federal Court, and MPHJ has said, one, we are totally 

pre-empted, because this is a patent matter. You can’t be enforcing 

your State Consumer Protection Acts against us. And, second of all, 

you lack personal jurisdiction over us because all we have simply 

done is asserted patent infringement, and that doesn’t subject us 

to personal jurisdiction. 

We also enacted in Vermont a statute on bad faith assertions of 

patent infringement at the request of various well known Vermont 

companies, and Utah, Virginia, Wisconsin, and Oregon have followed suit and adopted their own statutes. There are many others 

considering it. We hope that the Congress will take action, have 

more transparency in this arena, and evidence at the time of the 

8 

assertion of patent infringement of any other proceedings or court 

matters that have ruled upon the patents in question. We want express statements that the states are not pre-empted, and that we 

have personal jurisdiction for those that blanket our states with 

these assertions of patent infringement. 

I have got 21 seconds left, but—sorry, I read it wrong. Thank you 

very much. 

[The prepared statement of Mr. Sorrell follows:] 

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Mr. TERRY. Thank you, Bill. 

Mr. Brouillard, you are now recognized for your 5 minutes. 

STATEMENT OF RHEO BROUILLARD 

Mr. BROUILLARD. Thank you, Mr. Chairman, and Ranking Member Schakowsky. Thank you again for giving us the chance to come 

and present our information to you today. My bank is a $1.3 billion 

community bank that has been established since 1842. We serve 

Connecticut, and parts of Rhode Island. 

Obviously, the U.S. has a robust patent system which protects 

the rights of legitimate patent holders, and we believe those rights 

should continue to be protected. Patent trolls, however, as we have 

heard, abuse this system, and are serious threats to small businesses, banks, and credit unions throughout the country. 

For the cost of postage, a little stationary, and some time, these 

trolls use unscrupulous tactics to extort licensing fees from companies too small to pay the cost to defend themselves. The claims are 

often intentionally vague, and based on shaky legal standing. However, when confronted with threats of expensive litigation, many 

banks, especially smaller ones, find that their only option is to settle, rather than paying the millions of dollars it may cost to defend 

against extortive claims of patent infringement. 

I have seen this firsthand at my bank. In January 2013 a patent 

troll targeted my bank with a very vague letter, one page, claiming 

that they had conducted an investigation, and that our ATMs operated in a way that infringed upon their patents. Their letter included an exhibit which listed 13 patent numbers, purported to be 

patent numbers. So we had a list of 13 seven digit numbers. That 

was the extent of the information provided. They demanded a sublicensing agreement, and, as Attorney General Sorrell indicated, we 

had 2 weeks to comply. Thirty other banks in Connecticut received 

that same vague notice, one of which included a bank that did not 

even have any ATMs, so there was obviously no investigation ever 

conducted. 

The pattern of these trolls is to send demand letters, threaten, 

or even file, lawsuits, and require a response within a short period 

of time. By forcing these settlements, they use these actions to intimidate their other targets. In fact, 2 years before we received our 

demand letter, this same troll brought suits in other New England 

states, and, because of fear and lack of resources, over 100 banks 

quickly settled. The following year, 80 letters were sent to Maine 

and Massachusetts banks. They too ultimately settled. 

All of these letters were mailed, in fact, after a Federal Circuit 

Court upheld a lower court ruling invalidating the primary patent. 

Many of these banks ended up settling and paying their so-called 

sublicensing fee, as opposed to contesting the issue, because of the 

cost. In some respect, in Connecticut, we were lucky. We had 

learned about the troll having done its work earlier in the other 

New England states, and we also had the advantage of hearing 

about some of the rulings that were coming out of the courts 

against this particular troll. 

For my bank, the cost would have been $27,000, which at the 

time represented about 10 percent of monthly earnings for the 

bank. For the 30 Connecticut banks targeted, had we paid together, 

28 

the amount would have been in excess of $300,000. Even though 

the courts have invalidated the patents, this has not stopped this 

particular troll from sending demand letters, and bringing legal action against other banks in other states. I am aware that there 

have been additional suits filed even this year in New York and 

New Jersey. We thank Congress for seriously addressing this issue, 

and commend the House for passing H.R. 3309, the Innovation Act, 

which begins to address the issue, but we feel this is just the first 

step, and more can be done. 

Chief among these is to require transparency in all allegations 

of a patent infringement, including details about the patent, how 

the target firm is infringing on it, who the real owner of the patent 

is, and whether the patent has expired, or been invalidated. This 

would help put an end to some of the abuses, while protecting legitimate patent holders. Other requirements we recommend include a registry of demand letters, and requiring bad actors to reimburse the small businesses for all fees and costs, including the 

costs to defend themselves. 

Vendors who supply technology and equipment should be made 

to defend their products against patent infringement claims. Many 

contracts today specifically exclude such a role, and small businesses are often not in a position to force changes in that language. 

In summary, the problem with patent trolls is widespread and 

getting worse, while the number of demand letters rises sharply 

each year. Fighting these trolls has a real cost, and we certainly 

urge Congress to take action to stop patent trolls, and protect small 

businesses from the enormous cost of abusive lawsuits. Thank you. 

[The prepared statement of Mr. Brouillard follows:] 

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35 

Mr. TERRY. Thank you. 

Mr. Skarvan, you are now recognized for your 5 minutes. 

STATEMENT OF DENNIS SKARVAN 

Mr. SKARVAN. Thank you, Mr. Chairman, Ranking Member 

Schakowsky, and members of the subcommittee. I am testifying 

today on behalf of the Coalition for 21st Century Patent Reform, 

or 21C, a broad and diverse group of nearly 50 corporations, including 3M, Caterpillar, Eli Lilly, General Electric, Proctor and Gamble, and Johnson and Johnson. For more than 100 years, our coalition’s companies have played a critical role in fostering innovation. 

We invest billions of dollars annually on research and development 

to create American jobs and improve lives. Caterpillar alone has 

more than 14,000 patents worldwide, either awarded, or in the approval process. Caterpillar is a company of innovation. We spend 

$8 million a day on R and D. 

Let me say at the outset that we believe bad faith demand letters 

are a problem, and we support crafting a balanced solution. Notification of patent rights are routinely presented in business to business communications to provide early notice of a patent that otherwise may not be known to the recipient. Patent demand communications can also start the clock running on patent damages. Recipients take these letters seriously in the design and development 

of new products and technology, oftentimes designing around the 

patent to avoid knowingly infringing another party’s rights. 

In many instances, the primary goal of the sender is simply to 

prevent copying, and ensure product differentiation within an industry. This is best accomplished by providing early notice, before 

monies are committed to substantial design and manufacturing investment, so that design-arounds are more readily accomplished. 

Thus, legitimate patent demand communications serve an important role in advancing technologies, providing consumers more 

choices, and ensuring the efficient self-policing of patent rights, 

preventing patent suits before they happen. 

We believe that legislation on patent demand communications 

should address three areas of concern. 

One, sanctions should be limited to those who send objectively 

false and misleading patent demand letter to large numbers of endusers to extort settlements. Routine business to business communications should not be swept in. 

Two, clear rules of the road, with objective guidance as to what 

such communications should and should not contain, not a list of 

vague and subjective good faith and bad faith factors for a court 

to weigh in determining what constitutes a bad faith patent demand letter. 

And finally, three, a safe harbor should be provided that clearly 

states what all patent owners remain free to do. By safe harbor, 

I mean a provision clearly informing all patent owners that they 

may: one, safely advise others of their ownership of, or right to license, or enforce a patent; two, to safely communicate to others 

that a patent is available for license or sale; three, to safely notify 

another, with reasonable specificity that they infringe a patent; or, 

four, to safely seek compensation for past or present infringement, 

or for a license to the patent. An appropriately crafted safe harbor 

36 

will also help to insulate any legislation from challenge on Constitutional grounds as intruding on protected free speech. 

Clearly, the sending of large numbers of objectively false, misleading, and deceptive demand letters needs to be stopped. The key 

here is objectivity. A laundry list with a large number of subjective 

good faith or bad faith factors to judge whether a demand letter 

crossed the line must be avoided. Such lists provide no meaningful 

guidance to the sender of a patent demand communication. Such 

subjective factors will spawn unnecessary litigation, and are not 

likely to pass constitutional muster. Reasonable, clear, objective 

rules of the road are needed to guide normal business activities, 

rules that will not overreach and chill legitimate patent communications. 

We have seen a variety of bills working their way through the 

states. We have seen legislation covering what I will term legitimate patent demand communications, legislation not limited to 

end-users, legislation without safe harbors, and legislation with 

vague worded factors that could sanction a perfectly legitimate patent demand communication. These differences in state legislation 

make it difficult, if not impossible, to provide clear guidance regarding what form of patent demand communications will be permissible nationally. 

In conclusion, the public will benefit from the adoption of clear, 

balanced, and uniform guidance regarding the patent demand letters that constitute unfair or deceptive trade practices. This can be 

accomplished by the adoption of exclusive Federal legislation preempting state law directed to patent demand letters. Private enforcement under state Unfair or Deceptive Trade Practices laws 

should also be pre-empted, and limited to Attorney General enforcement. 

Thank you, Mr. Chairman. I will be pleased to answer to any—— 

[The prepared statement of Mr. Skarvan follows:] 

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Mr. TERRY. Thank you, Mr. Skarvan. 

Mr. Schultz, you are now recognized for your 5 minutes. 

STATEMENT OF JASON SCHULTZ 

Mr. SCHULTZ. Thank you, Chairman Terry, and Ranking Member 

Schakowsky, and members of the subcommittee. And, again, apologies for my delay getting here. 

At NYU Law I run a law and technology policy clinic, and for 

some people that is a bit of a confusion. They are like, what do you 

mean? What is a pro bono clinic doing in the law and technology 

area? Well, one of the things we do is we get a lot of e-mails and 

phone calls from some of these people who have received demand 

letters and can’t afford to hire a patent attorney, and they want to 

know what to do. 

And I can tell you from my experience, now over 10 years generally, but specifically 7 years running pro bono clinics such as 

these, that, when I look at the letter, if it is some vague letter that 

doesn’t actually specify what the accusations of infringement are, 

sometimes what all the patents are, and the claims at issue, it is 

hard for me to tell. It is hard for me to tell them anything. It is 

hard for my students, who I am supervising, and trying to teach 

to be lawyers, to tell them anything. And that is why I think this 

issue is very important, and I am very glad the subcommittee is 

taking it up, because this is not just about the shakedown. This is 

not just about the end-user or the small business who receives a 

letter, but it is also about helping them, if they can find help, to 

have the attorneys be able to advise them. 

It is one thing to defend a patent litigation, and we have seen 

a lot of statistics about how many millions of dollars that takes, 

but sometimes you can resolve these issues in good faith, if you 

have enough information. So I just want to highlight that this is 

about an intermediate step, as much as a final step, in sort of looking at this problem broadly. 

Now, who are the people who receive demand letters? You have 

heard about a number of folks who are in very precarious situations when they receive these letters. My clinic and my students, 

we often will advise very small entrepreneurs in terms of the size 

of their operation. These will be application developers who are just 

writing something for the iTunes or Google App store. They will be 

mom and pop Web sites who are trying to develop their own content. Some of these patents actually cover content, and the use of 

content, and how it interacts with technology. And some of them 

will be community projects. We have seen a lot of work right now 

developing civic technology to try and improve roads, to try and improve use of data, and look at the environment, improve water 

quality. They are all receiving patent demand letters too, many of 

them just as vague as the ones you have been hearing about. 

So in this role, there are sort of two problems that I think this 

committee could address. One is, as we have heard, that there are 

these vaguenesses that in some ways can even be deceptive when 

they are being asserted as a guaranteed infringement. So the patent owner will send a letter, say, you infringed this patent, but 

won’t explain why, when I don’t think even the patent owner 

knows, because this will be part of a campaign of general assertion, 

49 

not specific to any individual or entity, but just, we believe this 

whole group of people out there somehow infringed. And they assert it as if it is the truth, but they don’t even know, and that, to 

me, is deceptive. And the second is, as we have heard, when they 

have no intention to sue whatsoever, that the threats made are intimidating, and put the recipients in a position where they don’t actually know what their options are. 

So when looking at this, I think we have just started to collect 

information about the problem, and I just want to say that efforts 

to try and collect more demand letters, such as trollingeffects.org, 

have been somewhat successful, but I would like to see more information so we can understand the scope of the problem. 

But turning to the solution, I think that, for me, these letters 

should be required to have specific allegations and information in 

them so that the recipient can look at them and assess what is actually going on, what are they being accused of? Several of the 

small entrepreneurs, and coders, and developers that I have talked 

to, they are actually technical people. They could actually try and 

figure this out, but they look at the letter, and they say, I have no 

idea what they are talking about. 

And part of that is not just because the patent is vague, but because there is no information about what that patent owner things 

that this small coder did, or what the application that they put up 

on the iTunes store does that they think infringes. And so that information would be extremely helpful, and to require that, to require the patent owner to do their homework, to look at what this 

recipient has done, would be extremely helpful for the people that 

my students and I help. 

I think it would also help those who are recipients of good faith 

demand letters as well, because let us say you do actually infringe 

the patent. Well, you should then figure out, are you going to design around it? Are you going to pay the license? Are you going to 

fight the patent because you believe it is invalid, even though you 

might actually fall into the claims? Those are legitimate decisions, 

and, again, more information early on helps resolve this at the 

lower cost. 

The other thing is that our public patent system is a public notice system. And I just want to reinforce that, as my final point, 

to say that it is as much about what the patent says when it is 

published at the Federal Register, but also when a patent owner 

is asserting it, they are asserting a public grant to them of a property right. And I think that the meets and bounds of that assertion, 

and when you trespass on it, should be as clear as anything else. 

Thank you. 

[The prepared statement of Mr. Schultz follows:] 

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Mr. TERRY. Thank you. 

Mr. Chandler, you are recognized for 5 minutes. 

STATEMENT OF MARK CHANDLER 

Mr. CHANDLER. Thank you, Chairman Terry, Ranking Member 

Schakowsky, members of the subcommittee. My name is Mark 

Chandler. I am General Counsel of Cisco Systems. I am here today 

to describe our experience with a new kind of scam. I am talking 

about a rip-off that is based on a formula that is as old as the hills, 

but dressed up as patent infringement and innovation protection. 

The scam artists, as you have heard, send out thousands of letters 

not to me, but to my small business customers, and they file lawsuits in the hope of a payday not based on the merits of the case, 

but on the fears of victims who just want a problem to go away. 

These victims, mom and pop stores, community banks, hospitals, 

car dealers, restaurants, aren’t manufacturers of products. I do 

that. They are simply users, like you and me in our private lives. 

As Cisco’s chief legal officer, I want to defend my customers, but 

we need your help in bringing some light, some sunshine, to these 

nefarious practices. Cisco was founded 30 years ago to build products so incompatible computer systems could talk to each other. 

Today we are the world’s largest manufacturer of Internet equipment, from backbone switches, to phone and video systems. Our 

annual revenue is about $50 billion, and we directly or indirectly 

provide jobs to hundreds of thousands of Americans. Our products 

are used literally by billions of people around the globe, and are in 

tens of millions of American homes and businesses. We spend more 

than $7 billion a year on research and development. We hold over 

10,000 individual U.S. patents. We believe in a strong patent system. 

Now let me tell you a story which, unfortunately, is not unique. 

The story is not about patents. It is about using patents as the 

cover for a scam. Our story begins when a lawyer named Noah 

Whitley bought patents related to Wi-Fi from a great American 

chip maker, Broadcom, and created an entity that I think the 

somewhat cynically named Innovatio. Broadcom, for its part, didn’t 

want the patents anymore, since they were near expiration, had 

been broadly cross-licensed to other chip companies, and were subject to binding contracts requiring licensing on fair terms. 

But Whitley wasn’t deterred by that. He and his lawyers sent 

14,000 letters to small businesses, cafes, bakeries, inns and hotels, 

a children’s health clinic, basically anyone that might use Wi-Fi in 

their place of business. Did he tell them what specific products 

they had might infringe, might have? Not even a list of types of 

products? No. Instead, his lawyers just wrote, ‘‘I represent an individual who has suffered injuries as a result of your company’s business,’’ and claiming that the Innovatio portfolio covers all Wi-Fi 

usage. 

Did his lawyers disclose that a huge proportion of Wi-Fi devices 

were already licensed, and therefore no more could legally be collected on those patents? No. Instead, he told them that almost a 

billion dollars had been collected in royalties on those patents, that 

thousands of companies had paid, without letting on that almost all 

55 

those royalties were exclusively collected by Broadcom in cross-licenses that had little or nothing to do with these patents. 

Did they tell them that the patents related to industry standards, and had to be licensed on fair terms? No. Instead, they told 

them, and again I quote, ‘‘We wish to license your company at a 

very affordable rate, far less than the cost of patent litigation. I can 

quote you a rate of less than $3,000 per location.’’ This for patents 

that a court later determined were worth pennies per chip, and 

equipment that these businesses had spent, at most, a few hundred 

dollars to buy. 

And did they tell them that manufacturers, like my company, 

were eager to defend them? No. Instead, they wrote that equipment 

manufacturers have not stepped in to defend any of their users. 

This means we can still sue your client, and they cannot expect 

equipment manufacturers to aid in their defense. 

Finally, for those who had the temerity to resist, they enumerated thousands of pages of documents that they said needed to be 

reviewed, meaning a mountain of legal fees. Now, sadly, this isn’t 

an isolated incident, as General Sorrell, Mr. Brouillard, and others 

in the panel can tell you, but a dangerous trend. 

Let me close by suggesting four simple steps that would make it 

much harder to carry out these schemes. First, requiring anyone 

sending more than 10, or some other number of patent demand letters to someone who is not a manufacturer or re-seller of the product to file the letters in an online registry, so they are easy to find. 

Second, require them to include a list of model numbers which they 

believe infringe, the fact that the manufacturers may be required 

to defend, and contact information for the manufacturers. Third, 

require any such letter to include the names of the real entities or 

individuals who own the patents. And fourth, require the letters to 

include a list of all previous licenses, and whether the patents are 

subject to special licensing rules that apply to industry standards. 

While the FTC can already investigate and sue the most egregious patent scam artists, these simple steps will provide a basic 

level of transparency to protect innocent end-users. Requiring full 

disclosure about what is being offered for sale doesn’t violate anyone’s free speech. I stepped into that case, and I spent $13 million 

of my company’s money to put a stop to this. The paycheck I get 

every other week says Cisco on the top of it, but every cent of it 

comes from my customers. That is why I am here today. That is 

why I am passionate about making sure they don’t get ripped off 

by charlatans dressed up as innovators when they trust us to supply them with products. 

And, Mr. Chairman, if the predators are forced to come to me, 

once they have disclosed what they are after, I can guarantee they 

will get a fair fight. Thank you. 

[The prepared statement of Mr. Chandler follows:] 

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Mr. TERRY. Thank you. 

Dr. Dixon, you are now recognized for your 5 minutes. 

STATEMENT OF MICHAEL DIXON 

Mr. DIXON. Thank you, Chairman Terry, Ranking Member 

Schakowsky, and members of the subcommittee. I appreciate the 

opportunity to come here today. My name is Michael Dixon. I am 

president and CEO of UNeMed Corporation. We are the technology 

transfer and commercialization entity for the University of Nebraska Medical Center, so my testimony today will focus on preventing illegitimate and deceptive patent demand letters without 

modifying the U.S. patent system, or restricting university technology transfer offices. 

Universities are uniquely positioned here because we work with 

innovators at the university level, as well as downstream partners 

that are trying to commercialize our discoveries. I am going to have 

three main points today. One, universities have an enormous economic impact. Two, strong and forceful patents must be preserved. 

And three, ambiguous, vague patent demand letters are the lifeblood of patent trolls, and using a tool like the FTC makes much 

more sense than modifying patent law for a second time in two 

years. 

I would like to start by offering a bit of background on the scope 

of the University of Nebraska research and technology transfer. We 

are a proud member of the Big Ten, and have a very active research enterprise. Over the last 3 years we have invested $1.1 billion in research. Three quarters of that funding comes from Federal 

sources, such as NIH, NSF, and DOD. In that time, 625 new inventions were created, and that led to more than 150 licenses to companies. So that is 150 companies that are going to invest more 

money to bring these discoveries to life, and make the world a better place. 

Furthermore, 20 of those companies were created in Nebraska, 

creating economic development and jobs for Nebraskans in high 

growth, valuable companies. This licensing generated more than 

$37 million in revenue for the University of Nebraska, and that 

mean more money for research, and more discoveries. Now, we are 

just one of many universities that undertake this. Last year, as a 

total, U.S. universities filed over 22,000 patents. They executed 

more than 5,000 licensing agreements, and generated $2.6 billion 

in revenue. According to the Association for University Technology 

Managers, they added $385 billion to the U.S. GDP. This is a very 

big economic force. 

The economic impact is primarily based on patents. Companies 

are only interested in investing the millions or billions of dollars 

to bring these technologies to market if there is strong patent protection available. Quick story from our med center, as I mention in 

the testimony, the LeVeen needle electrode was invented at 

UNMC, and our industrial partner, Boston Scientific, brought it to 

the market. However, as the product neared FDA clearance, they 

found that it was necessary to enforce the licensed product against 

competitors. The parties both followed the appropriate protocol, 

worked out their differences through a patent infringement suit. 

70 

At the end, there was a cross-license, some payments, and the 

products were successfully brought to the marketplace. The system 

worked appropriately. The take-home message here is that any action must preserve patent rights, and to continue to provide incentives for both large and small businesses that invest in technology 

that makes our lives better. 

There is a common theme with patent demand letters, and that 

is ambiguity. We have heard it already, bad actors are trying to 

scare, deceive, inappropriately extort money under the guise of patent enforcement, and they often use a shotgun approach, peppering 

the industry with hundreds of letters, often lacking in detail. As a 

technology transfer office, not only do we work with startup companies who have received these letters, but we have also been on the 

other side, and we have had to enforce our patent rights. When we 

make that important decision to send a demand letter, we find it 

is critical to provide detailed information for the recipient. In addition to a reasonable standard, it allows the recipient to make informed decisions. 

In my written testimony, I offered seven items that we have in 

a demand letter. Items three through seven of this are often missing, as we have heard before, in demand letters. And I will say 

that, as a university, we are very conservative. We don’t take litigation lightly. When we send a demand letter, we are going to go 

do our homework. And so, for us, it is very important that the recipient know what claims they are infringing, and that we identify 

specifically what product it is that is infringing those claims. 

We want to make sure that the recipient knows who is suing 

them. Again, legitimate organizations don’t hide behind shadow entities. If someone is infringing our patent, we want them to know 

who we are, and what our patent claims. Our goal is to settle the 

disagreement and provide as much information as is critical for 

that to occur. Some trolls use marketing entities that have no subject matter expertise, and cannot answer simple questions relayed 

in the demand letter. This, coupled with a shell entity, leads to a 

series of deadends and frustration for small businesses with limited 

resources as expenses mount with no answers. 

Another quick story from one of our partners. They received a demand letter from a patent troll last month. While the letter identified the patent being infringed, it did not give the owner of the patent, the role of the organization contacting the company, a knowledgeable point of contact, or adequate time to respond. In fact, the 

point of contact turned out to be a marketing firm that was just 

established to send these letters through a shell company. The 

take-home message here is reduce the ambiguity associated with 

patent demand letters, and you will reduce the power of the patent 

trolls. 

Thank you very much for your time. I look forward to any questions. 

[The prepared statement of Mr. Dixon follows:] 

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Mr. TERRY. Thank you very much. And, I am sorry, Ranking 

Member Schakowsky has a meeting, so we are going to let her go 

out of order and ask the first set of questions. So, Ms. Schakowsky, 

you are now recognized for your 5 minutes. 

Ms. SCHAKOWSKY. I appreciate that, Mr. Chairman. Is there anyone on the panel who thinks that it would be inappropriate for Federal legislation, not getting into specifics, is there anybody who 

thinks that Federal legislation is unnecessary? OK. 

Attorney General Sorrell, you made a point of mentioning the 

issue of pre-emption in your testimony. I wondered if you could 

talk about that, though, on protecting whatever states do. 

Mr. SORRELL. We are currently in litigation under our state Consumer Protection Act for unfair and deceptive acts and practices in 

commerce against this MPHJ Technology Investment LLC. And as 

soon as we filed that action under our so-called UDAP statute, 

MPHJ removed the case to Federal Court, and promptly said two 

things. One, that since this was in the patent arena that the lawsuit is not only frivolous, and filed for political purposes, but that 

we are totally pre-empted because patents are exclusively within 

the province of the Federal government, and, secondarily, that we 

lack personal jurisdiction over them for simply asserting patent infringement by sending these letters. 

And that is why we are asking the Congress, if the Congress 

takes action here, to state clearly that AGs have legitimate—they 

are not pre-empted when there are unfair and deceptive acts and 

practices in the guise of an assertion of patent infringement, and 

that states are able to, without being pre-empted, enact statutes 

that prohibit bad faith assertions of patent infringement. So we are 

fighting that in Federal Court, U.S. District Court, in Vermont 

right now. And, given the fact that Nebraska, Minnesota, New 

York have already—— 

Ms. SCHAKOWSKY. You said Wisconsin? 

Mr. SORRELL. Wisconsin hasn’t yet, but Wisconsin has just enacted a statute on bad faith assertions of patent infringement, but 

the AGs of those other states have taken action, and in virtually 

each case been run up against this argument, you don’t have any 

business here, you are pre-empted, because this is patent—— 

Ms. SCHAKOWSKY. Forty-two AGs you said, right? 

Mr. SORRELL. Forty-two AGs signed a letter to Senate leadership 

about matters that are, actually just this week, moving forward in 

the Senate. 

Ms. SCHAKOWSKY. OK. Let me just go through a list of things we 

have heard from a number of you, things that should be in these 

letters, in the demand letters. If anyone thinks that they should 

not be in a demand letter, let me know. Raise your hand. Identification of the patent being infringed, identification of the owner of 

the patent, contact information for a person who can discuss resolution, identification of each claim of the patent being infringed, 

identification of the infringing device, method, or service. OK, 

which one was that? Identification of each claim? 

Mr. SKARVAN. Yes, identification—— 

Ms. SCHAKOWSKY. OK. 

Mr. SKARVAN [continuing]. Of each claim. I think it was referred 

to earlier that, certainly, on behalf of the 21C, a number of the 

77 

members have extremely large equipment not readily accessible. 

Information is not readily accessible regarding that piece of equipment. We usually rely on trade shows, and perhaps advertising, regarding certain features, or possible benefits that seem to look like 

something we have a patent on. So when I am asked to provide 

analysis, or identify a claim against a product, I simply can’t comply with that level of detail. I am not in possession of that information. 

Ms. SCHAKOWSKY. OK. It is on the record. Thank you. Identification of the infringing device, method, or service, a description of 

how the device, method, or service infringes, identification of entities, other than the patent owner, who may benefit from enforcement, identification of all entities that had been granted—go 

ahead. 

Mr. SKARVAN. I think you just have to be clear, when you talk 

about benefit from enforcement, that, I think, this additional detail 

is forthcoming, because there have been a number of proposals 

talking about how to identify that. Ultimately you are looking for 

somebody that, you know, in a lawsuit, their damages, if there is 

a fee paid, they would take and participate in that reward. 

Ms. SCHAKOWSKY. Identification of the parent company of the 

patent. 

Mr. SKARVAN. I will say, the devil is in the details. On the face, 

that looks simple. I have heard other companies state, for example, 

Intellectual Property Owners’ Organization, that that in itself can 

be difficult to ascertain and provide correctly. 

Ms. SCHAKOWSKY. OK. Identification of all entities that have 

been granted a license to the patent. 

Mr. SKARVAN. Again, I think you start to get into a little bit of 

a burdensome situation with a company with tens of thousands of 

patents to understand exactly the entire licensing spectrum regarding that patent. 

Ms. SCHAKOWSKY. OK. 

Mr. DIXON. Also, on that one, I will say, from the university 

standpoint—— 

Ms. SCHAKOWSKY. OK. 

Mr. DIXON [continuing]. If you are looking at non-exclusive licensing, sometimes those lists get very long, and sometimes a company’s trade practices, they request some confidentially that they, 

in license, that technology for competitive advantages. So that may 

become a little difficult. 

Ms. SCHAKOWSKY. OK. This is helpful. Notice to the recipient 

that they may have the right to have the manufacturer defend the 

case. 

Mr. SKARVAN. I am sorry, could you repeat that? 

Ms. SCHAKOWSKY. Notice to the recipient that they may have the 

right to have the manufacturer defend the case. And, last, some 

factual basis for the licensing fee, or settlement amount demanded, 

if any. 

Mr. SKARVAN. Well, again, I come back to, I think, the very basic 

elements. These all require additional, I think, discussion and explanation, because these concepts can be very complex. I think 

when you come to the very basic elements that should be the content of a patent communication representing a demand on someVerDate Nov 24 2008 11:43 May 22, 2015 Jkt 037690 PO 00000 Frm 00081 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-138 CHRIS
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thing, the identity a person or entity with a right to enforce the 

patent or patents forming the base of the demand, and identification with at least one product, service, or technology. Those, I 

think, are the key elements. When you add to those elements, I 

think you are getting into some very definitional and perhaps burdensome, complex disclosures that, really, at the point in time, are 

benefitting the assertion. 

Ms. SCHAKOWSKY. OK. My time is expired. I appreciate that. So, 

we can inquire among all of you in writing responses to these suggestions, or just proposals. Yes. Thank you. I hear you on the burdensome issue. 

Mr. TERRY. All right. Well, first of all, I think the nature of Ms. 

Schakowsky’s questions were pretty similar to what I was going to 

ask, but it shows that if we are going to do, and I would say it is 

likely that we would draft something sometime in the near future. 

What we are trying to figure out is what, if we draft a bill, needs 

to be in there, and it appears to us that we need to itemize, or be 

prescriptive, in what has to be in a demand letter. So that is why 

Ms. Schakowsky did a list of things that have been discussed that 

should be in there. 

Let me ask you just more generally, starting with you, Mr. 

Sorrell, or AG Sorrell, what are the characteristics that should be 

in a valid patent demand letter? 

Mr. SORRELL. It shouldn’t be any question of who is asserting the 

infringement. There should be evidence of investigation, or in depth 

analysis of this particular recipient’s use of the technology that is 

allegedly violative of the patent. It should be clear if there are others with an interest in this assertion of patent infringement, and 

who they are. There should be legitimate addresses, contact information, for those asserting the infringement. If this patent has 

been the subject of a final decision, administrative decision, or a judicial case against the patent that is being asserted, that information should be reflected, at least for starters, and the demand 

should give a reasonable amount of time for the person to respond. 

And there shouldn’t be this undue burden thrown to the recipient 

of a letter to prove your innocence, if you will. 

Mr. TERRY. Right. As quickly as possible, Mr. Brouillard—— 

Mr. BROUILLARD. Yes, sir. 

Mr. TERRY [continuing]. What points should be in a demand letter? 

Mr. BROUILLARD. I would agree. I think it is obvious you can’t 

receive a letter that simply says, A, we did an investigation, and 

found that you used our technology, and here is a list of numbers. 

It needs to be clearly identified as to what is being asserted, what 

investigation was conducted, how do you know that we are violating your patents? And, obviously, for someone like myself, who 

is totally ignorant of this issue until this all came up about a year 

and a half ago, there has to be something more than simply a list 

of numbers. To me, I don’t even know if those numbers were legitimate patent numbers. 

Mr. TERRY. OK. More—— 

Mr. BROUILLARD. More specificity in the claims that are being 

made. 

79 

Mr. TERRY. Mr. Skarvan, I am going to ask you the same question, but ask a little bit more clarity, because it does seem like you 

can identify what is being infringed. If you saw something at a 

trade show or an advertisement, you at least have a pretty good 

hunch that there may be an infringement. So it—— 

Mr. SKARVAN. I can suspect, because I obviously can’t see inside, 

and I am stuck with advertising. I do want to bring up a point that 

we discussed a few things, and I want to differentiate a bit, if you 

don’t mind, the difference between business-to-business communications, and the egregious actions I have heard here were endusers that are being targeted. And I will just say, in business-tobusiness communications, and patent demand letters, I think, generally under the law, the way it plays out, less is more, and let me 

explain that. 

The number one concern prior to all this legislation that I had 

when I sent out a patent demand letter, or any member of the 21C 

sends out a patent demand letter, is does that contain enough information that the recipient feels immediately threatened, and they 

now have potential jurisdiction, they call it declaratory judgment 

jurisdiction, to say, look, this entity has threatened me. I cannot 

continue on with my investment without some certainty here on 

this issue. They brought the threat, I want it determined now. And 

all of a sudden you are in a patent lawsuit under what they call 

a DJ action. 

And so when we send out letters, they tend to be a first in a series of letters. And when people point to a specific patent demand 

letter, all I can think of is, I have a series of letters to go out, none 

of them are the same. And they generally have these three things, 

but they don’t have to, because I have different target audiences 

I am sending this letter to. So I just want to make sure that this 

kind of correspondence, which I think less is more, keeping it out 

of the courts, doesn’t include a lot of these details. 

And so, in answer to your question, I don’t always have access 

to the information. I don’t have that detail, nor may I want to even 

put that level of detail or threat in my letter if it ends up inviting 

a DJ action, and brings a patent suit in court. 

Mr. TERRY. All right. The other three witnesses probably will 

have to submit that answer in writing, and I apologize that my 

time has run out. 

So, at this point, Mr. Welch, you are recognized for 2 1⁄2 minutes. 

No, Mr. McNerney, you are recognized for 5 minutes. 

Mr. MCNERNEY. Thank you for the full 5 minutes, Mr. Chairman. I think it was really good testimony. I thank you all for coming this morning. One of the things that I think was a matter of 

disagreement among the witnesses is how to enforce this. I mean, 

there is a pretty good agreement that the letters should have a degree of specificity, but, as Congress, can we write a law that is 

flexible enough that it will be effective, that the patent trolls won’t 

be able to get around, and so on, or should invest the FTC with 

the authority to do that in a way that would be effective? 

Mr. Dixon, I think you had mentioned that you thought the FTC. 

How would we empower them, or do you believe they already have 

enough authority in the existing statute? 

80 

Mr. DIXON. I believe the FTC does have some authority here, and 

it would be wise of Congress to remind them that they do have 

some authority on some unfair trade practices. I think giving a little more teeth to the FTC, and allowing them to look at these 

broad, vague patent demand letters, while still, I agree, allowing 

business to business communications to still occur, and for business 

to transact that way, and not having that fall under this FTC action, is very important. But I think giving them a little more authority would allow business to still go on, and for these legitimate 

actions to still take place, while not affecting general patent law 

itself, which is the lifeblood of many of our businesses. 

Mr. MCNERNEY. OK. Mr. Chandler, would you like to comment 

on that? 

Mr. CHANDLER. Yes. I would make one distinction. Mr. Skarvan 

referred to business-to-business, and I think what we are referring 

to here is letters addressed to end-users. The end-users may, in 

fact, be small businesses, and I am not sure that some of the issues 

that Mr. Skarvan had with some of Ranking Member Schakowsky’s 

enumerated proposals would apply in the case of an end-user communication, as opposed to when you are dealing with a competitor 

who is also a manufacturer, and where you have this dance that 

goes on in dealing with potential infringement allegations. 

In looking at the end-user situation, I think the space where Federal legislation would be very helpful would be to establish clearly 

that it is an unfair business practice, in those types of communications to end-users, to not include certain types of information. 

The FTC today can go after egregious misbehavers who are misleading and deceptive, but once you set a very clear set of standards, and also require transparency on those letters, manufacturers 

like me can step in. It almost becomes self-enforcing once you put 

some sunshine on these activities. And that is why there is a great 

opportunity to get something done here without creating a regulatory structure around it. What is really needed is daylight. 

Mr. MCNERNEY. So you feel that Cisco can do a good job in defending your customers, if you have the right tools to do that? 

Mr. CHANDLER. If we know this is going on, we can step in and 

do it. And if it is visible what is going on, these people will be 

forced to stop because the group of people who are being attacked 

can also band together and take action, as Mr. Brouillard has 

pointed out. But sometimes it takes some daylight before you know 

that this is actually happening. So transparency is really almost a 

solution in itself here. 

Mr. MCNERNEY. Thank you. Mr. Skarvan, one of the things you 

recommended was that sanctions be imposed on bad actors. 

Wouldn’t it be just easy for them, a bad actor, to put up another 

banner and continue on? Even though the first label is sanctioned, 

they can go to another label and carry on their activities? 

Mr. SKARVAN. Well, I think what you stated is correct. It is very, 

very difficult to capture some of these actors, and I think it is very 

difficult in capturing them with a single demand letter that does 

or does not meet, if you want to say, the requirements set forth in 

legislation. What I think works more effectively is to capture their 

behavior. And the behavior we are seeing, I think it has been said 

81 

today, is that these hundreds and thousands of letters go to endusers. 

And that is where you have got to really focus in on, and begin 

asking questions, because now you have got the behavior, and the 

business model I think people here are objecting to, these hundreds 

and thousands, I think it was 16,000—— 

Mr. MCNERNEY. Yes. 

Mr. SKARVAN [continuing]. Letters nationwide. And that is where 

I think the FTC, uniform laws, and certainly uniform enforcement 

by the Attorney General, they act as a clearing house to identify 

this rampant behavior. And once you can see that behavior, now 

I think it is pretty easy to begin the inquiry into the entities engaging in that behavior. 

Mr. MCNERNEY. Thank you. Thank you, Mr. Chairman. 

Mr. TERRY. Thank you. Now recognize Vice Chairman of the 

Committee, Mr. Leonard Lance. You are recognized for 5 minutes. 

Mr. LANCE. Thank you, Mr. Chairman. As I understand it, there 

are five or so existing state laws on this issue, and several other 

bills are awaiting signature by a governor, and there are as many 

as 19 bills pending in state legislatures. Given this situation, I 

would be interested in the panel’s view as to whether Federal legislation is needed. Attorney General? 

Mr. SORRELL. Yes, Federal legislation is needed, and hopefully 

included in that legislation would be an express statement that the 

states are allowed to enact their own statutes against bad faith assertions of patent infringement, and/or to enforce their standard 

Consumer Protection Acts. 

Mr. LANCE. Thank you. Others on the panel? 

Mr. BROUILLARD. Yes, I agree. I think that U.S. patent law is 

Federal legislation, and I think that anything that can be done to 

strengthen that legislation should be. In addition, I think to get 

back at the Congressman from California’s comment, it is going to 

take a concerted effort on both the Federal and state level, in some 

cases, to do that. And the last point I would make is that if you 

had Federal legislation, then it is more uniform across all states, 

rather than a hodgepodge for companies that operate in multistates to try to deal with. 

Mr. LANCE. Thank you. Others on the panel? 

Mr. SKARVAN. And I agree, and I am glad you brought that up, 

because not only is Federal legislation needed, but we need uniform 

legislation that provides the same, if you want to say, rules of the 

road across the states. States certainly can enforce through the AG, 

but as far as having different state statutes to provide different 

rules of the road, different, if you want to say, private causes of action, some have safe harbor, some have no safe harbor. I mean, 

looking for a little bit more uniformity. 

Mr. LANCE. Thank you. 

Mr. SCHULTZ. I would like to just add two things. One is that the 

patent system is an incentive system, and the Congress is in a 

great position to sort of balance those incentives. So if you want 

patent owners to do more to make sure that certain recipients get 

the information they need, you are giving them a patent, and you 

can require them to do things. I think that is a nice balance there 

that doesn’t preclude states, but it kind of gives you that power. 

82 

The other thing is this bottom-feeder model, this model where 

they just send out thousands of letters, is premised on the idea 

that they don’t have to be specific to the individual recipient, and 

I think that really needs to be in there someone, that core specificity, else they will just re-draft the letter in some other way. 

Mr. LANCE. Thank you. Others on the panel? 

Mr. Skarvan, you referenced safe harbor language in your comments, and in your testimony you suggest that safe harbor language be included. Do you have a specific idea what type of model 

you would like regarding safe harbor? Is there a provision in one 

of the state statutes that we might examine, and, if not, what 

would be an appropriate safe harbor provision, from your perspective? 

Mr. SKARVAN. I think the most recent state that enacted a safe 

harbor, and worked through some of the language difference, was 

Illinois—— 

Mr. LANCE. Illinois, yes. 

Mr. SKARVAN [continuing]. Statute, and when you look at the 

safe harbor, I think it is helpful to look at it in combination with 

the cause of action being limited to those letters sent to the endusers, and—— 

Mr. LANCE. Yes. 

Mr. SKARVAN [continuing]. Have a good definition for end-users, 

including businesses, not for resale, in that statute. And they also 

have, not the subjective fact, but very clear false behaviors, along 

with very clear requirements of the patent owner, the patent number, and the general product or service it covers. 

Mr. LANCE. So, from your perspective, we might examine the Illinois provision as a model for a Federal provision? 

Mr. SKARVAN. Yes. We have suggested that to other states. 

Mr. LANCE. Thank you. Others on the panel on whether there 

should be a safe harbor provision, and if so, what it should look 

like? No? Thank you, Mr. Chairman. I yield back the 37 seconds. 

Mr. TERRY. Thank you. At this time I recognize gentleman from 

Vermont to ask questions to another gentleman from Vermont—— 

Mr. WELCH. Well, and others as well. 

Mr. TERRY [continuing]. Mr. Welch. 

Mr. WELCH. Thank you. I actually wanted to start with Professor 

Schultz. What options does a small business or startup company 

currently have when they receive one of these vague threatening 

demand letters? 

Mr. SCHULTZ. So I think that, if they are taking a rational approach, they want to think about this as, you know, first, as we 

doing what they say? Are we infringing some patent? And then 

they have a couple of options. One is they can challenge that assertion, right, in that they can get an attorney, if they could afford 

one, or get pro bono counsel. 

The second is they can decide to change what they are doing, or 

design around that, and that is where the specificity really helps 

them. If they realize that it is only one small piece of whatever 

they are designing or doing, they can maybe change that, and then 

maybe settle a little bit, but move forward. 

And then the third is they can simply just pay to get out of the 

way, which what so many of these are doing. So I think we want 

83 

to give them valid choices, and the only way to do that is to have 

the specific information. 

Mr. WELCH. And then what is a remedy if there is an absence 

of specificity? 

Mr. SCHULTZ. You mean in terms of what? 

Mr. WELCH. For the receiver of that letter. 

Mr. SCHULTZ. I mean, they are really stuck in a kind of quandary, because they don’t know what to do. They can’t explore those 

other choices. They don’t know how to change what they are doing. 

They don’t know whether to challenge it, because the allegations 

aren’t there, so the only rational choice left is to pay off the sender. 

Mr. WELCH. OK. I want to go back to Mr. Sorrell, and have you 

think about this question too, because I might want to get your 

point of view. But you have been really advocating that this is a 

consumer protection issue, and that there has to be some role for 

the states, and it would be a mistake for the Federal government 

to pre-empt. Just elaborate on that a little bit. 

Mr. SORRELL. These efforts are so widespread that there is plenty of work for both Federal regulators and state regulators. If you 

look at it from the drug trafficking analogy, the Federal authorities 

typically take, you know, the cartels and the large dealers, and 

they leave the street dealers to the states. If we are looking at assertions of pattern infringement, I believe the FTC does have authority, but it can’t police this spectrum entirely, and there is a role 

for the states. 

Mr. WELCH. Professor Schultz, do you think that makes sense, in 

terms of a practical way to protect innocent victims, like the Lincoln Street example? You know, a small nonprofit, and those options you laid out, I think for them, mainly, they are just terrified, 

and they can’t make that phone call to the lawyer because they 

know the meter is running once that happens. And they hope it 

goes away, and it doesn’t. 

So it seems to me that what General Sorrell is suggesting, that 

there be a consumer protection element, a local ability of local consumer protection division, and an Attorney General’s office closer 

to the scene to be able to protect, I should say, the rights of some 

of these small businesses. 

Mr. SCHULTZ. Absolutely. I think that is an essential component. 

But I do think that, since the patent law is Federal, it is also worth 

looking at the incentive systems, and allowing the option that you 

could provide consequences in the Federal system too. Because—— 

Mr. WELCH. Right. 

Mr. SCHULTZ [continuing]. Some of these things do go to court, 

and when they go to court, there are consequences to whether the 

letter was sent, and what it said. 

Mr. WELCH. So if we provided consequences at the Federal level, 

I mean, I like what you are saying about the incentives, that 

makes a lot of sense to me, would we want the benefit of local enforcement of those standards that we have established here at the 

Federal level? 

Mr. SCHULTZ. Absolutely. I think both can coexist, and, in fact, 

contribute to the same goal. 

Mr. WELCH. OK. By the way, do patent holders, I will stay with 

you, Professor Schultz, other than the trolls, routinely target endVerDate Nov 24 2008 11:43 May 22, 2015 Jkt 037690 PO 00000 Frm 00087 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-138 CHRIS
84 

users, and could there be any legitimate reasons to send demand 

letters to end-users? 

Mr. SCHULTZ. So I will say generally no, except that this term 

end-user, I think we have to be careful, because these are very 

clever lawyers, right, who run these companies, these trolls. And 

so if you define something too specifically, in terms of one protected 

group, you know, they will try and find a way around it. 

So I just want to be careful, because, again, a lot of the folks who 

call my clinic, and are looking for pro bono assistance, are people 

who develop apps. And they are, like, two or three small, you know, 

it is a small business, two, three people, just trying to create something to put on the iTunes or Google store, or whatever. They are 

not end-users in a sense, except they are the end-users of the Internet. 

Mr. WELCH. Yes. 

Mr. SCHULTZ. Right. So I just want make sure that if we are 

going to cover people who are using standard technology, it is not 

just only the physical stores, but it is also anyone who kind of is 

using a product or service from someone else. 

Mr. WELCH. So I will ask the whole panel, is there—I have only 

got 18 seconds. 

Mr. TERRY. Yes. 

Mr. WELCH. Well, I guess I won’t. Well, the question I was going 

to ask, but then I will yield before there is an answer, is what evidence do we have about the effect of patent trolls on suppressing 

innovation? 

Mr. TERRY. All right. That would be a great answer for a written 

question—— 

Mr. WELCH. All right. 

Mr. TERRY [continuing]. That we will submit. At this time—— 

Mr. WELCH. I yield back. 

Mr. TERRY. Thank you. Gentleman yields back. Recognize the 

gentleman from Texas, Mr. Olson, for 5 minutes. 

Mr. OLSON. I thank the Chair. And, first of all, I don’t like the 

term patent trolls. These aren’t patent trolls. They are patent bullies, like the bully on the playground in 3rd grade, the bully every 

Monday who comes to school, threatens to beat you up if you don’t 

give him his lunch. I mean, these are patent bullies. 

And, thinking out of the box on how we stop this behavior, in my 

home State of Texas, again, not directly applicable, but they did 

something in 2011 called basically loser pay. My state Senator, 

Joan Huffamn, got that thing passed. It has been going on for 

about 3 years now, and what they have done, not so much, again, 

in patent protection, but just sort of legal protections for some of 

these frivolous lawsuits, they basically empowered the judge, the 

trial judge, to say, this is garbage, throw it out. He gets the initial 

filing, say, frivolous, done. 

If that doesn’t work, OK, how about I send it up to—they are 

going for the home run. We know it is really bad, but we want to 

take that shot, maybe knock that thing out of the park. And if that 

is the case, I can send it straight from my court to the Appellate 

Court, get this taken care of quickly, so, again, the aggrieved party 

is not paying legal bills on, and on, and on. Also, for the small 

85 

guys, it was less than $100,000, you know, expedited civil action 

procedure. 

And so, to ask all the panelists, is that something we should look 

at? I mean, I know there are lots of pros and cons, more Federal 

involvement, pre-emption, that type of stuff, but, again, how can 

we take this ham away from these patent bullies, not patent trolls? 

Mr. BROUILLARD. If you don’t mind, I will take the first shot at 

it. I certainly believe that part of the legislation should include 

some opportunity for the party that has been aggrieved in this situation to have their costs reimbursed. I suspect if I got a letter from 

Caterpillar, I would pay attention. But when I get a letter from an 

entity I don’t know that just lists a whole bunch of numbers clearly, for someone like us, or any small business, to defend, we have 

been told it is a million dollar cost to defend a patent lawsuit. We 

are certainly not in a position to do that, and I really do believe 

that if a patent troll, or if a patent bully, ran the risk of having 

to reimburse someone, they would think twice about doing it in the 

first place. 

Mr. OLSON. General Sorrel, any comments, sir? And my parents 

are voters in Vermont. 

Mr. SORRELL. In the Vermont statute, it allows for awarding attorney’s fees. But, again, to recover, you have to establish that 

there was a bad faith assertion of patent infringement. And I think 

some of the concern about AGs getting involved in this arena is, 

are we going to sort of muddy the waters? 

Speaking for myself, and pretty comfortably for the rest of the 

AGs, we do not want to try to get in the middle of a fair fight between two companies, where it is a reasonable fight as to whether 

this patent exists, and what it controls. We are really trying to deal 

with the bottom-feeders, and we think that the current Federal 

standard of the awarding of fees in patent cases ought to be eased 

so that they are awarded more frequently. I am not prepared to say 

that theloser pays in every case. That might be an overreach there. 

Mr. OLSON. Mr. Skarvan? 

Mr. SKARVAN. Well, I would just say that some of these concepts, 

I think they can work, conceptually. Generally they fall down if you 

try to apply them just to one side of the coin, so they have to be 

available, similar to bonding, to both parties, because they are predetermining that somebody actually is the bully ahead of time. It 

all comes down to what actually is going on. Certainly wouldn’t 

want to be one-sided and attach that type of penalty to a legitimate 

patent communication. 

Mr. OLSON. Yes, suddenly the bullied becomes the bully, maybe, 

in that situation. 

Professor Schultz, any comment, sir? 

Mr. SCHULTZ. Yes. So I do think that many of the efforts that 

are being supported in Congress right now, I think, are comprehensively looking at the problem, and I think that linking them together, and making sure they all fit well together, is good. So I 

think that, for instance, the type of demand letter, or the kind of 

information that is or is not shared, and how vague, and how deceptive it is may well be appropriate factors to pay into a fee 

award, right, or to say an adjustment of whether damages are 

available for willful infringement or not. These kind of things, I 

86 

think, are linked, and are important. But I do think that the whole 

problem needs to be dealt with on a couple different levels. 

Mr. OLSON. OK. Mr. Chandler, I have got time, sir. You have got 

one more swing to take it out of the park? 

Mr. CHANDLER. You know, the Innovation Act that passed the 

House with overwhelming bipartisan support includes a provision 

for some cost-bearing when a case is completely unreasonable. In 

this particular type of problem that we are talking about today, 

though, it is unclear how that plays out, because these things don’t 

generally go to litigation, because they get settled, because you 

have someone who is using Wi-Fi in their business, and is told you 

can spend hundreds of thousands, or millions of dollars to defend 

this, or you can just pay us $2,000. So I think—— 

Mr. OLSON. Yes, the bully. 

Mr. CHANDLER [continuing]. The promise of that might be a 

looser rate. I don’t call them trolls because I don’t like to demonize 

my adversaries. I would just say they are like rats running through 

a maze, and we need to take the food away at the end, and then 

they will stop going through the maze. And that is a systemic issue 

that we can address that won’t result in a lot of litigation and 

awards at the end. 

Mr. OLSON. Thank you. My time restrictions are very brief, sir. 

Mr. TERRY. Thank you—— 

Mr. OLSON. Mr. Chair—— 

Mr. TERRY [continuing]. Mr. Olson. Now recognize the gentleman 

from Illinois, Mr. Rush, for—— 

Mr. RUSH. Well, thank you, Mr. Chairman, and it has been quite 

interesting. I want to thank the witnesses for appearing before this 

subcommittee. Earlier, when Congressman McNerney asked about 

the FTC’s authority, and Dr. Dixon mentioned that the FTC already has authority, and could be encouraged to use that authority. 

Perhaps, Mr. Chairman, we should encourage the FTC to be more 

aggressive on the issue of patent trolls, be they bullies, or rats, or 

however you want to define them. 

However, I am interested in understanding what additional authorities the FTC could use in this space. For example, General 

Sorrell, the FTC does not have authority currently to collect civil 

penalties under Section V for unfair and deceptive practices. General Sorrell, shouldn’t the FTC be able to bring cases for more than 

just injunction relief, and also hitting these bad actors, be they rats 

or trolls, directly in the pocketbook? And also, are there other authorities that would be helpful, such as ACA rulemaking, on declaring certain actions to be, ‘‘per se, deceptions’’? For example, if a demand letter does not include the patent number, or numbers, 

couldn’t they just be, based on that, declared, per se, deceptions? 

Or—— 

Mr. SORRELL. Thank you. In my view, the Federal Trade Commission does have authority in this arena right now, and that is 

in part evidenced by the fact that MPHJ Technology, that when the 

Federal Trade Commission started investigating MPHJ Technology, it turned right around and it sued the Federal Trade Commission to halt the investigation. That being said, I would suggest 

that there be a communication to the Federal Trade Commission 

about the other issues that you raised, whether they think that the 

87 

Congress might underscore or enhance the authority that they currently have. 

My concern is that, if legislation just speaks to enhanced authority for the Federal Trade Commission, and you don’t speak to the 

states’ authority to enforce our statutes, it will be argued that you 

were consciously trying to cut the states out of the equation. 

Mr. RUSH. And are there any other witnesses who want to comment on increasing the authority of the FTC? Mr. Chairman, thank 

you, I yield back. 

Mr. TERRY. Thank you, Mr. Rush, and I appreciate your input. 

Now recognize the gentleman from Ohio, Mr. Johnson. 

Mr. JOHNSON. Thank you, Mr. Chairman, and I appreciate the 

panel being with us today. 

For all of you, and you can answer in whatever order you would 

like, what role should the Federal Trade Commission have regarding patent demand letters? Anybody want to comment? 

Mr. SORRELL. I think I just answered that question, so I pass it 

down the line. 

Mr. SCHULTZ. I will just add one thing, which is that I do think 

this question of understanding the problem, I think we have a pretty good handle on it, but I think, for instance, one of the questions 

is, what are the subpoena powers of the FTC, in terms of getting 

access to the letters that a particular entity might have sent out 

that they are not aware of, things like that. And I do think that, 

if we are going to support the FTC investigating, or state AGs as 

well, that they do need to understand the problem, and they do 

need to see the letters that have gone out, and the practices of the 

entities. So I think that information collection is an important aspect. 

Mr. JOHNSON. OK. Mr. Chandler? 

Mr. SKARVAN. Can I speak to the—— 

Mr. JOHNSON. I am sorry, go ahead, Mr. Skarvan, yes. 

Mr. SKARVAN. Thank you. I speak to just the consistency and 

uniformity, and ensuring that consistency and uniformity, and providing that clearinghouse function to identify the bad behaviors, 

and giving comfort to the company that sends a handful of demand 

letters that they won’t be brought into a private cause of action at 

the state level by perhaps a recipient who wants to play mischief. 

Mr. JOHNSON. OK. Mr. Chandler? 

Mr. CHANDLER. Thank you. I think the FTC has the authority 

today to go after, for unfair business practices, the most egregious 

cases. The opportunity that you have on legislating on this is to set 

some very, very clear standards for what a demand letter to enduser or a small app developer would have to include so that you 

have an immediate step that the commission can take to try to demand transparency. 

So rather than creating a regulatory structure around the ultimate enforcement action for the underlying acts, by making very 

clear what a demand letter has to have, I think you stop automatically a lot of this activity, because these entities that are doing this 

can’t stand to have the sunshine expose what is going on. And just 

setting that standard for needs to be in the letter I think will go 

a long way toward solving the problem itself. 

88 

Mr. JOHNSON. OK. Mr. Dixon, in your testimony you distinguished between letters with allegations of infringement seeking 

compensation, versus letters marketing inventions, seeking investment. 

Mr. DIXON. Yes. 

Mr. JOHNSON. How are these letters different from each other, 

and what do you say that distinguishes them? Or what do the letters say that distinguishes them? 

Mr. DIXON. So I think this really gets back to the business communications that we would have as a university. When we are trying to market our technologies, we are trying to incentivize investment. But oftentimes within these letters, we are identifying intellectual property that we own, and we are letting a company know 

that they may be interested. For example, I have got a cancer vaccine. I know Eli Lilly works in cancer. I am going to send them a 

letter saying, would you be interested in developing this technology? I think the major difference here is that patent demand letters will contain the threats of litigation, and often require that license. 

Now, as has been stated earlier, these trolls are very bright, and 

so one of the things, I think, that will be difficult is to craft the 

right legislation that will prevent the troll-like activity, while not 

stopping these typical business communications that are vital for 

us to continue on. Because universities and companies need to send 

letters to one another identifying potential IP that we might want 

to cross-license, or develop together, we want to make sure that 

that does not get caught in any sort of FTC regulation that slows 

the pace of innovation and development. 

Mr. JOHNSON. OK. All right. Mr. Skarvan, you stated you want 

a safe harbor to preserve your rights to put companies on notice. 

What is the difference between the manner in which you communicate your patent rights, and the manner in which a patent troll 

communicates his alleged patent rights? 

Mr. SKARVAN. Well, I think there is a whole spectrum of, again, 

using the word patent trolls, but maybe better word in sum of this, 

of using the patent demand system, or patent demand letter. I 

think any patent holder who is engaging in good faith communications is entitled to those safe harbor rights. When you start talking 

about an abuser, and somebody that is acting in bad faith, objectively bad faith, false statements, then that person is not entitled 

to those safe harbor rights, because they are not acting in good 

faith. 

And so the difference really isn’t so much the label of the person 

exercising the patent right, it is whether or not they have engaged 

in this abusive behavior. Then they are not entitled, because they 

have been acting in bad faith to those, if you want to say good faith 

rights that everybody has. 

Mr. JOHNSON. OK. All right. Thank you, Mr. Chairman. My time 

has expired. 

Mr. TERRY. Thank you. Now recognize the gentleman from Illinois, Mr. Kinzinger, for 5 minutes. 

Mr. KINZINGER. Well, thank you, Mr. Chairman, and thanks for 

holding the hearing, and to all of you, thank you for coming out. 

Especially nice to see the folks from CAT here. It is a good home 

89 

state company. I am grateful for the panel’s insight on these issues 

of the abusive patent demand letters. In my office, we have heard 

from several consumer groups, realtors, credit unions, and banks, 

and they share a common message, which is patent demand letters 

are often deceptive, confusing, and intimidating. 

It is certainly concerning that some entities are purposely misusing patent demand letters. These tactics hurt job creation, hinder 

innovation, and place a significant financial toll on consumers, 

businesses, nonprofits, and other actors within the economy. As we 

consider these abusive tactics, as we have had a lot of discussion 

today, it is important to keep in mind that demand letters do serve 

a legitimate purpose in the patent system, and any reform should 

ensure legal patent holders’ rights are protected. With these considerations in mind, I have a few questions I would like to ask. 

I will start with Mr. Skarvan. You probably know the Illinois bill 

better than I do, but could you tell me any shortcomings that the 

Illinois bill has, and then where the Federal government would 

have a role in, in essence, pouring cement over that in order to protect the rights of companies? 

Mr. SKARVAN. Shortcomings? I actually applaud Illinois for coming up and crafting a compromised solution. 

Mr. KINZINGER. Well, I guess let me rephrase shortcomings. Instead of saying where would you believe that in Illinois the Federal 

government then would need to step in after Illinois has done what 

it has done? 

Mr. SKARVAN. Well, looking at the Illinois language, if I am answering the question correctly, I would like to see any Federal legislation, any rules put in place, to be consistent with the Illinois 

language, because I think everybody agrees it is those communications that are sent widespread, hundreds and thousands to the 

end-users, that are clearly the abusive practices that people seem 

to be keying in on. So that language in the Illinois, I think, is pretty key, and I think people have mentioned that. Definitional language is important to understand that. And when questions have 

come up on the Illinois legislationit is—— 

Mr. KINZINGER. Right. 

Mr. SKARVAN [continuing]. Usually around the definition of consumer, and person, and not for resale type language that is inherent in that bill. 

Mr. KINZINGER. So, then, for the whole panel, with all your 

stakeholders, Illinois has its language, let us say Pennsylvania 

comes up with its language, Iowa comes up with its own, what is 

the concern with how you practice your craft, in terms of states 

that have all kinds of different languages not consistent with, for 

instance, Illinois, or no Federal provision? We could start on the 

very left, sir, if you want to go, if you guys have any thoughts on 

the varying state proposals. 

Mr. SORRELL. The Vermont statute is for bad faith assertions of 

patent infringement. I am not familiar with the specifics of the 

Utah, Virginia, Oregon, and Wisconsin laws, nor the others that 

are being considered. But to the extent that the standard is bad 

faith, then I am not of the view that companies that make good 

faith assertions of patent infringement have a problem. 

Mr. KINZINGER. OK. 

90 

Mr. BROUILLARD. Yes. Clearly, I think, from our point of view, 

patent law is Federal law. And so, as I mentioned earlier, I think 

it is important that there not be a hodgepodge of legislation at 

state level that starts to countermand things that would be good 

practices for companies that do operate on a multi-state, or multinational basis, such as we have heard today from Caterpillar, and 

Cisco, and others. 

Mr. KINZINGER. Yes. Mr. Skarvan, if you could talk to specifically 

how it would affect your company if you have varying state laws? 

Mr. SKARVAN. Well, I actually asked that question specifically 

with the folks in my group, and with that wide variety, we literally 

have to have a spreadsheet to hang over your desk, and understand what states cover what, and what the penalties are. And, at 

the same time, you would have to have an understanding of exactly 

what states are in play, because, you know, many recipients in our 

line of business are multifaceted state participants. In the end, I 

think it would absolutely kill our ability to send out any communication. 

And I just wanted to reinforce, there isn’t a magical patent demand letter that suddenly appears at some point in time in the 

conversation between business to business. It is a series of communications where you are trying to invite dialogue, and trying to address this issue, and get more information, find out more, and 

move toward a solution, all outside the court system. 

Mr. KINZINGER. Thanks. Thank you. And any of the other three 

gentlemen, I only have 40 seconds, if any of you three have anything to add, please do. 

Mr. DIXON. I had a really quick comment. I think one of the dangers here is putting back on the states the requirement of determining what is legitimate and who is lying, because within this 

there is a pretty gray spectrum of entities that are maybe stretching what their patent claims may actually be, and so that is what 

the Federal Court system is designed for. And I agree, the bad 

faith need to be taken care of, but there becomes a gray zone, and 

we don’t want the state Attorney Generals having to do patent 

claim charts all of a sudden. 

Mr. KINZINGER. Right. 

Mr. DIXON. We want that done in Federal Court. 

Mr. KINZINGER. OK. With that, Mr. Chairman, thank you, I yield 

back. 

Mr. TERRY. Thank you, Mr. Kinzinger, and we have no other witnesses, so I have to do a little business here before I can adjourn 

this. And so we have statements for the record, and I ask unanimous consent to insert into the record these papers and letters 

from Span Coalition, Credit Union National Association, Independent Community Bankers of America, National Association of 

Federal Credit Unions, and National Retail Federation. This has 

been vetted on both sides. So, hearing no objection, so ordered into 

the record. 

And I want to thank all of you for being here. It was a very narrow, intellectual discussion, and I think it was a really good discussion, and very helpful to us. And I really appreciate all of your efforts and sacrifices to be here today to help us now, as we will sit 

91 

down and start figuring out how to draft a bill. You are now adjourned. Thank you. 

[Whereupon, at 11:44 a.m., the subcommittee was adjourned.] 

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