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DEMAND LETTERS AND CONSUMER PROTECTION: 

EXAMINING DECEPTIVE PRACTICES BY PATENT 

ASSERTION ENTITIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONSUMER PROTECTION, 

PRODUCT SAFETY, AND INSURANCE 

OF THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

NOVEMBER 7, 2013 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JOHN D. ROCKEFELLER IV, West Virginia, Chairman 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

MARK PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

MARK WARNER, Virginia 

MARK BEGICH, Alaska 

RICHARD BLUMENTHAL, Connecticut 

BRIAN SCHATZ, Hawaii 

MARTIN HEINRICH, New Mexico 

ED MARKEY, Massachusetts 

CORY BOOKER, New Jersey 

JOHN THUNE, South Dakota, Ranking 

ROGER F. WICKER, Mississippi 

ROY BLUNT, Missouri 

MARCO RUBIO, Florida 

KELLY AYOTTE, New Hampshire 

DEAN HELLER, Nevada 

DAN COATS, Indiana 

TIM SCOTT, South Carolina 

TED CRUZ, Texas 

DEB FISCHER, Nebraska 

RON JOHNSON, Wisconsin 

ELLEN L. DONESKI, Staff Director 

JAMES REID, Deputy Staff Director 

JOHN WILLIAMS, General Counsel 

DAVID SCHWIETERT, Republican Staff Director 

NICK ROSSI, Republican Deputy Staff Director 

REBECCA SEIDEL, Republican General Counsel and Chief Investigator 

SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, 

AND INSURANCE 

CLAIRE MCCASKILL, Missouri, Chairman 

BARBARA BOXER, California 

MARK PRYOR, Arkansas 

AMY KLOBUCHAR, Minnesota 

RICHARD BLUMENTHAL, Connecticut 

BRIAN SCHATZ, Hawaii 

DEAN HELLER, Nevada, Ranking Member 

ROY BLUNT, Missouri 

KELLY AYOTTE, New Hampshire 

DAN COATS, Indiana 

TED CRUZ, Texas 

DEB FISCHER, Nebraska 

(III) 

C O N T E N T S 

Page 

Hearing held on November 7, 2013 ........................................................................ 1 

Statement of Senator McCaskill ............................................................................. 1 

Statement of Senator Heller ................................................................................... 3 

Statement of Senator Klobuchar ............................................................................ 48 

Statement of Senator Ayotte ................................................................................... 58 

WITNESSES

Hon. Jon Bruning, Attorney General, State of Nebraska .................................... 4 

Prepared statement .......................................................................................... 6 

Jon Potter, President, Application Developers Alliance ....................................... 10 

Prepared statement .......................................................................................... 12 

Mark Chandler, Senior Vice President, General Counsel, and Chief Compliance Officer, Cisco Systems, Inc. ........................................................................ 15 

Prepared statement .......................................................................................... 16 

Julie P. Samuels, Senior Staff Attorney, Mark Cuban Chair to Eliminate 

Stupid Patents, Electronic Frontier Foundation ............................................... 20 

Prepared statement .......................................................................................... 22 

Lary Sinewitz, Executive Vice President, BrandsMart USA on behalf of the 

National Retail Federation .................................................................................. 28 

Prepared statement .......................................................................................... 30 

Adam Mossoff, Professor of Law, George Mason University School of Law 

and Senior Scholar, Center for the Protection of Intellectual Property .......... 34 

Prepared statement .......................................................................................... 35 

APPENDIX

Response to written questions submitted to Hon. Jon Bruning by: 

Hon. Claire McCaskill ...................................................................................... 63 

Hon. Richard Blumenthal ................................................................................ 64 

Response to written questions submitted to Jon Potter by: 

Hon. Claire McCaskill ...................................................................................... 65 

Hon. Richard Blumenthal ................................................................................ 66 

Response to written questions submitted to Mark Chandler by: 

Hon. Claire McCaskill ...................................................................................... 67 

Hon. Mark Pryor ............................................................................................... 68 

Hon. Richard Blumenthal ................................................................................ 69 

Response to written questions submitted to Julie P. Samuels by: 

Hon. Claire McCaskill ...................................................................................... 69 

Hon. Richard Blumenthal ................................................................................ 71 

Response to written questions submitted to Lary Sinewitz by: 

Hon. Claire McCaskill ...................................................................................... 72 

Hon. Richard Blumenthal ................................................................................ 73 

Response to written questions submitted by Hon. Richard Blumenthal to 

Adam Mossoff ....................................................................................................... 74 

(1) 

DEMAND LETTERS AND CONSUMER 

PROTECTION: EXAMINING DECEPTIVE 

PRACTICES BY PATENT ASSERTION ENTITIES 

THURSDAY, NOVEMBER 7, 2013 

U.S. SENATE, 

SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT

SAFETY, AND INSURANCE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

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

SR–253, Russell Senate Office Building, Hon. Claire McCaskill, 

Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF HON. CLAIRE MCCASKILL, 

U.S. SENATOR FROM MISSOURI 

Senator MCCASKILL. This hearing will come to order. 

We thank our witnesses for being here. And I thank Senator 

Heller for being a great working partner with me on this subcommittee. 

This morning we are examining a growing consumer protection 

concern within our patent system. In recent years, the growth of 

patent assertion entities—also known as PAEs or referred to by 

many as patent trolls—has led to an increase in patent litigation 

and spawned greater use of the so-called demand letters. Too often, 

this appears to be an unfair and deceptive practice that is harming 

everyday businesses, consumers, and startups. 

Patent trolls send out hundreds and, in some cases, thousands of 

demand letters to unsuspecting entities alleging patent infringement. These letters demand payment and threaten to sue if payment isn’t made. The demand letters we are talking about often 

don’t even contain the most basic information that would allow recipients to know which patents they have allegedly infringed or 

how. Many times, recipients can’t even tell who is sending the letter in question, because patent trolls use multiple shell companies 

to hide their identities. Sometimes the patents in question aren’t 

even valid or already covered by an existing license. But, of course, 

none of this is disclosed in these ‘‘demand letters.’’ 

The result is that the recipients are left in the dark, unable to 

know whether they should settle or fight the claim. Even if the allegations are outrageous and untrue, companies often choose to 

cough up the money anyway because they worry that going to court 

would simply be too costly. Never mind that, despite their threats 

2 

to the contrary, many patent trolls have no intention of bringing 

suit or no basis on which to do so. 

It’s hard to distinguish the deceptive nature of this conduct from 

the many other scams that prey on Americans who do not have the 

resources or expertise to go on the offensive. 

By many accounts, deceptive demand letters seem to be a growing problem. By some estimates, patent trolls are sending well over 

a hundred thousand demand letters a year, impacting a wide 

swath of innovative startups and other small businesses. Making 

matters worse, patent trolls are increasingly seeing dollar signs in 

targeting small businesses that have nothing to do with the patent 

system, such as coffee shops and brick-and-mortar retailers. These 

small businesses aren’t in the patent business, and they don’t have 

the expertise or resources to evaluate the claims in a demand letter, much less hire an army of lawyers for what could be protracted 

litigation. 

Sometimes the alleged patent infringement is a technology patent that they have purchased for their business like scanners or 

Wi-Fi routers, or that is already covered by a license from the manufacturer. As we will hear today from Cisco, one patent troll sent 

13,000 demand letters to Cisco’s customers for using one of its 

products. 

This is not just an issue facing technology companies. I have 

heard from businesses in Missouri and across the country, large 

and small, that are facing similar challenges. Most are reluctant to 

share their stories because of ongoing litigation, terms of settlement agreements, or fear of becoming a target for other patent 

trolls. But for many retailers, banks, credit unions, app developers, 

hotels, restaurants, cable companies, and broadcasters, dealing 

with demand letters has become an additional cost of doing business. 

The issue here is not about the right to assert one’s patent. Let 

me repeat that. The issue here is not about the right to assert one’s 

patent. It’s not really even about the patent system. It’s about the 

deceptive and unfair practice of threatening businesses and consumers based on often—unfounded claims for the sole purpose of 

bilking them. It’s about scam artists preying on the vulnerable. 

I’m pleased that the Federal Trade Commission recently 

launched an in-depth investigation into the patent troll industry. 

And I would like to applaud the various State Attorneys General, 

including Attorney General Bruning, who is here today, for taking 

steps to protect their constituents against harmful demand letter 

tactics. 

At the same time, perhaps there is something Congress can do, 

too. It seems to me that demand letters should, at a very minimum—well, nothing like missing electronics. 

[Laughter.] 

Senator MCCASKILL. Apple, do you hear me? 

[Laughter.] 

Senator MCCASKILL. At the same time, perhaps there is something Congress can do. It seems to me that demand letters should, 

at a very minimum, include basic common sense disclosures: who, 

what, when, where, and why. In addition to learning more about 

the impact of demand letters, I hope to hear from our witnesses 

3 

today whether these demand letters could use some transparency 

to better protect American consumers and businesses. 

Senator Heller. 

STATEMENT OF HON. DEAN HELLER, 

U.S. SENATOR FROM NEVADA 

Senator HELLER. Well, I have my opening statement here on my 

BlackBerry. 

Senator MCCASKILL. Good luck. 

Senator HELLER. I think I better switch to the—— 

Senator MCCASKILL. I got to the last paragraph. 

Senator HELLER. Yes. 

Chairwoman, thank you for having this hearing. I want to take 

just a minute to thank her for her work that she’s done recently 

with the FAA. I noticed the gentleman sitting next to me, as we 

were landing, was playing Angry Birds. So, for your help and work 

in keeping those apps open—— 

Senator MCCASKILL. Did you send him Claire’s love that he gets 

to keep playing Angry Birds as he lands? 

Senator HELLER. While he lands, correct. 

I also want to thank our witnesses. I don’t think that table was 

built for six witnesses, but you’re squeezed in well. So, thank you 

very much for being here. 

Today we’re taking a hard look at patent litigation. Specifically, 

we’re looking at the practice of some entities that engage in aggressive pre-litigation practices based on alleged patent infringements. 

We all agree that patent holders should be protected under the 

law. They should be able to assert patent protection methods. Patents are incredibly important in our economy and we all agree that 

patent holders should receive compensation for their innovation. 

Unfortunately, there are some bad actors in this sphere who are 

aggressively asserting that a patent they own has been infringed 

on in a manner that some believe is, in fact, deceptive. 

Examples brought to our attention include a business that accumulates patents often by purchasing them from the PhoneGap companies or directly from individual investors. The companies then 

make use of patents that are ambiguous or broadly written in order 

to maximize the number of companies which they can assert the 

patent. 

These companies generally do not make or sell anything related 

to these patents. Instead they identify companies using a technology that it can allege as an infringement of the patent. Then, 

they write a letter to the alleged infringer stating that infringement has occurred and litigation will commence unless the licensing agreement is entered into. Either pay us or we will sue you for 

patent infringement. 

This practice seems to have initially started with technology companies. However, other industries including retailers, hospitals, 

banks, restaurants and the gaming industry have become targets 

as well. This practice concerns me as I am sure it concerns many 

Senators. 

If frivolous lawsuits are being filed across my state of Nevada because a coffee shop allows their customer to use Wi-Fi in Reno, or 

a Las Vegas Casino receives a demand letter on a game they offer, 

4 

it can have a negative impact on the economy because it could 

hinder innovation and, of course, economic growth. 

So, I do not believe that there is any question that this practice 

is taking place. It is. What I hope this hearing today sheds light 

on is the scope of the problem, most appropriate method to stem 

this behavior. 

It is my understanding that the Federal Trade Commission has 

authority to act under the existing Section 5 authority to enforce 

against unfair and deceptive acts and practices. I also understand—I understand that they are waiting for the results of their 

own six-week study to be completed before moving forward. 

I think it’s important to see that study or at least the very least 

have a strong understanding of the scope of the issues before us, 

especially before moving on to any proposal that they be used that 

may be under the Committee’s jurisdiction regarding the FTC. I 

also know that patent reform is an issue that the Judiciary Committee has looked at and will continue to look at. 

Many of the issues that will be discussed here will also be solved 

by passing rulemaking authority instructing the Patent and Trademark Office to enforce standards on these demand letters. 

I hope that we can aid in solving this problem by using this hearing today to shed light on this issue, but this committee is somewhat limited due to the narrow scope and lien of jurisdiction that 

we have. Nevertheless, this is an important issue and I thank the 

Chairwoman for holding this hearing today and even by holding 

this hearing we’re drawing attention to it and rightfully so. 

So again, thanks, Madam Chairwoman, for holding this hearing 

to discuss ways in which we can work to ensure patent holders can 

protect their faith that patents, frivolous patent lawsuits, are mitigated. 

Thank you. 

Senator MCCASKILL. Thank you, Senator. 

Let me introduce the witnesses. First, we have the Honorable 

Jon Bruning, who is the Attorney General from the State of Nebraska. Thank you for traveling here from Lincoln. Now that we’re 

in different conferences, I can show you a lot more love. 

[Laughter.] 

Senator MCCASKILL. Mr. Jon Potter, who is President of the Application Developers Alliance from here in Washington, D.C.; Mr. 

Mark Chandler, who is Senior Vice President, General Counsel and 

Chief Compliance Officer of Cisco Systems from San Jose, California; Ms. Julie Samuels, who is Senior Staff Attorney, Electronic 

Frontier Foundation, also out of San Francisco, California; Mr. 

Lary Sinewitz, who is the Executive Vice President of BrandsMart 

USA, who is from Florida; and finally, Mr. Adam Mossoff, who is 

a Professor of Law nearby here in George Mason University School 

of Law. 

We will begin with your testimony, Mr. Bruning. Thank you very 

much. 

STATEMENT OF HON. JON BRUNING, ATTORNEY GENERAL, 

STATE OF NEBRASKA 

Mr. BRUNING. Chairwoman McCaskill, Ranking Member Heller, 

thank you very much for holding this hearing. And Madam Chair, 

5 

it’s funny you say that about our conferences. I have in my office 

a Missouri tiger tail that was a gift from Robin Carnahan. I sent 

her a corn head from Nebraska; she sent me a tiger tail. I keep it 

proudly even though, of course, I cheer for the Huskers. 

[Laughter.] 

Mr. BRUNING. Patent trolls abuse the open nature of our intellectual property system and they represent a destructive threat to 

small businesses, even out in nonprofit organizations and consumers. They offer little or no innovative value to our economy; 

they undertake their scheme in the shadows, often beyond the view 

of regulators. 

So the time is ripe for Federal and State authorities to work in 

concert to address this issue and stem the tide of patent trolling 

nationwide, but still protect the ability of legitimate patent holders 

to enforce their rights. 

I thought both your statements were right on and very well 

thought out. We want to protect the ability of legitimate patent 

holders but this is not about that. This is about a nationwide 

scheme that’s happening because of a few. 

These patent trolls seek to only extract costly licensing fees from 

these alleged infringers. They lack any intention to develop the underlying technology, improve upon it, or bring it to market. They 

send scattershot demand letters, which include a vague description 

of the patent and a demand that the target pay up. Unfortunately, 

these targets are often small businesses and nonprofits. Recently, 

we’ve had several examples of this in my state. 

MPHJ Technologies has been an active and notorious patent troll 

in Nebraska and across the country. MPHJ claims it owns the patent for using a basic scan-to-e-mail technology. According to MPHJ 

and its lawyers, any person who has scanned a paper document to 

an e-mail attachment has infringed MPHJ’s patent. That’s about 

everybody in this country, seemingly. 

MPHJ demands a thousand dollars per employee from hundreds 

of organizations around the country. So for small businesses and 

nonprofits, this can be a death threat. 

MPHJ’s scheme functions through dozens of shell companies that 

it and its lawyers have created. These shells go by names like 

AccNum, GosNel, FolNer and build themselves as licensing agents 

for MPHJ. 

One example of MPHJ’s targets in Nebraska was Eldon 

Steinbrink. Mr. Steinbrink is perhaps the perfect example of not 

only the absurdity of MPHJ’s campaign, but how little research 

that MPHJ does before they send out these letters scattershot 

across the country. MPHJ, through its shell company FosNel, 

somehow decided that Mr. Steinbrink was infringing on its scanto-e-mail patent through his work for Phelps County Emergency 

Management and sent him a demand letter. And these are the— 

we have the letters right here, Exhibits A, B and C and we included them in our filing. 

Mr. Steinbrink never worked for Phelps County Emergency Management. He is an elderly gentleman; he lives in a nursing home 

in Holdrege, Nebraska. He once served on the Phelps County Board 

many years ago. He now has Alzheimer’s. 

6 

Other examples in Nebraska have included nonprofits, such as 

Voices of Omaha, which is a community choir group; they have a 

few hundred dollars in their checking account, small businesses 

ranging from plumbers to accountants. Very few of MPHJ’s Nebraska targets would have had the resources to mount a full defense had MPHJ followed through on its threats, which they never 

do. They have never sued anyone. 

These letters are designed to frighten consumers and small organizations who lack the resources to mount an expensive legal fight. 

The average cost for such a defense is estimated in the hundreds 

of thousands of dollars, at a minimum. So accordingly, many of 

these people pay to make the patent troll go away. It’s a silent extortion is what it is. 

My office and other state attorneys general have declared a bipartisan, multistate war on these patent trolls. In Nebraska and 

Vermont, my colleague, Bill Sorrell in particular, we’ve taken aggressive and innovative steps to use our state consumer protection 

laws to address these demand letters. My understanding is yesterday, Attorney General Martha Coakley who is a good friend of 

mine in Massachusetts, she’s becoming involved. And attorney general after attorney general is now realizing we have to band together to fight these patent trolls. 

We’re planning to introduce a bill in our legislature in Nebraska, 

which will further focus on patent abuse. But really, what we need 

is Congress to lead. The Senate has to lead here. 

This Committee, in particular, has an important role in conducting a national consumer protection investigation. You can 

bring national attention to some of America’s worst patent trolls 

and their use of demand letters as weapons of extortion. 

We encourage Congress to use your subpoena powers to bring the 

most egregious patent trolls and their lawyers who enable them to 

account. Call MPHJ to this subcommittee. Have them explain why 

they sent a demand letter to Eldon Steinbrink in Holdrege, Nebraska, with no knowledge that he had violated their patent. Compel other patent trolls to come here and do the same. Explain 

themselves. 

This has to be a multipronged effort. It’s not just the Attorney 

Generals, it’s not just Congress reforming the patent system. 

States and the FTC have to be empowered to address these demand letter abuses using our consumer protection laws and we’re 

going to go about doing that. 

This issue has to be given prolonged and meaningful attention. 

Through these efforts, we can stop the problem of patent trolling 

in America; we can protect our consumers, our small businesses, 

and our nonprofits who have been victimized. 

Again, I want to thank the Subcommittee for inviting my testimony. I look forward to your questions. 

Thank you. 

[The prepared statement of Mr. Bruning follows:] 

PREPARED STATEMENT OF HON. JON BRUNING, ATTORNEY GENERAL, 

STATE OF NEBRASKA

Good morning, Chairman McCaskill, Ranking Member Heller, and members of 

the Subcommittee. I am the Attorney General of the State of Nebraska and have 

7 

served in that capacity since 2003. I appreciate the Subcommittee’s interest in addressing the growing problem of patent trolls and am pleased to have the opportunity to share the state enforcement perspective on this issue. 

Patent trolls abuse the open nature of our intellectual property system and represent a destructive threat to small businesses, nonprofit organizations, and consumers. They offer little or no innovative value to our economy and undertake their 

schemes in the shadows, often beyond the view of regulators. The time is ripe for 

Federal and state authorities to work in concert to address this issue and stem the 

tide of patent trolling nationwide, while protecting the ability of legitimate patent 

holders to enforce their rights. I am pleased to participate in that effort. 

I am charged with the obligation to enforce Nebraska’s Consumer Protection and 

Uniform Deceptive Trade Practices statutes and view this role as one of my top priorities. My office includes a division of attorneys and staff devoted exclusively to 

combating fraud, unfair, and dishonest trade practices. We pursue these efforts 

using a broad spectrum of tools, including consumer mediation, multi-state investigations, and full-scale litigation. Because we understand that financial predators 

are often sophisticated, technically savvy, and adept at creating an air of legitimacy, 

we take our role as guardian of the public interest in this area very seriously. 

Over the past year, we have grown increasingly aware of the threat posed to Nebraska small businesses, nonprofits, and consumers by patent assertion entities, 

commonly known as ‘‘patent trolls.’’ Generally, patent trolls acquire patents solely 

for the purpose of using them to coerce license fees from legitimate charities or businesses they claim have infringed on the patent. Patent trolls typically lack any intention to develop the underlying technology, improve upon it, or bring it to market. 

Rather, they seek only to extract costly licensing fees and/or pretrial settlements 

from alleged ‘‘infringers.’’ 

Our investigations and research have developed insight into the modus operandi 

of the prototypical patent troll. First, the patent troll acquires one or a handful of 

patents relating to a particular technology. The patent troll will then gather a list 

of targets against which it believes it can assert ‘‘infringement.’’ Very little research 

is likely performed at this stage. The troll simply assembles a list of a substantial 

number of targets it believes might be utilizing the patented technology. 

Our investigations have revealed little rhyme or reason to the type or size of entity a patent troll will include in its target list. We identified victims ranging from 

small businesses and nonprofits for whom patent trolls can represent an existential 

threat to global technology producers and nationwide telecommunications firms for 

whom patent trolls represent a drain on resources and constant annoyance. The 

former are often caught off-guard by the notion that they are ‘‘infringing’’ on a patented technology totally unrelated to their organization’s actual work. 

The scope of a patent trolling effort can be extraordinary in breadth and scope. 

A 2013 White House report noted that one patent troll sent eight thousand demand 

letters to coffee chains, hotels, and retailers seeking compensation for use of Wi-Fi 

equipment made by several manufacturers that the patent troll alleged to infringe 

on its patents. One constant has emerged, however: in virtually every case, we 

found the process began with a ‘‘demand letter.’’ 

A patent troll’s demand letter usually includes several components. It typically 

identifies the patent or patents owned by the troll, usually by number accompanied 

by a vague or generalized description of the nature of the patent(s), with a conclusory statement that the targeted company is infringing upon the specified patent. 

The demand letter will often indicate it is necessary for the targeted entity to engage in some type of negotiation to pay the patent troll a license fee and will explain, in very broad terms, why a license is needed. Though the demand letter may 

indicate the possibility that the targeted entity is, in fact, not infringing, this caveat 

is often at the end, coming well after a series of conclusory and ominous statements 

that the targeted entity’s use of a particular technology—usually completely unrelated to the entity’s actual business—has infringed on the patent or patents in question. 

If the initial demand letter carries the implicit threat of litigation, as described 

above, then subsequent correspondence from the patent troll will often include the 

explicit threat of litigation. Should a targeted entity not respond to the initial demand for license fee negotiations or should such negotiations stall or prove insufficiently profitable for the patent troll, additional letters may include a draft copy of 

a Federal court complaint, complete with the targeted entity’s name in the caption 

and numbered allegations. Though the inclusion of such a document may appear to 

some to be the ultimate leverage as the final step toward litigation against the targeted entity, chosen by the patent troll solely toward the aim of winning a significant patent infringement award specifically from the target, it is often simply a template scare tactic. In reality, the same complaint with virtually the same language 

8 

may well have been submitted to a number of other targeted entities as a result 

of their own alleged ‘‘infringement.’’ 

One patent troll active in Nebraska is ‘‘MPHJ Technologies.’’ Nationwide, MPHJ 

has become notorious. MPHJ has asserted it owns the patent for using a basic office 

scanner to scan a document to e-mail. According to MPHJ and its lawyers, anytime 

any person has scanned a document to e-mail, that person has infringed on MPHJ’s 

patent. The potential financial consequences to MPHJ’s targeted victims are significant. MPHJ has demanded a thousand dollars per employee from hundreds of organizations around the country. In many instances, such a claim can mean a death 

threat to a small business or nonprofit incapable of defending itself without incurring substantial legal expenses. 

MPHJ’s scheme functions through dozens of shell companies it and its lawyers 

have created. MPHJ itself owns the patents—ostensibly for scan-to-e-mail technology—but the initial assertion of infringement comes from a veritable alphabet 

soup of LLCs such as ‘‘AccNum,’’ ‘‘GosNel,’’ or ‘‘FolNer.’’ These shell companies bill 

themselves as ‘‘licensing agents’’ for the patents owned by MPHJ and are the entities from which demand letters are sent to hundreds of alleged infringers. 

One example of MPHJ’s targets in Nebraska was Eldon Steinbrink. Mr. 

Steinbrink is perhaps the perfect example not only of the absurdity of MPHJ’s campaign but also of how little research MPHJ and its lawyers perform before sending 

threatening letters scattershot across the country. MPHJ, through its shell company 

FosNel, somehow decided that Mr. Steinbrink was ‘‘infringing’’ on its scan-to-e-mail 

patent through his work for Phelps County Emergency Management and sent him 

a demand letter. See Exhibit A (on information and belief, a demand letter virtually 

identical to the one sent to Mr. Steinbrink), Exhibit B (the second demand letter 

sent to Mr. Steinbrink), and Exhibit C (the third demand letter sent to Mr. 

Steinbrink which included a draft lawsuit complaint). 

The problem with this scheme was that Mr. Steinbrink never worked for Phelps 

County Emergency Management. He is an elderly gentleman living in a nursing 

home in Holdrege, Nebraska, and who once served on the Phelps County Board 

many years ago. It is obvious MPHJ and its lawyers performed little or absolutely 

no research prior to threatening Mr. Steinbrink. 

Mr. Steinbrink’s story is but one of many. Others in Nebraska have included nonprofits, such as Voices of Omaha, a community choir, to small businesses ranging 

from plumbers to accountants. Very few of MPHJ’s Nebraska targets would have 

had the resources to mount a full defense had MPHJ followed through on its threats 

and most were forced to find alternative means to resolve the issue. In sum, MPHJ 

represents patent enforcement abuse at its very worst. 

Patent troll demand letters, usually marked by a steady increase in pressure and 

aggression, are typically designed to ultimately achieve a single aim: the extraction 

of as big a payment as possible from the targeted entity. Indeed, it is our understanding that most patent trolls do not ordinarily desire their enforcement actions 

be fully adjudicated—or even subjected to a preliminary evaluation—by a Federal 

court. For if such adjudication occurs and the patent or patents are invalidated, efforts against other targeted entities based on the same patents are rendered useless 

and unprofitable. 

Instead, patent trolls generally seek to ‘‘price’’ their license or settlement demands 

such that the sum obtained will be high enough to make the effort worthwhile but 

low enough that it can actually be afforded (using the term loosely) by the targeted 

entity. In other words, it is worth it to simply pay the troll to go away (for a price 

which reflects not any true market value for the patented technology, but its litigation-induced value) instead of engaging in protracted and costly litigation. 

The latter point appears to be one of the main reasons patent trolls have been 

so successful and, thus, so destructive. To put it simply, most targeted entities have 

neither the time, resources, nor inclination to engage in a pitched legal battle to defend a patent. This is particularly so when the patent in question is collateral to 

the entity’s actual line of business. The average cost of a full-scale patent defense 

ranges from $350,000 to $3 million. Regardless of the exact price, defending a patent can be fairly described as one of the most expensive forms of litigation in existence. 

A large entity, such as a software or technology firm (frequent targets of patent 

trolls), may have the resources to fight those efforts which are facially illegitimate, 

but it also has the resources to simply make a troll go away through settlement. 

Indeed, large corporations may employ an intellectual property specialist on staff to 

manage the large number of challenges it receives, in addition to one or more outside firms to handle disputes if they are ultimately litigated. 

Smaller entities, including nonprofits and firms who cannot afford to hire attorneys well-versed in the intricacies of patent litigation (which, candidly, applies to 

9 

most attorneys, including seasoned litigators) are often even more eager to limit significant litigation risk and will pay the patent troll a sum to dispose of the case. 

Indeed, even if a targeted entity can hire an experienced patent litigator, prudent 

risk management strategy still often results in a settlement with the patent troll. 

This is so because a hired patent attorney will usually foresee the resources and 

expense which are the hallmarks of successfully defending almost any patent infringement enforcement effort and recommend the prompt resolution of the matter. 

In any event, a smaller entity will have little choice but to so hire a specialized patent attorney because few small organizations have the capacity to employ a patent 

lawyer on a full-time basis. 

The damaging effects of patent trolls are clear. Patent trolls succeed through the 

issuance of egregious threats which serve to advance no valid legal purpose or the 

legitimate protection of productive intellectual property but, rather, seek only to extract quick settlements from those otherwise committed to building their businesses 

and providing positive value to society. The question for policymakers charged with 

building a legal framework of robust consumer protection is how to stem the destructive tide of patent trolls and give targeted entities some support in what has, 

thus far, been a rather one-sided fight. 

As a preliminary matter, I proceed from the premise that America’s intellectual 

property enforcement system, though in need of significant reform, should remain 

one which readily enables holders of valid, productive patents to enforce such patents without undue hurdles or unfair obstacles. I firmly believe in the principle that 

intellectual property is precisely that—property—and that legitimate enforcement of 

the rights which flow from such property should be protected. Patent trolls, however, have abused America’s relatively open system that expressly provides for a 

presumption of validity of patents. To protect the integrity of that system while simultaneously protecting consumers and businesses from patent trolls, therefore, increased consumer protection tools are necessary at both the Federal and state level 

to address this issue. 

Several states, including Nebraska, have explored using our existing Consumer 

Protection and Unfair and Deceptive Trade Practices statutes to combat patent 

trolls. The theory behind this strategy is simple: if a patent troll sends a demand 

letter demanding licensing fees from an alleged ‘‘infringer’’ but in fact lacks a good 

faith belief in the validity in the underlying patent or its application to the target’s 

technology, or if the troll threatens litigation categorically lacking any intention of 

ever filing suit, that may violate existing consumer protection laws. 

Though we are confident this approach using existing statutes can be highly effective, we are also exploring ways in which we can strengthen existing laws and further tailor their applicability to patent trolls. Such state legislation—which must be 

done in a manner that does not stray into the clearly pre-empted Federal sphere 

of patent regulation—may include stricter demand letter content requirements, the 

requirement of a bond posting by the asserting entity, or the inclusion of a sworn 

affidavit by the asserting entity that the assertion is legitimate and made in good 

faith. I look forward to continuing my work with my fellow state Attorneys General 

to develop what could ultimately be termed ‘‘model legislation’’ for this purpose. 

Congress must also act to align Federal consumer protection activities with state 

efforts. Though reform of the patent system itself must originate with your colleagues on the Judiciary Committee, the Commerce Committee possesses the jurisdiction to empower Federal enforcement authorities to take a hard line against unfair and deceptive demand letter practices. I encourage you to do so. 

I am pleased that the Federal government has already shown a willingness to address this problem. The FTC has proposed a patent troll information gathering 

project which is currently in the public comment phase. Vermont Attorney General 

William Sorrell and I have partnered to co-sponsor a multi-state letter of support 

for that project. I encourage the Subcommittee to champion that project and use its 

results as the basis for additional hearings on the workings and methods of patent 

trolls nationwide. 

In the meantime, however, I call upon Congress to utilize its subpoena power to 

bring the investigation of some of the worst known patent trolls to the national 

level. I encourage you to bring the most notorious patent trolls—and the lawyers 

who facilitate their schemes—to account for their alleged abuses of the patent enforcement system and explain how they do business. For too long patent trolls have 

operated in the shadows with virtual impunity. It is now time for Federal and state 

authorities to bring them into the open. 

In conclusion, addressing the problem of patent trolls is achievable and necessary 

if we are to truly fulfill our consumer protection roles. Frankly, it is one of those 

rare issues which commands truly broad consensus on the need for reforms. Entities 

of all types and sizes—from the very large to the very small—view patent trolls as 

10 

a threat to their productivity and, sometimes, their existence. Scholars and practitioners from across the intellectual property legal spectrum have voiced the problems posed by these financial predators. Democrats and Republicans alike view patent trolls as a direct threat not only to our constituents but to innovation, overall. 

In short, few other consumer protection concerns are more deserving of our immediate attention. 

Again, I appreciate the Subcommittee’s attention to this issue and for the opportunity to share my views. I look forward to working in partnership with Congress 

to bring about changes which will enhance our consumer protection tools and put 

an end to the problem of patent trolls. 

Senator MCCASKILL. Thank you, Attorney General. 

Mr. Potter. 

STATEMENT OF JON POTTER, PRESIDENT, 

APPLICATION DEVELOPERS ALLIANCE 

Mr. POTTER. Thank you, Chairman McCaskill and Ranking Member Heller. 

The App Developers Alliance and our more than 30,000 members 

urge swift enactment of legislation to eliminate patent trolls’ favorite weapon: vague, deceptive, baseless and threatening demand letters that inhibit investment and startups; cause app developers to 

stop hiring engineers; and bully companies into extortionist settlements because the settlements are cheaper than litigation. 

I invite you to join me this morning in your local version of startup land. At Lab1500 in St. Louis, Work In Progress, Las Vegas, 

and work share spaces nationwide, passionate, energetic app developers are creating new products and services to improve our lives. 

They dream about IPOs, but in reality money is tight, risk is the 

norm and threatening letters from patent trolls are devastating. 

Legitimate companies assert their patents by offering voluminous 

documentation after researching the letter recipients’ business or 

technology. In contrast, smash and grab patent trolls buy cheap 

patents and use them to extract shakedown licenses from small 

companies and startup land. Letters threaten protracted litigation. 

They demand fixed-fee licenses regardless of how valuable the patented technology is for the recipient’s businesses. They offer limited 

time, six figure settlement specials, and they threaten to increase 

royalties if a business hires a lawyer or requests more information 

about the patent. 

Please remember, patent trolls make no products and produce no 

services. They are the patent equivalent of the penny stock boiler 

room that sells worthless stock to our grandmothers and exterminators who help rid you of termites that they just flung into your 

garage. 

The patent troll racket has reached epidemic levels that require 

a legislative response. A study released this week documented that 

one third of VC funded startups have received patent demand letters and 60 percent of the letters were from trolls. Defending 

against patent demands cost at least $100,000 and quickly rises 

into the millions. And every dollar wasted against a troll is another 

marketing person not hired, another engineer without a job, and a 

sales person who can’t get work. 

Our website shows an interview of a moderately successful startup CEO lamenting that he now pays six lawyers but only five employees. He hasn’t paid himself for a year and he names the three 

11 

employees that he hasn’t hired. Beyond the costs to fight, patent 

demand letters scare away potential business partners and customers and are a major deterrent to investment. For all these reasons, app developers are vulnerable. 

As several attorneys general and trade associations have documented, the trolls are taxing business, investment, growth and opportunity. Last week, visiting St. Louis, I learned of three local 

companies recently attacked by patent trolls. One company’s service was built on a digital platform but the troll had an analogue 

technology patent. It didn’t matter. The company had to hire a lawyer. The company ultimately settled because it couldn’t afford the 

fight. Nationwide there are stories like this. 

Earlier, I was in Los Angeles with a four-employee startup that 

once held a highly ranked app in the iTunes store. A troll demanded an unjustified license in royalties, but the company 

couldn’t even afford a lawyer. Instead of fighting, it gutted its own 

app. It took away all the features that were compelling and it created sales for it. So in one sense they think they have won because 

they haven’t paid the troll, but they have lost because their app is 

no longer successful, the company is floundering, and they are no 

longer hiring. 

All across America app developers and main street businesses 

are frustrated by trolls and their demand letters. And they wonder 

how the government, which manages the patent system, has allowed this to happen. Skeptics suggest that trolls and demand letters and demand letter problems have been enabled by poor quality 

patents that our underfunded Patent and Trademark Office should 

not have allowed. The alliance agrees and we urge Congress to 

remedy this by legislating expanded opportunities for the Patent 

and Trademark Office to administratively review and cancel poor 

quality, previously issued patents through its covered business 

method program. 

Other skeptics suggest that Congress needs more demand letter 

data before we’re legislating to stop the abusive startups, grocery 

stores, coffee shops and retailers. But app developers are being 

driven out of business today. Main street businesses are being sued 

or being attacked today and Americans are paying higher prices in 

food and lost innovation and lost jobs today. 

To be clear, I’m not asking this committee to amend the Patent 

Act. Rather, I’m urging the Committee to legislate very precise 

standards to prevent a new and growing strain of garden variety 

fraud—the transmittal of deceptive, unfair and abusive demand 

letters that just happen to be bolted onto our patent system. 

On behalf of our thousands of innovators and entrepreneurial 

members, I urge you to prohibit demand letters that knowingly 

overstate the breadth of a patent’s coverage, that do not disclose 

the patent or claim being infringed, that accuse businesses of infringement without the sender having any knowledge of whether 

infringement has actually occurred, or that menacingly threaten 

litigation when there’s no intention of following through. 

Please promote the patent system, promote app innovation and 

promote economic growth by ending demand letter abuse. 

Thank you. 

[The prepared statement of Mr. Potter follows:] 

12 

PREPARED STATEMENT OF JON POTTER, PRESIDENT, 

APPLICATION DEVELOPERS ALLIANCE

Chairman McCaskill, Ranking Member Heller and Members of the Subcommittee: 

On behalf of the Application Developers Alliance, our more than 30,000 individual 

members and 145 corporate members, I urge you to swiftly act to eliminate a favored weapon of America’s patent troll bullies—vague, deceptive, baseless and 

fraudulent demand letters. 

In the last few years, a new business model has emerged. Patent trolls send demand letters that knowingly overstate the breadth of a patent’s coverage, or alternatively do not disclose the patent or claim being infringed. The letters accuse businesses of infringement without the sender having any knowledge of whether infringement has actually occurred, and they menacingly threaten litigation when 

they have no intention of following through. 

These demand letters unnerve startups, cause better capitalized companies to 

needlessly hire lawyers, and force even large companies to pay extortionist settlements just to avoid the even higher costs of litigation discovery. But when the defending company fights back, the often thinly capitalized trolls retreat without punishment or regret, and simply move on to threaten another company or dozens of 

companies, knowing that several will sign unnecessary licenses and pay unjustified 

royalties because it is cheaper—much cheaper—than fighting. 

Demand letters that abuse our patent system are a relatively new phenomenon 

but no longer unusual. This is a business model; it is growing; and it must be 

stopped. On behalf of the mobile app industry and our thousands of innovative, entrepreneurial members, I urge you to: 

(i) Prohibit patent infringement assertions that do not identify: (a) the patent 

being asserted; (b) the claim that is allegedly infringed; (c) the specific means 

by which the patent is allegedly infringed; and (d) the parties that are financially interested in the license and royalty demanded. 

(ii) Require patent infringement assertions to be supported by honest, good faith 

appraisals of the patent’s validity, and by reasonable efforts to determine 

whether and how the business might actually be infringing the patent. 

(iii) Punish those who knowingly in demand letters inflate the breadth of a patent’s coverage or its value, and thereby attempt to bully defendants into 

quick settlements that are either entirely undeserved or obligate unjustifiably 

high payments. 

At the outset, it is important to clarify that my testimony is not about patent reform legislation. The Alliance supports legislation to reduce abusive patent litigation 

and to divert from expensive Federal courts wasteful infringement litigation based 

on low-quality patents. But today’s hearing is about stopping fraud on small business, fraud on the American public, and fraud on the patent system. 

Ending demand letter fraud requires decisive action like that of General Bruning 

and other Attorneys General. But Federal agencies, including the Federal Trade 

Commission, must also have a critical role in preventing intentionally deceptive 

business practices that undermine public trust in the patent system, stifle innovation and hurt consumers. 

In the online world, a smash-and-grab patent troll’s demand letter is the equivalent of the popup ad that says your computer has a virus, and for $49 the advertiser 

will remove it. The advertiser ‘‘helpfully’’ informs you about the high costs of not 

paying the fee, but it really has no idea if your computer has a virus. In the offline 

world, the troll is an exterminator who cheerfully offers to fix your termite problem 

for only $125. And though he has no knowledge of whether your house is infested, 

he is happy to give you a certificate after you pay him. 

Individually and in combination, many patent trolls’ demand letter practices are 

unfair, deceptive, fraudulent and are the equivalent of legalized extortion. Patents 

are a grant of public trust, with the value of coveted, beachfront property. They are 

granted by the Federal government for a specific purpose, and enforced by Federal 

judges who act with extraordinary deference to the PTO regarding a patent’s validity and scope. Just like land grants, research grants, tax-exemptions and government contracts, rules regarding patents’ assertion and exploitation can be—and 

should be—imposed or authorized by Congress in an effort to reduce abuse. 

Earlier this year the App Developers Alliance began surveying our members about 

abusive patent litigation and related legislative proposals. We quickly heard strong 

support for proposals to reduce litigation discovery costs, to increase the likelihood 

of abusive plaintiffs being sanctioned, and to divert litigation from courts to the PatVerDate Nov 24 2008 09:43 Mar 11, 2014 Jkt 075679 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\86955.TXT JACKIE
13 

ent and Trademark Office so that questionable business method patents can be 

closely scrutinized before courts enforce them. 

But we also heard that the greatest challenge for the smallest companies happens 

well before litigation—when they first receive a patent assertion and demand letter. 

This is because the smallest companies cannot even afford to litigate in Federal 

court. This explains why patent litigation fee-shifting proposals are important to 

many companies and to a healthy patent system, but not as directly important to 

startups. For small companies the mere threat of expensive patent litigation can kill 

a young company’s fundraising efforts and scare off potential customers. 

How prevalent are patent assertion and demand letters? Earlier this week a study 

was released documenting that fully one-third of startups responding to the survey 

have received patent assertions. Sixty percent of those assertions came from entities 

whose primary business is asserting and litigating patents. And just for startups, 

the cost of preparing for and defending patent demands generally exceeds 

$100,000—and can easily reach millions of dollars in the very rare challenge that 

proceeds to trial. It is easy to understand why settlement is cheaper than fighting, 

even when the company is confident that the claim is specious. 

Last week I was in St. Louis with a serial entrepreneur who shared stories of 

three local companies attacked by audacious trolls. One innovator had built an entire company based on digital technology, but was being threatened by a troll whose 

patent was based on analog technology. 

All three companies had similar experiences after receiving abusive demand letters: they spoke to the troll’s lawyer who offered a simple choice– sign a license, 

or hire litigation counsel and prepare for a lengthy, expensive battle. The first company retained counsel, but made a business decision to sign an unnecessary and unjustified license. This is a classic ‘‘tax on innovation’’ that our patent system was 

not intended to support and our startup economy cannot afford. The second two 

companies are still exploring options, undoubtedly while paying lawyers to help 

them appreciate the cost-benefit analysis of their choice—fight righteously and expensively, or settle quickly and feel extorted. 

An Alliance member in Los Angeles responded differently when he received an 

abusive demand letter. He called several lawyers and quickly realized that he could 

not afford to fight, though he was almost certain to win. He did not want, however, 

to reward the troll by signing a license, so instead he removed his app’s community 

features, its interactive features, and its most successful upgrade path. His app 

quickly dropped from the App Store’s Top 10 list and his business is suffering. In 

one regard, he feels victorious because he has avoided the troll’s wrath and has not 

been extorted directly. But, his business is harmed; his three employees are questioning their futures; and his spirit has flagged. 

Legitimate companies asserting high-quality patents that they seek to license for 

a fair royalty do not hide behind vague and threatening letters. They disclose the 

patents; explain the breadth of the claims in detail; and justify financially the basis 

of their royalty requests. They are seeking to engage in a legitimate business relationship and they behave accordingly. 

Trolls, in contrast, rely on vague and overbroad patents, and bullying threats of 

costly litigation and years of executive distraction. Settlement becomes very attractive, even when it is unjustified. 

To be clear, as General Bruning knows, the worst trolls have absolutely no interest in litigation regardless of how strenuously they threaten lawsuits. This is because a defendant’s first affirmative defense will be that the patent or the claims 

being asserted are invalid, and the troll’s worst nightmare is that a court will address their validity on the merits. 

But only the bullying troll knows where its particular limit is. Will it back off 

when a business hires competent counsel, or prove willing to spend money on discovery, or only when discovery concludes and the case gets close to trial? Along the 

way the bloviating troll’s goal is to increase defendants’ legal fees, increase executive distraction, and continue to increase settlement costs—all in an effort to persuade the business to settle, sign an license, pay a royalty, and end the costly, painful litigation. And it all begins with a baseless, threatening, and fraudulent demand 

letter. 

One troll went so far as to demand a meeting at its office in California within 

ten days of contacting our New York-based member company, and then increased 

its settlement ‘‘offer’’ every time that our member contacted him again to learn more 

about the patent or to negotiate. In an ironically different but also abusive contrast, 

another troll thoughtfully offers a $300,000 flat-fee license without any pretense of 

knowing if that amount bears any relation to the letter recipient’s alleged use of 

the invention in question, and then enthusiastically offers an early settlement discount for the low, never to be beaten, rate of $100,000. In this regard the troll reVerDate Nov 24 2008 09:43 Mar 11, 2014 Jkt 075679 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\86955.TXT JACKIE
14 

sembles the stereotypical used car salesman—asking how much will you pay me if 

I agree to stop threatening you without justification today? 

Congressional Action is Necessary, and Timely 

Often Congress is reluctant to tackle a problem unless and until it is absolutely 

clear that existing laws are insufficient. In this regard, some might believe that the 

important and worthy actions of General Bruning and his counterparts in Minnesota and Vermont demonstrate that Congressional action is premature. They 

might also look at the law enacted by the Vermont legislature this summer and conclude the same. The Alliance, however, believes that state and Federal action are 

complementary and that both are necessary right now. 

The efforts of General Bruning and his counterparts in other states, and of the 

Vermont legislature, only help the citizens of those states. The Alliance believes that 

Congress and Federal agencies also play an important role, by ensuring that citizens 

nationwide are protected against abusive patent troll demand letters. 

Courts—for example those handling patent infringement cases—do not have jurisdiction over pre-litigation demand letters except to the extent they are evidence of 

intentional infringement, which affects damages calculations. 

Also, the Federal Trade Commission’s current authority over unfair and deceptive 

trade practices has not been exercised to address the problem of abusive demand 

letters. We believe the FTC could do more, but that its enforcement actions necessarily will be against only a few of the abusive trolls that send bullying, fraudulent demand letters. 

The Alliance proposes three complementary solutions that will reduce fraud and 

abuse, help demand letter recipients analyze demands less expensively, and restore 

public trust in the patent system. 

First, the FTC should set minimum standards on the transmittal of patent assertion communications, and to define that communications lacking indicia of good 

faith and fair dealing are per se ‘‘unfair and deceptive’’ under the Federal Trade 

Commission Act. Including this basic information will not conclusively define that 

the patent is valid or that the troll is acting in good faith, but they will increase 

the likelihood that the troll appreciates the gravity of its actions and will minimize 

the risk of demand letter abuse. The required information should include: 

1. The patent number that is the subject of the assertion communication; 

2. The specific claims that are being asserted as being infringed; 

3. The specific reasons why the asserting party believes that the recipient of the 

communication is infringing the patent and/or the claims, including a description of the specific functionality or attribute of the receiving party’s technology 

or activity that is infringing; 

4. The names of all parties with financial interests in the patent, or in the settlement of the infringement, or in the licensing fees or royalties that the asserting 

party is requesting to be paid by the recipient of the assertion communication; 

and, 

5. The names of all parties to whom the asserting party, or others with financial 

interests in the patent, have sent assertion communications with regard to the 

same patent. 

Second, the Alliance urges Congress to codify that patents are a public trust 

granted by the people’s government, and that patent assertion communications 

must include a sworn statement of good faith and fair dealing regarding the breadth 

of the patent, that the assertion is based on thorough research and fair analysis including about the letter recipient’s technology and business, and that the requested 

royalty amount is reasonably related to the benefit derived by the recipient by its 

use of the patented invention. 

Third, the Alliance urges Congress to impose on patent owners through the Patent Act the same terms and conditions delineated above, and to empower courts to 

revoke or reduce patent ownership rights and enforcement rights patents parties 

that deliberately or consistently fail to comply with these requirements. 

Irrespective of the agency or agencies empowered to act, the Application Developers Alliance urges Congress to swiftly enact meaningful minimum requirements 

for the form and content of demand letters, including a requirement of honesty and 

fair dealing, and to pair these requirements with potent penalties for failure to satisfy them. These steps will protect America’s innovative startups and our Main 

Street businesses, and restore public trust in our patent system. 

Thank you for your consideration of the Alliance’s views. 

Senator MCCASKILL. Thank you, Mr. Potter. 

15 

STATEMENT OF MARK CHANDLER, SENIOR VICE PRESIDENT, 

GENERAL COUNSEL, AND CHIEF COMPLIANCE OFFICER, 

CISCO SYSTEMS, INC. 

Mr. CHANDLER. Thank you, Chairman McCaskill, Ranking Member Heller, Senator Klobuchar. 

My name is Mark Chandler. I’m Senior Vice President and General Counsel of Cisco. Today I’ll describe our experience with a new 

kind of scam that is based on a formula that’s as old as the hills, 

but dressed up with the language of patent infringement and innovation. 

The perpetrators send out thousands of threat letters to small 

businesses and consumers and file lawsuits in the hopes of a big 

payday, not based on any merits of the case, but on the fears of 

victims who just want to make a problem go away. These victims, 

mom and pop stores, hospitals, pharmacies, car dealers, aren’t 

manufacturers of products. They’re simply users like you and me. 

I’m involved as General Counsel of Cisco because I want to defend my customers, but we need your help in bringing a little sunshine to a dark corner of the patent system. 

Cisco was founded 30 years ago to build equipment so that disparate computer systems could communicate with each other. 

Today, we’re the world’s largest manufacturer of devices that make 

up the backbone of the Internet and we also build Wi-Fi, telephone 

and video systems. We employ 36,000 people in the United States 

and create jobs for hundreds of thousands of more. Our products 

are used directly or indirectly by billions of people around the globe 

and are in tens of millions of American homes and businesses. We, 

ourselves, hold over ten thousand individual U.S. patents and we 

appreciate that your colleagues in the Judiciary Committee are 

tackling issues related to the patent system. But their efforts to 

make patent litigation more fair won’t affect what I’m describing 

today. 

And let me tell you a story that unfortunately is not unique, as 

has been well documented by others on this panel including EFF 

which has collected many examples. Our story begins when a lawyer named Noel Whitley bought patents related to Wi-Fi from a 

great American chip company, Broadcom, and created a company 

that he cynically named Innovatio. 

Broadcom, for its part, didn’t want the patents anymore since 

their intrinsic economic value, related to innovation, was coming to 

an end. They were near or past expiration, had been broadly cross 

licensed to other chip companies and were subject to binding contracts requiring licensing on fair terms. 

But Whitley was not deterred. Whitley and his lawyers at the 

Niro firm in Chicago, which specializes in this game, sent almost 

14,000 threat letters to small businesses, cafes, bakeries, inns, hotels, a children’s health clinic—basically, anyone that might use 

Wi-Fi in their place of business. Did they tell them what products 

might infringe? Nope. Instead, his lawyers just wrote, ‘‘I represent 

an individual who has suffered injuries as a result of your company’s business,’’ in 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 through the chip companies and no more 

16 

could legally be collected? No. Instead, they told them that thousands of companies had already paid Innovatio and referred to almost a billion dollars in royalties, without letting on they were 

talking almost exclusively about Broadcom cross licenses that have 

little or nothing to do with these particular 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,’’ this for patents that a court determined were worth pennies per chip. 

And did they tell them that manufacturers like Cisco were eager 

to defend them? No. Instead, they wrote that the equipment manufacturers, and I quote, ‘‘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 to be reviewed by counsel, 

meaning a mountain of legal fees. Sadly, this isn’t an isolated incident as Attorney General Bruning has told you, as others in the 

panel will, and as I’ve described also in my written statement. This 

is a dangerous trend. 

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

much harder to carry out these schemes. First, require anyone who 

is sending more than ten patent demand letters to someone who is 

not a manufacturer or reseller of the accused product to file the letters in an online registry at the FTC. Second, require them to include a list of model numbers which are believed to possibly infringe, the fact that manufacturers, like Cisco, may be required to 

defend, and contact information for the manufacturers. Third, require any such letter 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 standards. 

We aren’t asking you to change substantive patent law, but these 

simple steps will provide basic transparency to protect the innocent 

end users. The paycheck I get every other week says Cisco on it, 

but every cent comes from my customers. That’s why I’m 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 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:] 

PREPARED STATEMENT OF MARK CHANDLER, SENIOR VICE PRESIDENT, GENERAL

COUNSEL, AND CHIEF COMPLIANCE OFFICER, CISCO SYSTEMS, INC. 

Chairwoman McCaskill, Ranking Member Heller, members of the Subcommittee, 

I am grateful for the opportunity to appear before you today and describe our experience with a new kind of consumer scam that we are seeing with increasing frequency. 

This is deceptive behavior of the kind that has long existed but now comes clothed 

in language like ‘‘patent infringement’’ and ‘‘innovation.’’ The goal is the same as 

in many old-fashioned consumer rip-off schemes that the government has long taken 

17 

1 Abusive Patent Litigation: The Impact on American Innovation & Jobs, and Potential Solutions; Hearing before the House Judiciary Committee (Mar. 14, 2013) (statement of Mark Chandler), available at http://judiciary.house.gov/hearings/113th/03142013l2/chandler%2003 

142013.pdf (last visited Nov. 4, 2013) 

action against—trying to scare or convince people to pay something they don’t owe 

or buy something they don’t need. The direct victims are not large companies like 

Cisco Systems, but small businesses, non-profit organizations and individuals. 

I am involved because I need to defend my customers. But we need your help. 

We need a little sunshine to disinfect this dark corner of the patent world—because once the practices used by these scam artists are exposed, and the harm to 

their victims better understood, these rip-off artists will be forced to change their 

ways. 

Introduction 

I am Senior Vice President and General Counsel of Cisco Systems. We are a 30- 

year old company, founded by two Stanford graduate students, who developed the 

key technology to allow different computer systems to communicate with each other. 

Our products are used every day by billions of people around the world, and we 

sell everything from the core switches and routers that make up the backbone of 

the Internet, to Wi-Fi systems people use in their homes and businesses, to telephone and video conference systems used by tens of millions of businesses and consumers. 

Our annual revenue is approximately $50 billion, and we directly employ 36,510 

people in the United States and indirectly provide jobs to hundreds of thousands 

more. 

We hold over 10,000 U.S. patents and file many hundreds of new patent applications every year. Our patents portfolio is regularly rated among the strongest in the 

telecommunications industry. Most importantly, our products are used in tens of 

millions, and perhaps over 100 million, American homes and businesses. 

Earlier this year I testified in front of your colleagues on the Judiciary Committee 

about the scourge of abusive patent litigation practices.1

I am pleased to report that your Judiciary Committee colleagues and their counterparts in the House of Representatives are working to make patent litigation fairer and more efficient. 

We are also hopeful that your Finance Committee colleagues and their counterparts on the House Ways and Means Committee will soon work to assure that International Trade Commission procedures can no longer be used for shakedowns by 

non-practicing entities that do not truly want an exclusion order. Exclusion orders 

are the only remedy available from the I.T.C., but often non-practicing entities only 

want to leverage the threat of such an order to obtain money to which they are not 

entitled. 

These reforms, which focus on litigation abuses, however, don’t address the kind 

of rip-off I’m describing today—a rip-off that targets small businesses and consumers with threat letters, deception, and intimidation tactics. 

Examples: Innovatio 

Our first story begins with a lawyer named Noel Whitley, who bought patents related to Wi-Fi from his former employer—a great American chip company, 

Broadcom—and then worked with a team of Chicago lawyers, the Niro firm, which 

specializes in representing patent assertion entities, to target legitimate businesses. 

He created a company which he cynically called ‘‘Innovatio,’’ since innovation is 

the last thing that the company does. Broadcom sold the patents because they were 

near their expiration date, heavily licensed to Broadcom’s competitors and subject 

to binding commitments to license on fair and reasonable terms. 

So Mr. Whitley and the Niro firm came up with a scheme. He sent over 14,000 

letters to small businesses, cafes, bakeries, inns and hotels, a children’s health clinic—anyone who he thought might be using Wi-Fi. 

Mr. Whitley’s team of lawyers and licensing ‘‘consultants’’ told these non-profits 

and small businesses: ‘‘I represent an individual who has suffered injuries as a result of your company’s business.’’ They went on to say, ‘‘We are highly confident that 

the Innovatio portfolio covers effectively ALL currently implemented embodiments 

of Wi-Fi technology in use today.’’ 

They didn’t tell them that a huge proportion of Wi-Fi devices were already licensed, because of Broadcom’s cross licenses and the license Broadcom kept for 

itself, and that therefore they might not even need any further permission or licenses from Innovatio. Instead, they claimed that almost a billion dollars had been 

collected in royalties already; referring mostly to amounts paid to Broadcom by its 

18 

2 In re Innovatio IP Ventures, LLC Patent Litig., MDL No. 2303, 2013 WL 5593609 (N.D. Ill. 

Oct. 3, 2013). 3See Joe Mullin, Meet the nice-guy lawyers who want $1,000 per worker for using scanners, 

arstechnica (Apr. 7, 2013), available at http://arstechnica.com/tech-policy/2013/04/meet-thenice-guy-lawyers-who-want-1000-per-worker-for-using-scanners/ (last visited Nov. 4, 2013). 4See Stop Project Paperless website—http://stop-project-paperless.com/the-patents/ (last visited Nov. 4, 2013). 5 Consumer Protection Complaint in Vermont v. MPHJ Technology Investments, LLC, No. 282– 

S–13WNCV (Vt. Super. Ct.) (filed May 8, 2013), available at http://www.atg.state.vt.us/assets/ 

files/Vermont%20v%20MPHJ%20Technologies%20Complaint.pdf (last visited Nov. 4, 2013). 

arch-competitor Qualcomm to resolve numerous U.S. and foreign legal claims that 

had almost nothing to do with these patents. 

They also claimed that thousands of companies had already paid Innovatio as 

well. They didn’t tell their targets that the patents related to industry standards 

and therefore had to be licensed on fair and non-discriminatory terms—something 

that all three of the former owners including Broadcom had irrevocably promised 

to do. Instead they told them, that ‘‘[W]e 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 $3000 per location’’—this for patents that a Federal court recently determined were worth pennies per chip.2

And he didn’t tell them that the manufacturers of the products, including Cisco, 

were suing Innovatio to defend their customers. Instead he misrepresented to them 

that the 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 businesses who had the temerity to resist, Innovatio enumerated 

thousands of pages of documents that would have to be reviewed by counsel to even 

begin to defend against Innovatio’s allegations, meaning thousands of dollars in 

legal fees. Unfortunately, thousands of businesses may have fallen for this scam. 

So, although Innovatio cloaks its business in the patina of patents and patent infringement, the reality is that Innovatio is just a modern take on an old scam. 

Innovatio conducts its racket by sending letters containing mistruths and omissions to thousands of consumers in an attempt to obtain money from these targets 

to which Innovatio is not entitled. 

And, unfortunately, Innovatio is only one example of this emerging type of consumer fraud. 

Project Paperless/MPHJ 

There have been numerous news articles about a similar scam by an entity that 

originally was called Project Paperless and which ultimately became known as 

MPHJ. Project Paperless engaged in a letter-writing campaign demanding $1,000 

per employee from their targets.3 An online project 4 discovered that some of the 

partners in Project Paperless’s law firm likely had an ownership interest in the patents. Soon after the revelation of this inconvenient truth, Project Paperless dropped 

its lawsuits and sold the patents to another shell company called MPHJ Holdings, 

after which threatening letters started coming from a full alphabet soup of strangely 

named shell companies including AccNum, AllLed, AdzPro, CalNeb, ChaPac, 

FanPar, FasLan, FulNer, GosNel, and HunLos. 

State attorneys general in Minnesota, Nebraska, and Vermont have taken various 

actions against MPHJ to protect business and consumers in their respective states 

from MPHJ’s deceptive practices. For example the Vermont attorney general’s action against MPHJ lists MPHJ’s lies and abusive practices in gory detail including:5

1. MPHJ entities sent threatening letters without doing any actual investigation 

of whether their patents were being infringed. 

2. MPHJ forced its targets to do the work of analyzing infringement 

3. MPHJ deliberately targeted small businesses without ready access to sophisticated representation 

4. MPHJ told its targets that it had a successful established licensing program 

when it fact it had signed very few licenses with an average licensing fee of 

$900. 

5. MPHJ’s letters indicate that litigation would be imminent if a license deal was 

not signed almost immediately yet MPHJ had never actually filed suit. 

Minnesota reached a settlement with MPHJ forcing them to cease and desist from 

targeting Minnesota businesses. 

19 

6My proposal is very consistent with the White House’s recommendations for reforming the 

patent system. See Fact Sheet: White House Task Force on High-Tech Patent Issues (June 4, 

2013), available at http://www.whitehouse.gov/the-press-office/2013/06/04/fact-sheet-whitehouse-task-force-high-tech-patent-issues (last visited Nov. 4, 2013). 

Helferich 

Cisco also is aware of another such entity, Helferich Patent Licensing, LLC 

(‘‘Helferich’’). Helferich was founded in 2007 ‘‘for the purpose of commercializing, licensing, and enforcing’’ patents relating to delivery of content to a cell phone. Although Helferich had already licensed its patents to cell phone manufacturers, it 

sought to double dip by demanding payment from hundreds of companies who sent 

text messages to those very same licensed cells phones. 

Helferich’s letters told its end user targets that companies that paid up immediately would get a discounted rate but threatened that this rate would go up if the 

target didn’t pay up within 60 days. 

Numerous companies entered into licenses, but the New York Times and others 

decided to fight back. In the New York Times case, the District Court found that 

the original license to the cell phone manufacturers meant that no further license 

to the users was needed. 

We can only hope that Helferich was exaggerating when it claimed that over 100 

companies already had signed licenses that it turned out none of the companies 

needed. 

USEI 

Another example is an entity called United States Ethernet Innovations, LLC 

(‘‘USEI’’). USEI purchased a group of patents that were about to expire from 3Com 

prior to 3Com’s acquisition by Hewlett-Packard. 

In addition to filing numerous lawsuits, USEI has sent licensing threat letters to 

hundreds (or possibly thousands) of end user businesses. USEI’s letters assert that 

Ethernet technology is covered by their patents and their technology ‘‘is utilized in 

many day-to-day business activities within corporations, including Internet connections, data transmission, retail transactions, corporate transactions, networked security system cameras, point of sale information, and inventory management systems.’’ 

The letters further warn that USEI has hired ‘‘the largest and most successful 

plaintiff’s law firm in the world’’ and has recently filed infringement lawsuits, but 

that it was willing to offer a license to a ‘‘select group’’ of entities such as the letter 

target in order to avoid ‘‘protracted litigation.’’ 

We understand that USEI has refused to provide its targets with information that 

would help them determine whether they actually need a license. For example, we 

understand that USEI has refused to disclose to its targets what entities already 

are licensed, a disclosure that would allow the target to determine whether the 

products it was using already were licensed and thus for which the target user did 

not have to pay. Targets of USEI’s licensing campaign have included department 

stores, markets and other end user businesses both large and small. 

Cisco’s customers have received licensing demands from many of these shake 

down campaigns. In each case, the campaigns are inherently deceptive. The patents 

are often invalid or irrelevant to their targets or already licensed. The target endusers do not get a real picture of the licensing history and the real likelihood of suit. 

The massive deceptive letter writing campaigns are just a way for the scam artists 

to get far more money than their patents are worth (if they are worth anything at 

all) just like in any other scam. 

Recommendations 

Much of what we have said here is based on Cisco’s own experiences and what 

Cisco’s own customers have told us about their experiences. 

But we do not know the scope and extent of the deceptive practices in which these 

entities are engaging. Our customers, the end user consumers that these entities are 

targeting and which we are seeking to protect, know even less. That is why your 

help is needed. 

There are four simple steps that would make it much harder for these scam artists to use deceptive letter writing schemes to extract money to which they are not 

entitled from end user/consumer targets:6

First, require anyone sending patent demand letters to more than ten entities 

who are NOT the manufacturers of the accused products to file the letters in an 

on-line registry to be maintained by the FTC. The public, the targets of the campaigns and the FTC need to know the full picture. 

20 

Second, require anyone in that category to include in the letter a list of products 

which are deemed to infringe, including the manufacturer and model number, and 

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

case, and providing contact information for the manufacturer. 

Third, require any such letter to include the names of the entities which own the 

patents or benefit from their enforcement and any related entities. 

And fourth, require the letters to include a list of all previous licenses granted 

for those patents, with a notice that if the recipient of the letter is using the products or services of a licensed entity, the recipient may require no further rights or 

permission from the patent holder. Also, the letter should say if there is a relevant 

licensing commitment to a standards organization. 

By adding a basic level of transparency and accountability, these simple steps will 

help protect innocent end users. 

The paycheck I get every other week says ‘‘Cisco’’ on it, but every cent comes from 

my customers. That is why I am passionate about making sure my customers who 

trust us to supply them with products don’t get ripped off by these predators. 

And when these predators are forced to come to me, I can guarantee they will 

get a fair fight. 

Thank you. Please let me know if you have any questions. 

Senator MCCASKILL. Thank you, Mr. Chandler. 

Ms. Samuels. 

STATEMENT OF JULIE P. SAMUELS, SENIOR STAFF ATTORNEY, 

MARK CUBAN CHAIR TO ELIMINATE STUPID PATENTS, 

ELECTRONIC FRONTIER FOUNDATION 

Ms. SAMUELS. Chairman McCaskill, Ranking Member Heller, 

Senator Klobuchar, I am Julie Samuels from the Electronic Frontier Foundation, and it is an absolute honor to be here today. 

EFF is a nonprofit civil liberties organization that has worked for 

more than 20 years to protect consumer interests, innovation, and 

free expression in the digital world. Today we’re here to talk about 

patent assertion entities and their practice sending demand letters. 

I’m going to tell you the problem we saw and we continue to see, 

what we’ve done to fix it and why we still need your help. The socalled patent troll problem is not a new one, but in the past 18 

months something shifted. We started hearing, sometimes daily, 

from people who had received demand letters, often vague, written 

in dense legalese, threatening litigation if the recipient didn’t pay 

up. 

We heard from app developers, small business owners, startup 

founders, people who ran their companies out of their living rooms 

and garages. These victims didn’t know what to do or how to respond. They couldn’t afford patent lawyers and, frankly, they were 

scared. 

Even worse, the vast majority of these people were being accused 

of infringing a patent based on everyday technology: online shopping carts; Wi-Fi routers; document scanners and the like. I personally wanted to help everyone who called, but we couldn’t. I 

wanted to give them more information on who was sending the letters but we didn’t have it. I wanted to tell them about patent law, 

what the letter meant, and reinforce that they in fact had no legal 

obligation to respond to the letter. But that alone would have filled 

up all of our time. We couldn’t represent everyone who needed our 

help. 

Something we quickly learned is that these letters really had 

nothing to do with patent law. They merely used the guise of patent law as leverage to conduct, frankly, run-of-the-mill extortion. 

21 

Two main problems we saw were lack of information and underreporting. First, without simple facts about the threat it faces, such 

as who is really behind the demands and if the troll will ever actually sue, a recipient is unable to assess its risk. It is left with a 

host of undesirable options: to hire a lawyer; to pay the troll to go 

away; or to do nothing and simply hope the troll disappears. 

Second, because the vast majority of the deals entered into between trolls and their targets are not public, the exact scope and 

contours of the activity we’re talking about are frankly hard to understand. So we came up with a solution. 

We’ve developed a website called Trolling Effects; a simple database that allows people to post the demand they received online, 

find letters received by others, and research who is really behind 

the threats. Finally, and most importantly, all of the information 

is freely available to anyone, period. 

Our experience so far with Trolling Effects has taught us, however, that many victims are often not willing or inclined to publicly 

share their letters. This has to do in large part with the public nature of the database and the fact that even with redactions, it is 

virtually impossible to safely anonymize all letter recipients. 

Larger, more established companies fear that making these demands public paints a target on their back while smaller companies and individuals are often even more afraid to attract attention 

from the trolls. That’s why we’re here today. To really solve this 

problem, we need Congressional help. 

Despite our best efforts, trolls continue to benefit from the asymmetry of information in the marketplace. Certain targeted legislative fixes could curb these abusive letter-sending practices. Congress could create registries, similar to what we are trying to do 

with Trolling Effects and what Mr. Chandler also brought up. Legislation could require patent owners to report on details of their demands at the Patent Office, for instance. The Patent Office already 

has many kinds of reporting requirements for patent holders, so 

this would be nothing new. Making this information public would 

fundamentally change the landscape. Armed with more facts, everyday consumers will be better able to assess their options. 

The FTC could also maintain a registry of those who send demands and the scope of those demands. Registries, at either the 

Patent Office or the FTC, would create additional incentives for letter recipients to turn over information. At the Patent Office, a certain amount of complaints regarding a particular patent could lead 

to a sua sponte review of that patent. And at the FTC, a certain 

number complaints could trigger a Section 5 investigation. Both options create a value proposition for letter recipients; the hope that, 

in exchange for information, something might be done. 

Legislation could also define certain practices such as making 

false demands and failing to include certain basic details in those 

demands as presumptively unfair or deceptive. This would not only 

trigger existing Section 5 authority, but also many state consumer 

protection statutes already on the books. At least three states, including Nebraska, as Attorney General Bruning testified, have already targeted this type of behavior and we know that even more 

are interested. 

22 

1 Richard A. Posner, Why There Are Too Many Patents in America, The Atlantic (July 12, 

2012), http://www.theatlantic.com/business/archive/2012/07/why-there-are-too-many-patentsin-america/259725/. 2See, e.g., The Innovation Act of 2103 (H.R. 3309); The Patent Quality Improvement Act (S. 

866); and the Patent Abuse Reduction Act (S. 1013). 3 Executive Office of the President, Patent Assertion and U.S. Innovation, at 12, http:// 

www.whitehouse.gov/sites/default/files/docs/patentlreport.pdf. 

The importance of today’s hearing cannot be understated, particularly because these trolls conduct the vast majority of their 

business behind a veil of secrecy. But a business model based on 

secrecy is antithetical to the entire patent system and it’s destructive to consumers and our innovation economy. 

I thank you for your time and look forward to answering your 

questions. 

[The prepared statement of Ms. Samuels follows:] 

PREPARED STATEMENT OF JULIE P. SAMUELS, SENIOR STAFF ATTORNEY, MARK

CUBAN CHAIR TO ELIMINATE STUPID PATENTS, ELECTRONIC FRONTIER FOUNDATION

Chairman McCaskill, Ranking Member Heller, and members of the Subcommittee, thank you for holding this hearing and inviting me to testify today about 

deceptive practices by Patent Assertion Entities. We are greatly encouraged by your 

interest in this important issue and its impact on consumers. 

I am a Senior Staff Attorney at the Electronic Frontier Foundation, where I also 

hold the Mark Cuban Chair to Eliminate Stupid Patents. EFF is a non-profit civil 

liberties organization that has worked for more than 20 years to protect consumer 

interests, innovation, and free expression in the digital world. Founded in 1990, 

EFF represents more than 24,000 active members. Many of those members are 

small innovators and tinkerers who often find themselves facing patent litigation or 

demands. Through litigation, the legislative process, and administrative advocacy, 

EFF seeks to represent those members’ interests and promote a patent system that 

facilitates, and does not impede, what the Constitution defines as ‘‘the Progress of 

Science and useful Arts.’’ 

PAEs use the threat of patent litigation to extort settlements in the form of what 

they might call ‘‘licensing deals.’’ These ‘‘licensing deals,’’ however, are not the kind 

of responsible technology transfer that benefits consumers. These companies, also 

known as non-practicing entities (NPEs) or, colloquially, as patent trolls, usually 

neither make nor sell anything but use patents to sue, and threaten lawsuits upon, 

unsuspecting businesses. As Judge Posner of the Seventh Circuit Court of Appeals 

explains, patent trolls ‘‘are companies that acquire patents not to protect their market for a product they want to produce—patent trolls are not producers—but to lay 

traps for producers, for a patentee can sue for infringement even if it doesn’t make 

the product that it holds a patent on.’’ 1

Patent trolls are causing enormous harm to innovators and consumers, not to 

mention job creators. Companies that actually create products, services, and jobs 

find themselves under siege by trolls who purchase vague and overbroad patents to 

launch or threaten lawsuits. As you know, the conduct surrounding those lawsuits, 

and solutions to curb further abuse, are being considered in both chambers of Congress.2 The harm to consumers, however, does not only arise out of actual lawsuits; 

instead, it also comes from dangerous and irresponsible demand letter-writing campaigns. Indeed, as the White House found: ‘‘The PAE business model is based on 

the presumption that in many cases, targeted firms will settle out of court rather 

than take the risky, time-consuming course of allowing a court to decide if infringement has occurred.’’ 3

These demand letters are often vague, lacking basic detail of what the recipient 

does to allegedly infringe the patent at issue. The letters frequently list patent numbers without detailing which parts of the patent—which typically comprises many 

pages of dense technical content and legalese—are at issue. While the recipient of 

the letter, most often an entrepreneur focused on building her business, has no legal 

obligation to reply, she might not know that, and the senders often include ‘‘draft 

complaints’’ and other enclosures in an attempt to threaten real litigation, even 

though the patent holders may have no intention of actually bringing a suit in court. 

And this is no wonder, as the letters’ targets are ever more frequently individuals 

and small companies whose entire annual revenue would not cover the cost of a lawyer’s time to obtain the information necessary to respond to the letter. 

23 

4 James Bessen, Jennifer Ford and Michael Meurer, The Private and Social Costs of Patent 

Trolls, (‘‘Bessen 2011’’) at 7, http://papers.ssrn.com/sol3/papers.cfm?abstractlid=1930272; Colleen V. Chien, Patent Assertion Entities, presentation to the December 10, 2012 DOJ/FTC Hearing on PAEs, (‘‘Chien Slides’’), at slides 23–24, https://papers.ssrn.com/sol3/papers.cfm? 

abstractlid=2187314. 5 Colleen V. Chien, Startups and Patent Trolls (Santa Clara Univ. Sch. of Law Legal Studies 

Research Paper Series, Accepted Paper No. 90–12, 2012), (‘‘Chien 2012’’), http://papers.ssrn.com/sol3/papers.cfm?abstractlid=2146251. 6 Bessen 2011 at 2. 

7 Chien 2012 at 1–2. 

8 In other words, ‘‘software patents have ‘fuzzy boundaries’: they have unpredictable claim interpretation and unclear scope. . .and the huge number of software patents granted makes 

thorough search to clear rights infeasible, especially when the patent applicants hide claims for 

many years by filing continuations. This gives rise to many situations where technology firms 

inadvertently infringe.’’ Bessen 2011 at 23. 9 James Bessen, A Generation of Software Patents, 18 B.U. J. Sci. & Tech. L. 241, 259 (2012) 

(Figure 3). 10See Brian J. Love, An Empirical Study of Patent Litigation Timing: Could a Patent Term 

Reduction Decimate Trolls Without Harming Innovators? (August 30, 2011), at 39, http:// 

ssrn.com/abstract=1917709 (forthcoming in University of Pennsylvania Law Review). 11 Colleen V. Chien and Edward Reines, Why Technology Customers are Being Sued En Masse 

for Patent Infringement & What Can Be Done, Santa Clara University School of Law Working 

Paper No. 20–13 (August 2013) (‘‘Chien & Reines’’) at 2, http://papers.ssrn.com/sol3/papers.cfm?abstractlid=2318666. 12 Id. at 4. 13 Id. at 8. 

To understand the threat to consumers that irresponsible demand letter practices 

pose, one first must understand the harms that flow from current patent litigation 

trends. Since 2002, litigation at the hands of patent trolls has grown from just five 

percent of total patent litigation to a majority of all patent cases.4 Moreover, patent 

trolls are targeting smaller companies, such as startups, that lack the resources to 

defend against a patent suit (which can cost well over $1 million per side) and thus 

have no choice but to pay extortionate settlement demands.5

This explosion of patent troll litigation has been very costly. The research shows 

that ‘‘NPE lawsuits are associated with half a trillion dollars of lost wealth to defendants from 1990 through 2010. [And] during the last four years the lost wealth 

has averaged over $80 billion per year.’’ 6 The burden of patent troll litigation falls 

particularly hard on small companies. Professor Colleen Chien recently found that 

at least 55 percent of unique defendants in patent troll suits have revenues under 

$10 million per year.7

Of particular note, the patent troll problem is quite often a software patent problem. Software patents serve as an attractive tool for patent trolls because they are 

notoriously difficult to interpret—giving unscrupulous patent owners the ability to 

claim that their patent covers a wide range of technology.8 Thus, litigation involving 

software patents has increased dramatically—from fewer than 200 per year prior in 

1997 to the current rate of over 1000 per year.9 Many of these suits are brought 

by patent trolls. In fact, more than 80 percent of troll-filed suits assert high-tech 

patents, and more than 65 percent have software-related claims.10 For the same 

reasons that software patents and their ‘‘fuzzy boundaries’’ result in an increase in 

litigation, they too provide patent holders a dangerous tool to send menacing demand letters. 

Another dangerous demand-letter trend, too, has its roots in litigation, but directly results in extraordinary harm to consumers outside of the courtroom. PAEs 

now make a regular practice of targeting those who use generally available technology. In fact, six of the top ten largest patent litigation campaigns targeted end 

users and not the manufacturers or suppliers of the supposedly infringing product 

or technology.’’ 11 And the research shows that: 

The burden for these suits falls disproportionately on small companies, and too 

often results in nuisance settlements based on the high cost of defending a patent case, not the merits of the claim.12

Even worse, many of these letter recipients are not what we commonly think of 

as ‘‘technology companies.’’ Instead, they merely use technology, as we all do. In 

fact, retail is ‘‘among the most highly pursued industries’’ by PAEs.13

Because the use of technology is widespread, so is the harm from these types of 

patent demands. ‘‘Indeed, many businesses have stopped adopting technology altogether to avoid patent infringement claims—for example, scanning to a USB stick 

24 

14 Id. at 12. 15 Chien 2012 at 10. 16See http://news.cnet.com/8301-32973l3-57409792-296/how-much-is-that-patent-lawsuitgoing-to-cost-you. 17 Chien & Reines at 3. 18 Id. at 19. 19 Id. at 10. 

to avoid infringing a PDF machine patent, not offering Wi-Fi to customers to avoid 

Wi-Fi patents, or, in some cases exiting the business or business line.’’ 14

Even though a demand letter is not a legal complaint, and even if it makes specious claims, the mere threat of litigation brings with it serious costs. As one study 

found: 

Patent demands can be costly to resolve, and particularly so for small companies. The overwhelming majority of companies said that resolving the demand 

required founder time (73 percent) and distracted from the core business (89 

percent); most experienced a financial impact as well (63 percent). However, responses and the costs of these responses ran the gamut; for example, 22 percent 

of those surveyed said they ‘‘did nothing’’ to resolve the demand.15

Mere threats can cause this harm because the costs of patent litigation are, sim- ply, outrageous. If taken to verdict, defending a lawsuit can easily cost nearly $3 

million.16 Even if the case is dismissed early, legal costs will often run into the six 

and seven figures.17 Thus, when facing a vaguely worded demand letter that threatens immediate suit and the expensive and unpredictable world of litigation, it is no 

wonder that so many recipients will merely pay the troll, even when the PAE may 

have no intention of ever bringing a lawsuit. 

These harms are not abstract. They affect real people everyday. Like Mark 

Egerman, founder of Cover. Cover is a smartphone application (‘‘app’’) that allows 

customers to easily split and pay their bills at restaurants. According to Mr. 

Egerman, 

When we launched in October, we were thrilled by the support we got from restaurants and users. Unfortunately, the press attention brought with it something else—our first patent troll. Within days of launching we received a threatening letter asking us to license a patent or else lawyers would get involved. 

The patent doesn’t address our product and yet we find ourselves in the same 

unenviable position of hundreds of other startups. Pay off the troll or face an 

unnecessary lawsuit. 

Another app developer, Gedeon P. Maheux, found himself in a similar situation: 

[We] and several other companies were threatened by a well-known patent troll 

for a patent we (and thousands of other software developers) supposedly violated dealing with in-app purchases in iPhone apps. . . . At first we decided to 

use legal means to fight the troll. We hired a lawyer who informed us of our 

options. . . . The troll demanded payment by a given date and unless we were 

prepared to go to court, we had to comply. We’re a small business and quickly 

found our mounting legal fees becoming unreasonable. In the face of [the slow 

legal system] and increasing costs dealing with the troll, we decided as a group 

to take the license and pay the troll his toll. 

En masse, these threats wreak havoc on consumers. Take Innovatio, a company 

that, ‘‘using a portfolio of 31 patents directed at the 802.11 wireless communication 

standard (most of which are expired or lapsed). . .has made demands of over 13,000 

small and large end-users of wi-fi technology using devices sold by Cisco, Netgear, 

Apple, and others.’’ 18 In less technical terms, this means that coffee shops, hotels, 

and other small retailers who have bought a $40 router off-the-shelf at their local 

retailer find themselves facing letters with ominous warnings threating expensive 

litigation. 

Or, MPHJ, a PAE that has sent letters to thousands of small businesses around 

the country demanding steep license fees for the use of standard office scanners.19

MPHJ’s practices are particularly egregious—it has created a series of shell corporations with nonsensical names like AdzPro, GosNel, and FasLan, making them nearly impossible to track. MPHJ demands approximately $1,000 per employee who uses 

simple scanning technology—a claim that surely implicates office workers across the 

country 

MPHJ sends demand letters (including letters with draft complaints attached) 

without any apparent intent of ever suing; indeed, there is no record that a single 

suit has been filed. MPHJ’s practices have drawn the attention of at least three 

25 

20See http://www.atg.state.vt.us/news/vermont-attorney-general-sues-patent-troll-in-ground 

breaking-lawsuit.php. 21See http://www.ag.state.mn.us/Consumer/PressRelease/130820StopPatentTrolling.asp. 22See http://www.ago.ne.gov/resources/dyn/files/1069520z2e735d6e/lfn/071813+Bruning+ 

Patent+Troll+Release+.pdf. 23See https://www.trollingeffects.org 24Professor Robin Feldman came to a similar conclusion: ‘‘for a number of years, companies 

have been reluctant to speak to reporters or researches, partly out of fear of retaliation by large 

players with large patent portfolios.’’ Robin Feldman, Patent Demands & Startup Companies: 

The View from the Venture Capital Community (Oct. 29, 2013) (‘‘Feldman’’) at 29, http://papers.ssrn.com/sol3/papers.cfm?abstractlid=2346338. 

states’ Attorneys General. In Vermont, the Attorney General sued MPHJ, claiming 

that its actions demonstrate unfair trade practices in commerce and deceptive trade 

practices in commerce.20 That suit is ongoing. Minnesota’s Attorney General reached 

a consent decree with MPHJ prohibiting the PAE from sending correspondence to 

anyone in the state that seeks fees or payments or threatens litigation in connection 

with intellectual property infringement, unless MPHJ gives 60 days’ written notice 

to the Attorney General or obtains consent.21 And, finally, Nebraska’s Attorney General issued a civil investigative demand and cease and desist letter to Farney Daniels, one of MPHJ’s law firms, who also represents another notorious PAE, 

Activision, in Nebraska.22 Farney Daniels has sued over the propriety of the cease 

and desist order and that litigation is ongoing. 

Massive PAE demand-letter campaigns like these lead to additional problems surrounding the sharing of and reporting on information. Because the demands by definition exist pre-complaint, they create no public record. And once a license or settlement is signed, it most likely will include a non-disclosure provision leaving the recipient unable to share its experience. This causes two problems: asymmetry of information and underreporting. 

The asymmetry of information problem is simple: the PAE holds all of the information surrounding its threat while the recipient is left with almost none. Without 

simple facts about the alleged threat it faces, such as who is really behind the demand and if the PAE’s history makes it likely to further pursue its threats, a demand recipient is unable to assess its risk. It is left with a host of undesirable options: to hire a lawyer, to pay the PAE to go away, or to do nothing and simply 

hope the PAE disappears. In most instances, the PAE risk was not one that the recipient bargained for when it bought the product at issue or started its business, 

yet it finds itself with no choice but to face it. 

The second problem is underreporting. Because the vast majority of the deals entered into between PAEs and their targets are not public, the exact scope and contours of PAE activity is difficult for policymakers and others to properly understand. 

To combat these concerns, EFF, along with a broad coalition, launched Trolling 

Effects, a database to collect demand letters.23 The site was officially launched on 

July 31, 2013. The site allows demand letter recipients to post the documents online, find letters received by others, and research who is really behind the threats. 

The site also features comprehensive guides to the patent and additional relevant 

information. Finally—and most importantly—all of the information is freely available, not only to those who receive PAE demands, but to academics, policy makers, 

and the general public. 

Our experience thus far with Trolling Effects has taught us that many demand 

recipients are often not willing or inclined to publicly share their letters. This has 

to do in large part with the public nature of the database and the fact that, even 

with redactions, it is virtually impossible to safely anonymize letter recipients. Demand recipients, both large and small, often chose to keep their identity hidden.24

Larger, more established companies fear that making these demands public ‘‘paints 

a target on their back.’’ Smaller companies and individuals are often even more 

afraid. It appears that ensuring more thorough transparency will require action 

from Congress. 

Statutory Intervention is Necessary to Protect Consumers 

While questions of patent law usually find themselves before the Judiciary Committee, this Committee should consider and correct the negative impact that demand letter-sending practices have on consumers. Those practices can be regulated 

without disrupting the underlying patent laws and without negative impact on responsible technology transfer. Below, we set forth some potential targeted legislative 

solutions. 

26 

25 Brian T. Yeh, Cong. Research Serv., R42668, An Overview of the ‘‘Patent Trolls’’ Debate, 

(2012) (‘‘Yeh’’) at Summary and 2, https://www.eff.org/sites/default/files/R42668l0.pdf (citing 

James Bessen & Michael Meurer, The Direct Costs from NPE Disputes 2, 18–19, (Boston Univ. 

School of Law, Law and Economics Research Paper No. 12–34, 2012) (‘‘Bessen 2012’’)), http:// 

papers.ssrn.com/sol3/papers.cfm?abstractlid=2091210 26Feldman at 39–40. 27 Chien Slides at slide 25. 28FTC Chairwoman Edith Ramirez said in a recent speech she believed Section 5 authority 

could reach certain PAE activities, such as those ‘‘that target small businesses with false claims 

made to induce the payment of illegitimate licensing fees.’’ Opening Remarks of Chairwoman 

Edith Ramirez, Competition Law & Patent Assertion Entities: What Antitrust Enforces Can Do 

(June 20, 2013) at 9 http://ftc.gov/speeches/ramirez/130620paespeech.pdf. 29See, e.g., The Federal Fair Debt Collections Practices Act, 15 USC § 1692(e), limiting the 

scope of threats that can be made in a debt collection letter. 30Statement of Commissioner Joshua D. Write, Proposed Policy Statement Regarding Unfair 

Methods of Competition Under Section 5 of the Federal Trade Commission Act (June 19, 2013) 

at 7, http://www.ftc.gov/speeches/wright/130619umcpolicystatement.pdf. 

A. Defining Relevant Practices that Violate Consumer Protection Statutes 

Section 5 of the FTC Act declares unlawful ‘‘unfair methods of competition in or 

affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.’’ 15 U.S.C.A. § 45(a)(1). Abusive demand letters are both an unfair method 

of competition and a deceptive practice. A law defining those practices as such 

would trigger not just Section 5, but many similar state law provisions already on 

the books. 

There can be no doubt that PAE actions cause significant economic harm. According to a congressional study, PAE activity cost defendants and licensees $29 billion 

in 2011, a 400 percent increase over $7 billion in 2005, and the losses are mostly 

deadweight, with less than 25 percent flowing to innovation and at least that much 

going towards legal fees.25 Moreover, a recent survey found that 74 percent of venture investors ‘‘reported that patent demands had either a highly significant or a 

moderately significant impact on the companies that received them, including distracting management, expending resources, or altering business plans.’’ 26 The demand activity in these reports is not limited to letters, of course. But the demand 

letters do extract their toll, and make up a significant portion of those costs. For 

instance, Professor Colleen Chien has reported that there are at least 100 demand 

threats for each filed lawsuit.27

The FTC Act was enacted to protect consumers from the type of demand-letter 

practices many PAEs have lately practiced. By statutorily defining certain of those 

practices as ‘‘unfair methods of competition’’ or ‘‘unfair or deceptive acts or practices,’’ Congress could trigger existing Section 5 protections.28 For instance, the following type of demand-sending behavior might be addressed: 

• Demands falsely threatening litigation;29

• Demands sent without specifically listing the patents and claims that are allegedly infringed; 

• Demands sent without listing the products and services that allegedly infringe 

those patents; 

• Demands sent without any clear indication of who owns the patent at issue; 

• Demands sent following a failure to perform any pre-demand investigation into 

the recipient; and 

• Demands sent to businesses with the direct knowledge that those businesses 

can neither afford to take a license or defend themselves in Federal court. 

PAEs routinely send demands that do all of these things. They leave recipients 

without any meaningful information on how to mitigate and manage their risk, and 

leave them oftentimes with little choice but to take an unearned license. This is precisely the kind of behavior that may and should be regulated by consumer protection 

statutes. As the Commission itself has stated, it can target ‘‘[c]onduct that results 

in harm to competition, and in turn, in harm to consumer welfare, [which] typically 

does so through increased prices, reduced output, diminished quality, or weakened 

incentives to innovate.’’ 30

Defining the types of practices that PAEs like MPHJ rely on as unfair or deceptive practices would allow the FTC and various states with statutes similar to 

Vermont’s to take advantage of existing statutory frameworks and end the dangerous PAE demand-sending campaigns. Moreover, it would present no risk to companies who engage in responsible licensing practices and technology transfer, who 

could easily obtain the information necessary to conduct proper business. 

27 

31Dan L. Burk & Mark Lemley, Policy Levers in Patent Law, 89 Va. L. Rev. 1575 (2003). 32See Chien & Reines at 6. 33http://www.peertopatent.org. 34Peer To Patent Second Anniversary Report at 4, http://dotank.nyls.edu/communitypatent/ 

CPIlP2PlYearTwollo.pdf 35 Id. at 5 

B. Creating Public Registries of Relevant PAE Information 

Because a patent is a government-granted monopoly, the government may impose 

conditions on that grant. Indeed, it does that all the time by requiring that certain 

conditions be met before a patent is granted and that patent holders keep their 

records up-to-date by, for instance, reporting on changes in ownership. Likewise, a 

patent holder should be required to provide certain information to the Patent Office 

when it asserts infringement of that patent in a letter. 

Patent owners could be required to report information such as how many demand 

letters have been sent regarding a specific patent; identification of all parties who 

stand to benefit financially from any resulting license; identification of any obligation to license the patents at issue on fair or reasonable terms; and how many times 

the holder has filed suit based on the patent at issue. 

There are various reasonable triggers that could require such reporting, such as 

a certain number of letters sent in a set period of time or notification to the Patent 

Office of a threshold number of letter recipients. 

At a minimum, reporting this information to the Patent Office would make it public (assuming the Patent Office provided it in a publicly-accessible database, which 

it should be required to do). This information would fundamentally change the unfair information asymmetry facing demand recipients—armed with more facts, they 

will be better able to assess their options. 

Collecting the information might also assist the Patent Office in initiating sua sponte review of certain patents. If the Office has information regarding which patents are most often used as weapons by PAEs, it might prioritize those for such review. Indeed, in a world with literally millions of existing patents, it makes sense 

to focus challenges on those that pose the greatest threat to consumers.31 It is not 

until those patents are asserted in demands that we can ascertain just which patents will cause harm. Requiring reporting to the Patent Office will give the Office 

necessary knowledge to know which patents make the most sense to target for additional review.32 (The potential for Patent Office review of existing patents may likewise serve as an incentive for demand-letter recipients to provide information as 

well.) 

It is not just the Patent Office who may decide to subject existing patents to additional review (indeed, this is a very rare practice, though there is no reason it cold 

not happen more). It also gives third parties—including public interest groups like 

EFF—knowledge surrounding which patents they might choose to challenge. EFF 

alone has made more than 15 third-party patent challenges to patents and patent 

applications, one as recent as October of 2013. These challenges require significant 

resources, both financial and otherwise, and it is of great benefit to know which patents pose the greatest threat to consumers, end-users, and those who may not be 

in a position to put forth such a challenge themselves. 

In the alternative, the FTC could also house a similar registry of patent demands. 

It already does this in various other contexts, such as the Do Not Call Registry. 

When a certain threshold number of demands are sent involving a particular patent, 

or from a particular sending party, the FTC might initiate an investigation. Similar 

to a registry at the Patent Office, one at the FTC might be made up of patent holders self reporting or consumers submitting information on the demands they receive. 

Given the FTC’s expertise in consumer-facing issues, it would be particularly 

equipped to house the latter type of registry; given the Patent Office’s expertise in 

dealing with patent owners, it might focus on the former. 

C. Increasing Public-Private Partnerships 

In virtually every area of the law there has been a long history of productive public-private partnerships. Patent law is no exception. The Peer To Patent project 33

serves as a telling example. Peer To Patent provided the first ‘‘governmental ‘social 

networking’ Website designed to solicit public participation in the patent examination process.’’ 34 After its first two years, Peer To Patent attracted more than 74,000 

visitors; of those visitors, more than 2,600 went on the become peer reviewers.35

Also in its first two years, the project contributed relevant prior art in more than 

25 percent of the applications it handled. 

EFF envisions a similar partnership with our Trolling Effects site. Trolling Effects 

may serve as a public-facing database for information collected by the Patent Office 

28 

or otherwise work with the government to increase the reach and scope of that information. In combination with statutory provisions providing for submission of information, Trolling Effects or a project like it will serve as a powerful tool to curb 

the current demand letter abuses. 

Conclusion 

In conclusion, EFF has grave concerns about the impact that PAE activities are 

having on consumers. The importance of today’s hearing on those activities cannot 

be understated, particularly because PAEs conduct the vast majority of their business behind a veil of secrecy. Individual consumers, small start-ups, and ordinary 

Americans find themselves facing patent troll threats everyday, yet even the most 

basic information on those threats is often unattainable. Even just having us here 

today to talk about this problem is a crucial step toward solving it. We encourage 

you to continue this important conversation and consider legislative proposals that 

would limit the harm to consumers from PAE activity, particularly the direct harm 

that comes from demand letters. 

STATEMENT OF LARY SINEWITZ, EXECUTIVE VICE PRESIDENT, BRANDSMART USA ON BEHALF OF THE NATIONAL 

RETAIL FEDERATION 

Mr. SINEWITZ. Sorry. 

My name is Lary Sinewitz, and I am the Executive Vice President of BrandsMart USA. BrandsMart USA is a consumer electronics and appliance retailer in the Southeast. We have ten retail 

stores and one clearance center in South Florida and Georgia and 

a growing ecommerce presence at BrandsMartUSA.com. We employ 

2,000 people; that actually represent 2,000 families throughout our 

business. 

I’m here today on behalf of, not only BrandsMart, but also the 

National Retail Federation and the Stop Patent Abuse Now Coalition. NRF represents retailers of all types and sizes including chain 

restaurants, industry partners from the United States and more 

than 45 countries abroad. Retailers operate more than 3.6 million 

U.S. establishments that literally support one in every four U.S. 

jobs. 

The SPAN Coalition represents the interests of retailers, advertisers, advertising agencies and direct marketers, increasingly targets of patent trolls’ unfair and deceptive patent infringement demand letters. Members of the NRF and the SPAN Coalition appreciate the attention that the subcommittee is paying attention to the 

issue of demand letter transparency and the harmful effect patent 

trolls have on competitiveness and innovation. 

I’m just one retailer, but I really believe that my experience receiving these patent troll demand letters is fairly typical, not only 

of retailers but of also businesses and not-for-profits of all types 

who are the end users of technology. 

Over the course of the last several years, my company alone has 

received six patent troll demand letters. The scary thing, though, 

is that BrandsMart’s experience is not unique. For example, in 

2008, I received this short, two-paragraph letter, from a law firm, 

which you have a copy of up there, stating that it had come to their 

attention that my retail facilities were using credit, debit and gift 

cards that were activated in a manner that may raise issues with 

their client’s patent. 

To be clear, the technology at issue in the demand letter is one 

that enables credit, debit and gift cards to read and process information via the magnetic stripe on the back of the card. Virtually, 

29 

every retailer uses this type of technology. So imagine my shock 

when some law firm sends me a vague letter accusing me of patent 

infringement and trying to get me to pay them some unknown sum 

of money for a license. 

So I ask you to put yourself in my shoes, and the shoes of retailers and other businesses across the country. You receive a vague 

patent troll demand letter about some process you are using to enable credit cards to be used in your stores. What do you do? Do you 

consult a patent lawyer? Well, BrandsMart doesn’t have an inhouse patent lawyer. They don’t even have a patent lawyer on retainer. So one can imagine, just to pick up the phone to consult a 

patent lawyer, to determine the validity of the infringement claim 

and evaluate the license demand, costs tens of thousands of dollars. 

Patent troll demand letters like this one puts the fear in you that 

a costly lawsuit could be forthcoming. So what do you do? You stop 

accepting credit, debit and gift cards? No way. That would be the 

death of your business. So, a business like mine either ignores the 

letter at their own peril, hopes the harassment goes away, or we 

begrudgingly try to settle for as little money as possible. And in 

every case, we’ve had to choose the latter approach and pay. 

Incidentally, we still incur the expense of consulting a patent 

lawyer about this letter. And when BrandsMart informed the PAE 

that we use a different technology to read cards, they still demanded a settlement, but reduced the amounts. We ended up paying this particular PAE five figures to settle, and our legal fees 

were five figures as well. In all, BrandsMart has spent a half a million dollars to settle patent infringement claims and attorneys’ fees. 

We’re a retailer trying to serve our customers and settling with 

patent trolls takes away from our resources. We would rather use 

those resources investing in our communities, our stores, our employees and for newer innovation. 

Patent trolls are increasingly harassing businesses and not-forprofits of every size across a wide swath of industries with demand 

letters. Retailers appear to be an easy prey because they often do 

not have the technical expertise, operate on thin profit margins, 

and lack the legal resources and expertise to fight complex patent 

infringement claims. Ninety-one percent of the retail companies operate with fewer than 20 employees and 95 percent of the retail 

companies operate just one location. Most retailers do not have the 

time or the money to engage in lengthy battles with patent trolls. 

Something most be done to help the retailers and other businesses 

get out from under the patent trolls’ control. 

NRF and SPAN Coalition members support legislative proposals 

to have the Federal Trade Commission look into these unfair or deceptive demand letters which are so effective because they lack detail. And using their current consumer protection enforcement powers, rein in bad actors that target main street businesses. 

Patent trolls should not have free rein to assert expired patents, 

make repeated and false threats of litigation to extort fees, and materially mislead the recipients of these demands. At the very least, 

patent trolls should be required to provide more details in their letters. It’s imperative that Congress act to give retailers and other 

businesses relief from this escalating problem. 

30 

If I could just sum it up in one sentence or in a nutshell, it’s all 

about fairness. That’s all that we’re asking for. We appreciate your 

attention to this issue. I thank you personally and I look forward 

to any of your questions. 

[The prepared statement of Mr. Sinewitz follows:] 

PREPARED STATEMENT OF LARY SINEWITZ, EXECUTIVE VICE PRESIDENT, 

BRANDSMART USA, ON BEHALF OF THE NATIONAL RETAIL FEDERATION

Introduction and Background 

Chairman McCaskill, Ranking Member Heller, and members of the Subcommittee, I thank you for the opportunity to appear before you today. My name 

is Lary Sinewitz, and I am Executive Vice President of BrandsMart USA. Founded 

in 1979, BrandsMart USA is a consumer electronics and appliance retailer in the 

Southeast. With 11retail stores in South Florida and the Atlanta area and a growing ecommerce presence at BrandsMart-USA.com, BrandsMart USA is the 8th largest appliance retailer in the country. We employ 2,000 people. 

I am here today on behalf of the National Retail Federation (‘‘NRF’’) and the Stop 

Patent Abuse Now (‘‘SPAN’’) Coalition to testify about the impact of demand letters 

sent by patent assertion entities (‘‘PAEs’’) or ‘‘patent trolls’’ on small businesses and 

consumers. Members of the NRF and the SPAN Coalition appreciate the attention 

the Subcommittee is paying to this particular issue. 

As the world’s largest retail trade association and the voice of retail worldwide, 

NRF represents retailers of all types and sizes, including chain restaurants and industry partners, from the United States and more than 45 countries abroad. Retailers operate more than 3.6 million U.S. establishments that support one in four U.S. 

jobs—42 million working Americans. Founded in 1996, Shop.org’s 600 members include the 10 largest online retailers in the U.S. and more than 60 percent of the 

Internet Retailer Top 100 E-Retailers. The National Council of Chain Restaurants, 

a division of the National Retail Federation, has worked to advance sound public 

policy that serves restaurant businesses and the millions of people they employ for 

over 40 years. NCCR members include the country’s most respected quick-service 

and table-service chain restaurants. Contributing $2.5 trillion to annual GDP, retail 

is a daily barometer for the Nation’s economy. Retailers create opportunities for lifelong careers, strengthen communities at home and abroad, and play a leading role 

in driving innovation. 

The SPAN Coalition represents the interests of retailers, advertisers, advertising 

agencies, and direct marketers who increasingly are being targeted by patent trolls 

with unfair and deceptive patent infringement demand letters. 

BrandsMart’s Experience with Patent Troll Demand Letters 

You have invited me to testify about my company’s experience with unfair or deceptive demand letters. I am just one retailer, but I believe my experience receiving 

patent troll demand letters is fairly typical, not only of retailers, but also of businesses and not-for-profits of all types who are the end-users of technology. 

Over the course of the last several years, my company alone has received six patent troll demand letters. For example, in 2008, I received a short, two paragraph 

letter from a law firm stating that it had come to their attention that my retail facilities were using debit and gift cards that were activated in a manner that may 

raise issues with their client’s patent. 

To be clear, the technology at issue in the demand letter is a ubiquitous technology that enables debit cards and gift cards to read and process information via 

the magnetic strip on the back of the card. Virtually every retailer uses this type 

of technology. So imagine my shock when some law firm sent me a vague letter accusing me of patent infringement and trying to get me to pay them some unknown 

sum of money for a license. 

I do not believe this law firm did any due diligence truly to ascertain whether 

BrandsMart was infringing its client’s patent. Rather, I believe, based on my conversations with other retailers in my region, that the firm simply picked the 150 

biggest retailers in the Atlanta metropolitan area and sent the same vague demand 

letter to each of them. 

So, I ask you to put yourselves in my shoes—and the shoes of retailers and similarly situated small businesses across the country. You receive a vague patent troll 

demand letter about some process you are using to enable credit cards to be used 

in your stores. What do you do? Consult a patent lawyer? BrandsMart does not have 

in-house patent lawyers, and we did not even have a patent lawyer on retainer. As 

31 

1 2007 Economic Census, thisisretail.org. 2Mark Gibbs, ‘‘A Patent Troll Wants to Charge You for E-mailing Your Scans,’’ Forbes.com, 

January 5, 2013. 

one can imagine, just to pick up the phone to consult a patent lawyer to determine 

the validity of the infringement claim and evaluate the license demand could cost 

tens of thousands of dollars. Moreover, the cost of litigating the claim in court or 

going to the Patent Trademark Office to challenge the patent could be prohibitive 

or imprudent to a business such as mine. 

Patent troll demand letters like this one put the fear in you that a costly lawsuit 

could be forthcoming. So what can you do? Stop accepting credit cards and gift 

cards? No way; that would be the death of your business. So, a business like mine 

either ignores the letter at our own peril (and hope the harassment goes away) or 

we begrudgingly try to settle for as little money as possible. In every case, we have 

chosen the later approach and paid. 

Incidentally, we did incur the expense of consulting a patent lawyer about this 

letter, and when BrandsMart informed the PAE that we used a different technology 

to read cards, they still demanded a settlement, but reduced the amount. We ended 

up paying this particular PAE for five figures, and our legal fees were five figures 

as well. I have submitted the redacted letter with my testimony today. 

Regrettably, in the past ten years, BrandsMart has spent approximately $500,000 

consulting with attorneys on infringement claims and settling with patent trolls. 

BrandsMart’s Experience with Patent Troll Demand Letters is not Unique 

What NRF and the SPAN Coalition have learned is that BrandsMart’s experience 

with patent troll demand letters is not unique. Patent trolls are increasingly 

harassing businesses and not-for-profits of every size, across a wide swath of industries, with demand letters. These letters come out of nowhere, and often allege that 

the mere use of everyday technology violates the patent holders’ rights. Further, 

these questionable letters typically state vague or hypothetical theories of infringement, often overstate or grossly reinterpret the patent in question, and, in some 

cases, make allegations of infringement of expired or previously licensed patents. 

At their core, demand letters use the threat of litigation as leverage to extract 

a ‘‘licensing fee’’ from the recipient business. Businesses like BrandsMart often simply settle these nuisance claims rather than run the risk of protracted litigation in 

Federal court. Put simply, it is often much more expensive to hire a lawyer to review or defend against a suspect claim than it is to pay the requested ‘‘fee.’’ This 

is the trolls’ business model. 

No one knows just how many thousands of patent-related demand letters are sent 

out by trolls each year; statistics only track actual patent infringement litigation in 

Federal courts. The troll has to actually file a case in court before a judge is even 

made aware of the infringement claim, therefore it is impossible to get an accurate 

understanding of the full breadth of this problem. 

End-user businesses such as retailers also appear to be easy prey because they 

often lack the legal resources and expertise to fight complex patent infringement 

claims. Many retailers do not even employ legal counsel in-house, let alone a highly 

specialized patent attorney. Ninety-one percent of retail companies operate with 

fewer than 20 employees and 95 percent of retail companies operate just one location.1 Further, most retailers also do not have the time or money to engage in a 

lengthy battle with patent trolls. The average cost of fighting a patent troll is 

around $2 million and takes about 18 months.2 Patent trolls knowingly exploit their 

targets’ tactical disadvantages, often pricing a settlement demand (which may still 

be in the millions) just below the cost of litigation, effectively blackmailing a retailer 

into settlement. This is an abuse of the system. 

Trolls’ claims not only affect e-commerce applications and the everyday use of 

technology, but also affect the storefront operations of traditional ‘‘brick and mortar’’ 

retailers, like BrandsMart. Some real world examples of the latter are claims that 

purport to cover point of sale and inventory control equipment, including; scanning 

barcodes, printing receipts, the sale of gift cards, and the connection of any product, 

such as a computer or printer, to an Ethernet network. 

Today, too many businesses like BrandsMart are diverting precious capital resources to settle with or fight patent trolls. This is capital that they could otherwise 

use to invest in their businesses and in their communities, including; creating jobs, 

fostering innovation, and maintaining their stores. Because the retail industry contributes $2.5 trillion to our Nation’s annual GDP, loosening the grip of patent trolls 

on retailers and others will allow innovation and growth to flourish, and undoubtedly benefit the overall U.S. economy. 

32 

NRF and SPAN Coalition members support legislative proposals to have the Federal Trade Commission (‘‘FTC’’) look into these unfair or deceptive demand letters 

and, using their current consumer protection enforcement powers, rein in bad actors 

that target main street businesses. Patent trolls should not have free reign to assert 

expired patents, make repeated and false threats of litigation to extort fees, and materially mislead the recipients of these demands. At the very least, patent trolls 

should be required to provide more details in their letters. Currently, the letters are 

so effective because they lack specificity. Requiring greater and truthful disclosure 

will provide greater certainty to businesses, saving them time and money as they 

investigate the person or entity asserting the patent and determine the overall merits of the infringement claim. 

Combating the rise of patent trolls is a top priority for retailers and the SPAN 

Coalition as a whole. We look forward to discussing meaningful legislative solutions 

and demand letter relief as patent litigation reform legislation moves forward this 

year. We appreciate the Subcommittee’s attention to this issue, and look forward to 

continuing our work together. 

33 


117SINEW1.eps

I LL IN O I S 

60604- 3606 

BrandsMart USA 

Attn: Legal Department 

3200 SW 42"' SI. 

Hollywood, FL 33312 

In Re. U.S. Patent No. 

To Whom It May Concern: 

22 February 2008 

VIA CERTIFIED MAIL/ . 

. RETURN RECEIPT REqUESTED 

Please be advised that this law firm represents the owner of United States Patent No. 

entitled 

(" Patent"). A copy of the Patent is enclosed for your review. 

It has come to our attention that your retail facilities are using debit and gift cards that are 

activated in a manner that may raise issues with the Patent. Please review the 

Patent and advise the undersigned if you would be interested in taking a license under the 

Patent. If you do not believe that your system has any conflict with the Patent, 

please advise the basis of yo ur position so that we can analyze the situation and make an 

appropriate decision on how to proceed. Thank you for your attention to this matter. 

Enclosures 
34 

Senator MCCASKILL. Yes, Mr. Mossoff. 

STATEMENT OF ADAM MOSSOFF, PROFESSOR OF LAW, 

GEORGE MASON UNIVERSITY SCHOOL OF LAW AND 

SENIOR SCHOLAR, CENTER FOR THE PROTECTION OF 

INTELLECTUAL PROPERTY 

Mr. MOSSOFF. Chairman McCaskill, Ranking Member Heller, 

and members of the Subcommittee, thank you for this opportunity 

to speak to you today. 

There certainly are bad actors, deceptive demand letters and frivolous litigation in the patent system. The important question 

though is whether there is a systemic problem requiring further 

systemic revisions to the patent system. There is no answer to this 

question and that is the case for three reasons. 

First, the calls to rush to enact systemic revisions to the patent 

system are being made without scientifically established evidence 

that there is in fact systemic harm to innovation, let alone any 

harm to the consumers that Section 5 authorizes the FTC to protect. As the Government Accountability Office found in its August 

2013 report on patent litigation, the frequently cited studies claiming harms are actually ‘‘nonrandom’’ and ‘‘non-generalizable,’’ 

which means that they are unscientific and unreliable. These anecdotal reports and unreliable studies do not prove that there is a 

systemic problem requiring a systemic revision to the patent licensing process. 

Of even greater concern, is that the many changes to the patent 

system Congress is considering, including extending the FTC’s authority over demand letters, would impose serious costs on real 

innovators and thus do actual harm to America’s innovation economy and job growth. From Charles Goodyear and Thomas Edison 

in the 19th century, to IBM and Microsoft today, patent licensing 

has been essential to bringing patented innovation to the marketplace, creating economic growth and a flourishing society. But expanding FTC authority to regulate requests for licensing royalties 

under vague evidentiary and legal standards only weakens patents 

and creates costly uncertainty. This will hamper America’s innovation economy, causing reduced economic growth, lost jobs, and reduced standards of living for everyone, including the consumers the 

FTC is charged to protect. 

Second, the Patent and Trademark Office and courts have long 

had the legal tools to weed out bad patents and punish bad actors. 

And these tools were just massively expanded 2 years ago with the 

enactment of the America Invents Act. This is important because 

the real concern with demand letters is that the underlying patents 

are invalid. No one denies that owners of valid patents have the 

right to license their property or to sue infringers, or that patent 

owners can even make patent licensing their sole business model 

as did Charles Goodyear and Elias Howe in the mid-19th century. 

Now, there are too many of these legal tools to discuss in my 

brief remarks, but to name just a few: recipients of demand letters 

can sue patent owners in courts through declaratory judgment actions and invalidate bad patents, and the PTO now has four separate programs dedicated solely to weeding out bad patents. 

35 

For those who lack the knowledge or resources to access these 

legal tools, there are now numerous legal clinics, law firms and policy organizations that actively offer assistance, often times for free. 

Again, further systemic changes to the patent system are unwarranted because there are existing legal tools with established legal 

standards to address bad actors and their bad patents. 

Last, Congress is being driven to revise the patent system on the 

basis on rhetoric and anecdote, instead of objective evidence and 

reasoned explanation. Now there are certainly bad actors in the 

patent system as we have heard, but terms like patent assertion 

entity or patent troll constantly shift in meaning and there is no 

settled definition for them. These terms have been used to cover 

anyone who licenses patents, including universities, startups, companies that engage in R&D, and many others. 

Classic American innovators in the 19th century like Thomas 

Edison, Charles Goodyear and Elias Howe would be called patent 

assertion entities or patent trolls today. In fact, they and many 

other patent owners, some of them secondary owners who just license their patents, made royalty demands against thousands of 

farmers, dentists and other end users in the 19th century. 

Congress should exercise restraint when it is being asked to 

enact systemic legislation or regulatory changes on the basis of pejorative labels that lead us to condemn or discriminate against classic innovators like Thomas Edison who have contributed immensely to America’s innovation economy. 

In conclusion, the benefits or costs of patent licensing to the innovation economy is an important empirical and policy question, 

but systemic changes to the patent system should not be based on 

rhetoric, anecdotes, invalid studies and incorrect claims about the 

historical and economic significance of patent licensing. 

As former PTO Director, David Kappos stated just last week in 

his testimony before the House Judiciary Committee, ‘‘we are reworking the greatest innovation engine the world has ever seen almost instantly after it has just been significantly overhauled. If 

there was ever a case where caution is called for, this is it.’’ 

Thank you. 

[The prepared statement of Mr. Mossoff follows:] 

PREPARED STATEMENT OF ADAM MOSSOFF, PROFESSOR OF LAW, GEORGE MASON

UNIVERSITY SCHOOL OF LAW AND SENIOR SCHOLAR, CENTER FOR THE PROTECTION

OF INTELLECTUAL PROPERTY

Chairman McCaskill, Ranking Member Heller, and members of the Subcommittee: 

Thank you for this opportunity to speak with you today about patented innovation 

and the impact that licensing and threatened litigation have on our innovation-driven economy. 

Today, two propositions define the American patent system and yet they stand in 

stark contrast to each other. On the one hand, patented innovation plays a central 

role in the United States in creating a prosperous economy. It drove the Industrial 

Revolution in the nineteenth century with the cotton gin, sewing machine, railroads, 

steam engines, and many other inventions, and it is driving the Digital and Biotech 

Revolutions today with engineered drugs, wireless communication, tablets, smart 

phones, and more inventions still. As former U.S. Patent & Trademark Office (PTO) 

Director David Kappos recently remarked, the U.S. patent system is ‘‘the greatest 

36 

1 Innovation Act of 2013: Hearing on H.R. 3309 Before the Comm. on the Judiciary, 113th 

Cong. l (Oct. 29, 2013) (statement of David J. Kappos, Partner, Cravath, Swaine & Moore 

LLP), p. 2, available at http://judiciary.house.gov/hearings/113th/10292013/Kappos%20 

Testimony.pdf. 2See Adam Mossoff, The Trespass Fallacy in Patent Law, Florida L. Rev. (forthcoming 2013), 

p. 1 n. 1–2, available at http://ssrn.com/abstract=2126595 (reviewing examples). 3 As will be explained later, this term lacks an agreed-upon, objective definition and thus it 

should not be used by lawyers, commentators or scholars who care about precision and accuracy 

in discussions of patent law and policy. See Adam Mossoff, The SHIELD Act: When Bad Economic Studies Make Bad Laws, CPIP Blog (March 15, 2013), http://cpip.gmu.edu/2013/03/15/ 

the-shield-act-when-bad-economic-studies-make-bad-laws/. 4See Earl W. Hayter, The Patent System and Agrarian Discontent, 1875–1888, 34 MISS. VAL- LEY HIST. REV. 59 (June 1947); Earl W. Hayter, The Western Farmers and the Drivewell Patent 

Controversy, 16 AGRICULTURAL HIST. 16 (Jan. 1942). See also Dan Mitchell, When Patent Trolls 

Were Simply Sharks, FORTUNE (June 7, 2013), http://tech.fortune.cnn.com/2013/06/07/whenpatent-trolls-were-simply-sharks/. 5GOVERNMENT ACCOUNTABILITY OFFICE, INTELLECTUAL PROPERTY: ASSESSING FACTORS THAT

AFFECT PATENT INFRINGEMENT LITIGATION COULD HELP IMPROVE PATENT QUALITY 26 (Aug. 

2013), http://www.gao.gov/assets/660/657103.pdf. 6 Anne Kelley, Practicing in the Patent Marketplace, 78 U. CHI. L. REV. 115, 117 (2011). 7 Judge Richard A. Posner, for instance, has called for the adoption of a new legal rule ‘‘that 

barred enforcement of a patent that was not reduced to practice within a specified time after 

the patent was granted.’’ Richard Posner, Patent-Trolls—Posner, THE BECKER-POSNER BLOG

(July 31, 2013), http://www.becker-posner-blog.com/2013/07/patent-trollsposner.html. 8See Richard Maulsby, President Obama Signs the America Invents Act, INVENTORS EYE, vol. 

2, issue 5 (Oct. 2011), http://www.uspto.gov/inventors/independent/eye/201110/america 

inventsact.jsp (referring to the America Invents Act of 2011 as ‘‘the most significant reform of 

the U.S. patent system since 1836’’). 

innovation engine the world has ever known.’’ 1 On the other hand, the ‘‘smart 

phone wars’’ and related patent litigation issues, as well as the commercial and 

legal activities of patent licensing companies, have lead many to believe that the 

‘‘patent system is broken,’’ a mantra one reads almost daily on the Internet, in 

newspaper reports, and in op-eds.2

It is without a doubt that the patent licensing business model and patent litigation have become a flashpoint of controversy. One area of concern, the topic of today’s hearing, is the impact of demand letters sent by patent licensing companies, 

which are widely referred to as ‘‘patent assertion entities’’ (PAE), ‘‘non-practicing entities’’ (NPE) or by the more fashionable and inflammatory term, ‘‘patent trolls.’’ 3

For reasons that I will discuss shortly, I prefer instead to refer to these companies 

by their actual business model: patent licensing. Unless one works at a law firm, 

litigation (or threats of litigation) is not a business model; rather, the business 

model is licensing, in the course of which it can be necessary to threaten to sue or 

sue recalcitrant licensees. Since the early nineteenth century, many inventors and 

companies have licensed or sold their patents, rather than manufacture the technology. This has achieved tremendous efficiencies through the division of labor, and 

thus has been essential to America’s flourishing innovation economy. 

Nonetheless, terms like ‘‘patent troll’’ have easily captured the public’s imagination. This has happened in part because it is undeniable that there are some rentseeking patent owners who strategically exploit poor quality patents and the high 

costs of American civil litigation. Such bad actors exist in every legal system, and 

in fact have always existed—in the nineteenth century, the popular rhetorical epithet for these patent owners was ‘‘patent shark.’’ 4 But whether such bad actors 

exist in large enough numbers today to cause a breakdown in the patent system requiring a systemic intervention via legislation or regulation is an entirely different 

question—and it is a question that remains largely unanswered. 

Unfortunately, in addition to the mistaken empirical claims about patent litigation based on what the Government Accountability Office (GAO) has recognized as 

‘‘nonrandom and nongeneralizable’’ studies,5 mistaken claims abound about patent 

licensing and its longstanding historical role in making patented innovation a commercial reality. Scholars and commentators claim that the patent licensing business 

model arises from a ‘‘patent marketplace [that] is a relatively new secondary market.’’ 6 The inference is clear: this new commercial and legal activity requires new 

legislation and new regulations to address allegedly new problems.7 Rote repetition 

in scholarship, blogs, op-eds and newspaper articles, has solidified these claims into 

conventional wisdom among policy and legal elites. This conventional wisdom in 

turn is driving numerous legislative and regulatory proposals to address the allegedly systemic problems caused by the allegedly new patent licensing business model. 

This conventional wisdom (like much conventional wisdom) is profoundly mistaken. We are racing to revise the patent system, a mere two years after the largest 

revision to the patent system since 1836,8 on the basis of rhetoric and anecdote inVerDate Nov 24 2008 09:43 Mar 11, 2014 Jkt 075679 PO 00000 Frm 00040 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\86955.TXT JACKIE
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9Kappos, supra note 1, at 2. 10FED. TRADE COMM’N, THE EVOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE AND REM- EDIES WITH COMPETITION 8 n.5 (Mar. 2011), available at http://www.ftc.gov/os/2011/03/ 

110307patentreport.pdf. 11See, e.g., James Bessen & Michael J. Meurer, The Direct Costs from NPE Disputes, p. 11, 

available at http://ssrn.com/abstract=2091210 (‘‘There is no consensus among researchers on 

the proper definition of NPE.’’). 12See NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005). 13Lemley & Shapiro, Patent Holdup and Royalty Stacking, 85 TEX. L. REV. 2008–09 (2007) 

(discussing NTP as an example of how ‘‘patent trolls [can] hold up defendants by threatening 

to enjoin products that are predominantly noninfringing’’); Gerard N. Magliocca, Blackberries 

and Barnyards: Patent Trolls and the Perils of Innovation, 82 NOTRE DAME L. REV. 1809, 1809– 

10 (2007) (observing that the BlackBerry litigation ‘‘was brought by a ‘patent troll,’ which is a 

derogatory term for firms that use their patents to extract settlements rather than license or 

manufacture technology’’); Bruce Sewell, Troll Call, WALL ST. J., Mar. 6, 2006, at A14 (criticizing NTP as a patent troll). 14See Barrie McKenna et al., Patently Absurd, GLOBE AND MAIL, Jan. 28, 2006, at B4 (discussing how Campana attempted to manufacture his patented invention but was unsuccessful, 

and thus NTP was formed in 1992 only after his earlier firm, Telefind, went bankrupt in 1991). 

stead of objective evidence and reasoned explanations. Even worse, the proposed legislative or regulatory interventions will not fix the unproven systemic problems they 

purport to address, but instead will cause actual damage to the dynamic innovation 

that the patent system promotes and secures. In the rush to enact legislation to revise the patent system, there is too little regard for the harm to innovation that will 

result from the weakening of patent rights and the increased legal hurdles that 

make it harder to license patents and enforce these patents against infringers. As 

David Kappos stated in his testimony before the House Judiciary Committee last 

week: ‘‘we are reworking the greatest innovation engine the world has ever known, 

almost instantly after it has just been significantly overhauled. If there were ever 

a case where caution is called for, this is it.’’ 9

In this testimony, I will provide a brief overview on two important issues regarding the patent licensing business model and the assertion of these licensed patents 

that have gone largely unrecognized by those calling for legislative or regulatory 

changes. First, the patent licensing business model, and even the litigation of patents owned by these companies, has long been an essential feature of the American 

patent system, reaching back to the early nineteenth century and playing a key role 

in the commercial distribution of patented innovation. Second, aside from anecdotes 

and deeply flawed studies, there is no evidence yet of systemic harm to innovation 

caused by patent licensing companies requiring legislative or regulatory intervention. Even more important, such intervention carries serious risk of overreach that 

could harm the dynamic innovation that the patent system promotes and secures. 

What is a Patent Assertion Entity or ‘‘Patent Troll’’? 

As a preliminary matter, it is necessary to address a fundamental problem in the 

patent policy debates today—the terminology used in these debates is deeply confused and has produced misleading claims and arguments that have proliferated 

widely among scholars and laypersons alike. This hearing concerns the assertion of 

patents via demand letters by PAEs or patent trolls. The FTC has defined PAEs 

as ‘‘firms whose business model primarily focuses on purchasing and asserting patents,’’ 10 but this is not the accepted definition among all commentators or necessarily even among the witnesses testifying today. In fact, there is no settled, 

agreed-upon definition of a PAE or patent troll that is universally adopted by scholars and commentators alike. 

Many commentators equate a PAE or patent troll with an NPE, another term that 

even the critics of these commercial entities recognize has yet to be objectively defined.11 Aside from the strange locution of identifying the active commercialization 

of a property right in the marketplace as ‘‘non practicing’’—it is tantamount to saying that landlords are ‘‘non-practicing’’ owners of their property rights because they 

do not live on their real estate parcels—this term is applied in inconsistent ways. 

For example, one of the first widely condemned NPEs in the high-tech industry was 

NTP, which successfully sued RIM (the maker of the Blackberry) after RIM refused 

to license NTP’s patents on wireless e-mail communication.12 Prominent scholars, 

such as Mark Lemley and Carl Shapiro, among many others, have called NTP a 

‘‘patent troll.’’ 13 But NTP was a holding company formed by the inventor, Thomas 

Campana, Jr., and who did so only after numerous failed attempts at producing the 

technology.14 It seems strange that knowledgeable scholars and commentators are 

condemning inventors as ‘‘patent trolls,’’ when almost everyone regards inventors as 

rightly excluded from such pejorative labels (and especially when Campana’s patVerDate Nov 24 2008 09:43 Mar 11, 2014 Jkt 075679 PO 00000 Frm 00041 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\86955.TXT JACKIE
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15The University of Wisconsin has been called a ‘‘patent troll.’’ See Erin Fuchs, Tech’s 8 Most 

Fearsome ‘‘Patent Trolls,’’ Business Insider (Nov. 25, 2012 2:01PM), http://www.business 

insider.com/biggest-patent-holding-companies-2012-11?op=1. 16 Cf. Joshua D. Wright, What Role Should Antitrust Play in Regulating the Activities of Patent Assertion Entities (Apr. 17, 2013), p. 3, available at http://www.ftc.gov/speeches/wright/ 

130417paespeech.pdf (‘‘The entities qualifying as NPEs are wide-ranging and heterogeneous: 

they include all universities, which certainly do not manufacture or sell patented inventions, but 

also start-up companies, semiconductor design houses, and even some large, established commercial firms, like IBM. Thomas Edison would have been called an NPE, if that term existed 

100 years ago . . .’’). 17See Bessen & Meurer, supra note 11. 18See GOVERNMENT ACCOUNTABILITY OFFICE, supra note 5; David L. Schwartz & Jay Kesan, 

Analyzing the Role of Non-Practicing Entities in the Patent System, 99 Cornell L. Rev. (forthcoming 2013), http://ssrn.com/abstract=2117421 (identifying serious methodological and substantive flaws in patent litigation study by Bessen and Meurer). Cf. Christopher A. Cotropia, 

Jay P. Kesan & David L. Schwartz, Patent Assertion Entities Under the Microscope: An Empirical Investigation of Patent Holders as Litigants (Oct. 28, 2013), available at http://ssrn.com/ 

abstract=2346381 (finding from publicly available data substantially less litigation rates than 

those found by Bessen and Meurer in a study using secret, proprietary data from RPX). 19 Bessen & Meurer, supra note 11, at 10. 20See ‘‘The Future of Invention—What’s at Risk?,’’ available at http://youtu.be/ 

4IlNBhu7alE. 

ents were upheld as valid through repeated reviews both in court and under re-examination at the PTO). 

The PAE, NPE and patent troll terms thus have many different definitions such 

that they sometimes cover and sometimes exclude universities,15 startups, firms 

that both manufacture and license, firms that engage in research and development 

and then license this patented innovation, and even individual inventors—including 

classic American inventors like Thomas Edison, Elias Howe (the inventor of the 

lockstitch in the 1840s), and Charles Goodyear (the inventor of vulcanized rubber 

in the late 1830s).16 One oft-cited study that has played a significant role in the 

patent policy debates concluded that NPEs/patent trolls imposed $29 billion in costs 

on defendants in 2011.17 This study has been rightly criticized by scholars and by 

the GAO for many methodological and substantive failings,18 and one of these problems is its extremely broad definition of an NPE/patent troll. The authors defined 

an NPE/patent troll as covering almost every person, corporation, or university that 

sues someone for infringing a patent that it is not currently being used to manufacture a product at that moment, including even manufacturing companies that sue 

on patents deemed to be ‘‘well outside the area in which they make products.’’ 19 The 

scope of this definition is breathtaking. What patent owner isn’t currently or potentially an NPE under this definition, especially given that the innovation industries 

are extremely heterogeneous and constantly evolving, with companies like IBM and 

Nokia shifting their business models, product lines and commercial activities? 

Even the more restrictive definition of a PAE that limits it to companies who 

‘‘purchase and assert’’ patents is still not applied as evenly as it may first appear. 

Again, ‘‘assertion’’ in patent law means filing a lawsuit, but the actual business 

model of the majority of companies who purchase patents is licensing, not litigation. 

Moreover, the real-world firms to which this term has been applied are more complex and heterogeneous than is often acknowledged. For instance, one company that 

is widely alleged to be a PAE, Intellectual Ventures, employs hundreds of inventors 

who engage in research and development, and the company licenses this homegrown 

patented innovation along with the other patents it purchases from third-party inventors and companies. In a recent presentation on Capitol Hill, Nathan Myhrvold, 

the founder of Intellectual Ventures, stated that his firm is a top-ten filer for new 

patents in the U.S., and that he personally has received about 1200 patents.20

Again, inventors and companies that produce patented innovation are being swept 

up in the terminology of PAE, NPE, and patent troll. 

Given the variance and lack of clarity in these basic terms in the patent policy 

debates about patent licensing and patent litigation, I prefer instead to refer to 

these individuals and companies by their actual business model: patent licensing. 

This avoids the misleading shading of meaning that comes from loose rhetoric about 

mythical beasts or unverified litigation practices, and instead focuses the discussion 

on what these companies actually do in terms of their business model. By focusing 

on the business model of patent licensing, it also brings into sharper focus the historical pedigree of patent licensing, which inventors and companies have long employed to bring new patented innovation to market. 

39 

21See B. ZORINA KHAN, THE DEMOCRATIZATION OF INVENTION: PATENTS AND COPYRIGHTS IN

AMERICAN ECONOMIC DEVELOPMENT, 1790–1920, at 9–10 (2005) (‘‘The analysis [in this book] 

emphasizes the role that patents and copyrights played in the securitization of ideas through 

the creation of tradeable assets: intellectual property rights facilitated market exchange, a process that assigned value, helped to mobilize capital, and improved the allocation of resources. 

. . . Extensive markets in patent rights allowed inventors to extract returns from their activities through licensing and assigning or selling their rights.’’). 22See Adam Mossoff, Who Cares What Thomas Jefferson Thought About Patents? Reevaluating 

the Patent ‘‘Privilege’’ in Historical Context, 92 CORNELL L. REV. 953 (2007). 23See Adam Mossoff, Exclusion and Exclusive Use in Patent Law, 22 HARV. J. L. & TECH. 321, 

349–60 (2009); Adam Mossoff, A Simple Conveyance Rule for Complex Innovation, 44 TULSA L. 

REV. 707, 711–20 (2009). 24See, e.g., B. Zorina Khan, Trolls and Other Patent Inventions: Economic History and the Patent Controversy in the Twenty-First Century, l GEORGE MASON UNIV. L. REV. l (forthcoming 

2014) (draft available at http://cpip.gmu.edu/wp-content/uploads/2013/09/Khan-Zorina-Patent-Controversy-in-the-21st-Century.pdf); Naomi R. Lamoreaux, Kenneth L. Sokoloff, and 

Dhanoos Sutthiphisal, Patent Alchemy: The Market for Technology in U.S. History, 87 BUSINESS

HIST. REV. 3 (Spring 2013). 25See Lamoreaux, Sokoloff & Sutthiphisal, supra note 24, at 20. Classified ads in nineteenthcentury issues of Scientific American establish that patents and patent rights were actively offered for sale and purchased. See, e.g., Scientific American 383 (Aug. 12, 1854); Scientific American 143 (Aug. 28, 1869) [PDFs on file with author]. 26See Lamoreaux, Sokoloff & Sutthiphisal, supra note 24, at 6 (explaining how Edison sold 

20 of his early patents to third parties in order to fund his ongoing research and development). 27 RANDALL E. STROSS, THE WIZARD OF MENLO PARK: HOW THOMAS ALVA EDISON INVENTED

THE MODERN WORLD 165 (2008). 28 U.S. Patent No. 3,633 (issued June 15, 1844). 29See CHARLES SLACK, NOBLE OBSESSION: CHARLES GOODYEAR, THOMAS HANCOCK, AND THE

RACE TO UNLOCK THE GREATEST INDUSTRIAL SECRET OF THE NINETEENTH CENTURY (2002); HAR- OLD EVANS, THEY MADE AMERICA: FROM THE STEAM ENGINE TO THE SEARCH ENGINE: TWO CEN- TURIES OF INNOVATORS 92–100 (2004). 30For a few examples of the extensive litigation surrounding Goodyear’s patent, see Adam 

Mossoff, Who Cares What Thomas Jefferson Thought About Patents? Reevaluating the Patent 

‘‘Privilege’’ in Historical Context, 92 CORNELL L. REV. 953 (2007) (cases cited in footnotes 174, 

183, 188, and 192–194); Adam Mossoff, A Simple Conveyance Rule for Complex Innovation, 44 

TULSA L. REV. 707, 711–20 (2009) (cases cited in foonotes 50 and 55). 

Patent Licensing as a Longstanding and Essential Feature of the American 

Patent System 

Contrary to many claims today about PAEs or patent trolls, however they are defined, the patent licensing business model is not a new phenomenon in the commercialization of patented innovation in the marketplace. As award-winning economist 

Zorina Khan has explained, licensing has long been an essential feature of America’s unique patent system, which secured property rights in innovation to both inventors and to the marketplace actors who commercialized this innovation.21 I have 

also explained in my scholarship how early American legislators and judges defined 

patents as property rights—specifically as civil rights securing fundamental property rights 22—and that this had profound implications in securing the free alienation of patents in the nineteenth-century marketplace.23 Here, I can only briefly 

summarize some of this research and highlight its relevance to the concerns about 

patent licensing entities and their litigation practices. 

In more recent scholarship, Professor Khan and other economists have shown that 

there was an active commercial market in both selling patents and licensing patent 

rights in the nineteenth century.24 Many early American inventors (and third parties) embraced this market to sell, purchase, and license patented innovation.25 For 

instance, Edison certainly meets the definition of an ‘‘NPE,’’ as he sold and licensed 

his patents, especially in his early invention-intensive career.26 He also assigned 

outright some of his later patents, such as transferring his patented innovation in 

incandescent light bulbs to the General Electric Company.27 Even earlier in the 

nineteenth century, inventors sold and licensed their patent rights. Charles Goodyear, the inventor of vulcanized rubber in 1839,28 never manufactured or sold rubber products, and instead made all of his money by selling the rights to manufacture, license, sell, and use his patented innovation.29 As the archetypical obsessive 

inventor, Goodyear was not interested at all in manufacturing or retail sales of his 

patented innovation. 

Even more relevant to today’s policy debates, Goodyear and his assignees and exclusive licensees filed many, many lawsuits against individual end users, commercial firms, and manufacturers.30 End-user lawsuits in particular were a prominent 

tool in their litigation strategy. Moreover, these end-user lawsuits were commonplace. As legal historian Professor Christopher Beachamp has discovered in his research, over a thousand patent infringement lawsuits were filed just in the Southern District of New York in 1883 and almost all of these were against farmers for 

40 

31Professor Beachamp discusses his ongoing research into this issue in the panel, ‘‘End-User 

Lawsuits in Patent Litigation: A Bug or a Feature of Patent Law’’ (Aug. 29, 2013), available 

at http://cpip.gmu.edu/events/teleforum-panel-end-user-lawsuits-in-patent-litigation-a-bug-or-afeature-of-patent-law/. 32 Id. 33 Id. 34 U.S. Patent No. 4750 (issued Sept. 10, 1846). 35See Mossoff, The Rise and Fall of the First American Patent Thicket: The Sewing Machine 

War of the 1850s, 53 ARIZ. L. REV. 165, 185 (2011) (quoting one of Howe’s advertisements that 

‘‘You that want sewing machines, be cautious how you purchase them of others than [Howe] 

or those licensed under [Howe], else the law will compel you to pay twice over.’’). 36 RUTH BRANDON, A CAPITALIST ROMANCE 71–72 (1977). 37See generally Mossoff, supra note 35. 38See id. at 183. 39See id. at 194–202. 40See, e.g., id. at 189 (noting how ‘‘Howe quickly filed lawsuits in Boston against firms selling 

Singer Sewing Machines, and, as before, he sought preliminary injunctions’’). 41See Lamoreaux, Sokoloff & Sutthiphisal, supra note 24, at 8. 42See JON GERTNER, THE IDEA FACTORY: BELL LABS AND THE GREAT AGE OF AMERICAN INNOVATION chpt. 6 (reprint ed. 2013) (discussing how Bell Labs licensed the transistor to any individual or firm willing to pay the $25,000 licensing rate). 

infringing a single patent on well drilling technology.31 These end-user lawsuits 

were brought by a company that Professor Beachamp recognizes as falling within 

the definition today of a NPE—a firm engaged solely in patent licensing.32 In fact, 

given its extensive litigation practice, this firm would likely be classified as a PAE 

as well. Professor Beachamp found similar litigation practices against end users of 

sewing machines, cheese frames, barbed wire, and other patented innovation reaching back to the 1840s.33

The inventor of the lockstitch in the 1840s,34 Elias Howe, Jr., also licensed his 

patented innovation for most of his life. In fact, Howe engaged in ex post licensing: 

making royalty demands and suing retailers and manufacturers after discovering 

that they were infringing his patent rights. He also used ads to threaten liability 

for all purchasers of unlicensed sewing machines.35 One historian identified Howe’s 

‘‘main occupation’’ in the early 1850s as consisting entirely of ‘‘suing the infringers 

of his patent for royalties.’’ 36 His demands caused much ire. In fact, Howe’s assertion of his patents against noncompliant infringers refusing his licensing offers precipitated the very first ‘‘patent war’’—called, at the time, the Sewing Machine 

War.37

Even more important for understanding the practices of patent licensing and patent litigation, Howe’s litigation practices were similar to many practices today. For 

instance, Howe was destitute and found investors to provide third-party financing 

for his patent infringement lawsuits.38 Ultimately, after being a principal legal pugilist in the Sewing Machine War, Howe joined the Sewing Machine Combination of 

1856. This was the first patent pool in American history, which ended the Sewing 

Machine War and successfully licensed the patents in the sewing machine.39 Moreover, similar to the end-user lawsuits by Goodyear’s assignees and other patent 

owners, when Howe first sued Singer and many other retailers and manufacturers,40 these companies were the equivalent of today’s ‘‘mom and pop stores’’ or ‘‘start 

up’’ companies. 

This brief survey establishes that the patent licensing business model has not 

only existed from the early nineteenth century, it has long served a significant function in the commercialization of patented innovation in the United States. Other famous early nineteenth-century inventors also extensively assigned and licensed 

rights in their patented innovation, including William Woodworth (planing machine), Thomas Blanchard (lathe), and Obed Hussey and Cyrus McCormick (mechanical reaper),41 and many others. Such commercial practices continued into the 

twentieth century and up through today, with such innovative firms as Bell Labs,42

41 

43See David Kilpatrick, The Future of IBM. Lou Gerstner seems to have pulled off a miracle. 

Sam Palmisano will have to be at least as good, FORTUNE (Feb. 18, 2002), http:// 

money.cnn.com/magazines/fortune/fortunelarchive/2002/02/18/318158/index.htm 

(‘‘Throughout the Gerstner years IBM has been the world leader in new patents; it earns well 

over $1 billion a year licensing those patents.’’). 44See Tom Haubert, The Troubled Life of Patent No. 6,456,881: Tracing the Tortured Legal 

Trail of a Simple Smartphone Patent, IEEE SPECTRUM (Apr. 23, 2013), http://spectrum 

.ieee.org/at-work/innovation/the-troubled-life-of-patent-no-6456841 (describing patent purchased 

from Mitsubishi by Apple, and then Apple sold the patent to a ‘‘patent acquisition and licensing 

company’’ that brought patent infringement lawsuits against many high-tech companies (but not 

against Apple)). 45See Rakesh Sharma, Six Answers About Rockstar’s Suit Against Google, FORBES (Nov. 1, 

2013 6:21PM), at http://www.forbes.com/sites/rakeshsharma/2013/11/01/six-answers-aboutrockstars-suit-against-google/ (discussing the patent licensing entity, Rockstar Consortium, 

which is backed by Apple, Microsoft, Sony, Ericsson, and Research in Motion). 46 Id. 47See Dan Levine, Why Nokia Didn’t Sell Its Patents to Microsoft, REUTERS (Sep. 3, 2013 

7:05PM EDT), http://www.reuters.com/article/2013/09/03/us-nokia-microsoft-patents-idUS 

BRE9820ZZ20130903. 48Maulsby, supra note 8. 49MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007). 50See Mossoff, supra note 35, at 187–89. 

IBM,43 Apple,44 Microsoft,45 Research in Motion (Blackberry),46 and Nokia,47 among 

others, using this long-established, successful method of patent licensing to commercialize patented innovation in the marketplace. 

Moreover, the litigation practices of these patent owners, including suing numerous defendants, suing end users, and receiving third-party financing for lawsuits, 

among others, have been common features of the patent litigation landscape since 

the early nineteenth century. It is simply untrue that these commercial and legal 

strategies are novel developments in recent years that require novel legislative or 

regulatory changes. While there are certainly some bad actors, Congress must be 

cautious in making systemic revisions to the longstanding legal rules governing how 

patented innovation is commercialized and litigated. This is especially the case 

when such revisions are based more on rhetoric about particular types of patent 

owners than evidence of systemic problems that are clearly harming innovation. 

The PTO and Courts Have the Tools to Address Bad Actors in the Patent 

System 

It is significant that the commercial and legal practices about which commentators and scholars today express extensive concern have in fact been longstanding 

features of both the American patent system and the Federal courts. The commercialization of patented innovation and resulting economic growth has occurred 

throughout every historical ‘‘patent war’’ and periods of extensive litigation against 

manufacturers, retailers, and end users. The creation of patented innovation and 

the resulting economic growth continue today because the PTO and courts already 

have the tools to separate the bad actors from the legitimate patent licensing companies. Even more important, the America Invents Act of 2011 (AIA), a product of 

a six-year policy debate and rightly recognized as ‘‘the most significant reform of the 

U.S. patent system since 1836,’’ 48 vastly expanded these tools as well. 

The concern about patent licensing companies demanding royalties from or even 

suing alleged infringers is that many people believe that the patents are invalid. 

In other words, the policy concern that needs to be addressed is the validity of the 

underlying property right, as an owner of a valid patent has every right to demand 

licenses from unauthorized users and to seek relief in court against recalcitrant infringers. There have long existed many legal tools, and even more exist today, for 

challenging and weeding out such bad patents. 

Consider two historical examples (among the many that exist). First, potential defendants have long had the right to bring declaratory judgment actions in Federal 

court to invalidate patents that might be asserted against them in a future lawsuit, 

and the Supreme Court recently liberalized the rules even further for when someone 

can bring a declaratory judgment action in its 2007 decision in Medimmune v. 

Genentech.49 Second, defendants or potential defendants have long had access to the 

PTO to challenge improperly issued patents. Singer instigated a lengthy proceeding 

at the Patent Office in 1850 in attempting to invalidate Howe’s patent, for instance, 

and defendants in all of Howe’s lawsuits repeatedly argued (and reargued) in Federal court that Howe’s patent was invalid as well.50 Like any newly created asset 

or valuable resource, all commercially significant and valuable patents are always 

heavily disputed as to their validity, both in courts and at the PTO. This explains 

42 

51See Adam Mossoff, Patented Innovation and Patent Wars: Some Historical Perspective, A 

SMARTER PLANET BLOG (Jan. 11, 2013 8:00AM), available at http://asmarterplanet.com/blog/ 

2013/01/patented-innovation-and-patent-wars-some-historical-perspective.html. 52See Committee on the Rules of Practice and Procedure of the Judicial Conference of the 

United States, Preliminary Draft of Proposed Amendments to the Federal Rules of Bankruptcy 

and Civil Procedure (Aug. 2013), available at http://www.uscourts.gov/uscourts/rules/preliminary-draft-proposed-amendments.pdf; see also Honorable Katherine O’Malley, Key Note Speech 

at Intellectual Property Owners Association Annual Meeting (Sep. 17, 2013), p. 9, available at 

http://www.ipo.org/wp-content/uploads/2013/02/IPO-Annual-Meeting-Keynote-Speech-09–17– 

13.pdf (discussing this process). 53See Octane Fitness, LLC v. Icon Health & Fitness, Inc., No. 12–1184, 2013 WL 1283843 

(U.S. Oct. 01, 2013); Highmark Inc. v. Allcare Health Mgmt. Sys., No. 12–1163, 2013 WL 

1217353 (U.S. Oct. 01, 2013). 54See generally Kappos, supra note 1. 55On behalf of individual women lacking the funds to pay for expensive DNA testing (and 

thus lacking the funds to bring a lawsuit), the Public Patent Foundation brought the challenge 

to the patents on the BRAC1 and BRAC2 genes, which correlated with breast cancer. The Public 

Patent Foundation ultimately won before the Supreme Court. See AMP v. Myriad Genetics, 133 

S. Ct. 1747 (2013). 56See Law Schools Join App Developers Alliance to Fight Patent Trolls (Oct. 10, 2013), available at http://www.ipwatchdog.com/2013/10/15/law-schools-join-app-developers-alliance-tofight-patent-trolls/. 57See EFF Files Challenge With Patent Office Against Troll’s Podcasting Patent: Massive 

Crowdsourcing Effort Leads to Strong Petition Before the USPTO (Oct. 16, 2013), available at 

https://www.eff.org/press/releases/eff-files-challenge-patent-office-against-trolls-podcasting-patent. 58GOVERNMENT ACCOUNTABILITY OFFICE, supra note 5, at 26. 

the historical prevalence of the patent wars that have occurred with every major 

technological leap forward.51

Today, such legal mechanisms continue to exist in the PTO and in the courts, 

which serve as a check on both bad actors and bad patents. In the courts, the Judicial Conference’s Committee on Rules of Practice and Procedure has officially published proposed revisions to the pleading requirements in patent lawsuits, one of the 

sources of the much maligned minimal notice requirements in patent infringement 

complaints.52 Additionally, the Supreme Court recently granted cert in two cases 

that will likely result in liberalizing the rules on the issuance of sanctions in patent 

cases.53 Such legal changes will necessarily change the calculus of individual patent 

owners who are bluffing in demand letters, because those bluffs may now be called 

and courts will both make it harder to bring the actual lawsuits and will punish 

bad-faith assertions. 

Even more important, at the PTO, the many new, AIA-created review proceedings 

are just beginning to be implemented and to produce results.54 And there are more 

reforms that can and should be adopted, such as securing full funding of the PTO 

to ensure complete and timely examination of patent applications. Full funding of 

the PTO will also ensure proper implementation of the many new administrative 

review programs created by the AIA to weed out invalid and vague patents that clog 

the innovation economy. 

And for those who lack the knowledge or wherewithal to navigate these processes, 

there are many law firms and policy organizations, such as Public Patent Foundation, Electronic Frontier Foundation (EFF), the Berkman Center for Internet and 

Society, and others who are offering assistance.55 For instance, the App Developers 

Alliance has created the ‘‘Law School Patent Troll Defense Network,’’ which involves 

law school clinics providing legal services to individuals or small businesses receiving demand letters or complaints.56 Moreover, two weeks ago, EFF joined with the 

Berkman Center to file an inter partes review of the widely known and notorious 

‘‘podcasting patent,’’ which has been the subject of thousands of demands letters 

being sent to individuals, small companies, and large companies.57 In a world in 

which Internet searches easily and effortlessly produce such information, it is becoming harder to maintain that recipients of demand letters lack the resources and 

capabilities to respond effectively. 

The Harm to Dynamic Innovation from Legislative or Regulatory 

Overreach 

It is against this backdrop that Congress must assess any proposal to intervene 

via commercial regulation in patent licensing and patent litigation practices. First, 

there is too much rhetoric and too many ‘‘nonrandom and nongeneralizable’’ studies 

in the policy debates,58 and too little actual evidence definitively establishing that 

more revisions to the patent system are needed. Second, while there are certainly 

bad actors, there are a number of existing legal mechanisms at the PTO and in the 

courts to address them, especially after the enactment of the AIA just two years ago. 

43 

59See Commissioner Joshua D. Wright, Proposed Policy Statement Regarding Unfair Methods 

of Competition Under Section 5 of the Federal Trade Commission Act (June 19, 2013), available 

at http://ftc.gov/speeches/wright/130619umcpolicystatement.pdf. 

60See Donald Rosenberg, First Rule of Patent Reform: Do No Harm, WALL ST. J. (Sep. 10, 

2013 6:54PM), (‘‘How will the proposed changes that make it harder and more expensive to enforce these patents affect small inventors, universities and companies that legitimately seek to 

protect their intellectual property rights? New legislation must take care not to sacrifice their 

rights or those of other inventors.’’). 61Letter from Chairman Bob Goodlatte, House Comm. on the Judiciary, Ranking Member 

Charles Grassley, Senate Comm. on the Judiciary, Chairman Spencer Bachus, House Comm. on 

the Judiciary Subcomm. on Regulatory Reform, Commercial, and Antitrust Law, and Ranking 

Member Mike Lee, Senate Comm. on the Judiciary Subcomm. on Antitrust, Competition Policy, 

and Consumer Rights, to Chairwoman Edith Ramirez, Fed. Trade Comm’n (Oct. 23, 2013). 62See Mossoff, A Simple Conveyance Rule for Complex Innovation, supra note 23, at 120–30 

(identifying inherent difficulties in assessing or predicting commercial innovation and the high 

error costs this portends for commercial regulation). 63 Joshua D. Wright, Antitrust, Multi-Dimensional Competition, and Innovation: Do We Have 

an Antitrust-Relevant Theory of Competition Now?, in REGULATING INNOVATION: COMPETITION

POLICY AND PATENT LAW UNDER UNCERTAINTY 230 (Geoffrey A. Manne & Joshua D. Wright 

eds., 2010). 

Third, and certainly not least, there is too little regard for the serious costs that 

regulatory overreach imposes on the individuals and businesses who create the realworld innovative products and services that have become basic commodities of modern life. 

While many pay lip service to the importance of promoting innovation, there has 

been too little regard given to the benefits of strong and certain patent rights and 

the costs of lost innovation when these rights become uncertain. In contrast to the 

many studies done on the alleged ‘‘costs’’ imposed by patent licensing companies on 

defendants and manufacturers, there has not been a single statistical study done 

on either (1) the costs imposed on patent owners in either licensing or enforcing 

their legal rights, or (2) the costs, especially the error costs, that further legislative 

or regulatory changes to patent licensing and litigation practices will impose on legitimate owners of valid patents—the modern-day Edison, Howe, and Goodyear. 

This is striking and reinforces the concern that proposed legislation and regulation is being driven today more by rhetoric than by a dispassionate, reasoned consideration of all sides of the policy equation. If there is objective harm established 

by the knowing abuse of invalid patents via demand letters—such as, for example, 

cognizable harms in lost production and lost business opportunities via in terrorem 

threats—then such harm must first be proven via established empirical methodologies and assessed according to known legal standards.59 If Congress intends to direct a regulatory agency to punish the licensing and litigation activities of certain 

types of patent owners, then such a radical alteration to the patent system should 

at least be supported by definitive evidence justifying such systemic changes. Otherwise, the in terrorem effect runs the other way, sweeping legitimate inventors and 

companies into an arbitrary regulatory environment that makes the licensing and 

enforcement of their patented innovation prohibitively costly.60 As a recent letter 

submitted by several Senators and Representatives to Chairwoman Edith Ramirez 

stated: 

The absence of clear parameters for the FTC’s Section 5 authority based on empirical and economic justifications engenders uncertainty in the business community. This uncertainty acts as a deterrent to innovation and creativity, which 

are critical drivers of the American economy and vitally important in today’s 

challenging economic environment.61

Such concerns are endemic in any legal intervention into patented innovation.62

As Commissioner Joshua Wright has similarly observed in his previous academic 

scholarship, after a careful review of the economic literature to date: 

Our economic knowledge regarding innovation itself, conduct affecting innovation, and how to assess competitive outcomes involving tradeoffs between product market competition and innovation are far less impressive than our knowledge in a purely static setting. The costs of false positives leading to a chilling 

of pro-competitive innovation are significant.63

This is not to diminish the existence of individual bad actors and the particular 

harms they might be imposing via improper demand letters. But anecdotes alone 

do not justify legislative or regulatory action. Given the lack of an established and 

proven connection between these individually harmful acts and systemic harm to innovation, the lack of cognizable legal standards for acting in this area, the preexisting tools at the PTO and in courts to address the problems, and the everVerDate Nov 24 2008 09:43 Mar 11, 2014 Jkt 075679 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\86955.TXT JACKIE
44 

64See ADAM SMITH, THE WEALTH OF NATIONS Book I Chpt.1 (1776). 65STROSS, supra note 27, at 165. Ford knew of which he spoke, because he provided Edison a total $1.2 million in business loans, and some of which he was forced to forgive. Id. at 253. 66Wright, supra note 16, at 5. 67See Lamoreaux, Sokoloff & Sutthiphisal, supra note 24, at 4 (‘‘To many critics, there is 

something new and unethical about profiting from intellectual property by marketing the rights 

rather than using it in production.’’). 68GOVERNMENT ACCOUNTABILITY OFFICE, supra note 5, at 26. 69Kappos, supra note 1. 

present threat of causing even greater harm to the innovation economy through legislative or regulatory overreach, this is an issue on which Congress should exercise 

restraint. 

Conclusion 

Contrary to popular myth today, the patent licensing business model has long 

played an essential role in distributing patented innovation through the marketplace. These commercial activities reflect the basic economic principle of the division 

of labor that Adam Smith famously recognized as essential to a successful free market and flourishing economy—in this context, it is the division of labor between inventors and businesspersons.64 This fundamental economic principle is just as applicable to patented innovation as it is to any other economic activity; as Henry Ford 

famously said of his friend and business partner, Edison was ‘‘the world’s greatest 

inventor and the world’s worst businessman.’’ 65 Thus, it is significant, as Commissioner Wright has observed, that ‘‘[t]he PAE is a specialist in licensing and enforcing 

patent rights.’’ 66

Of course, the twenty-first century innovation economy is incredibly different from 

that of the nineteenth century. The exogenous market and technological variables 

at work in this economy are different as well. But it is still wrong to claim that 

the patent licensing business model and secondary markets are novel practices 

today. It is equally wrong to call for legislative or regulatory action based on the 

admittedly potent mix of mistaken historical claims, undefined and inflammatory 

rhetoric, the disregard of existing legal mechanisms addressing the concerns, and 

with little regard for symmetry of costs and benefits.67 Whether there are benefits 

or harms from specific commercial and legal practices in the innovation economy is 

an important empirical and policy question, but such benefits or harms should no 

more be based on rhetoric, anecdotes, and incorrect claims about historical practices 

than they should be based on ‘‘nonrandom and nongeneralizable’’ studies.68 Congress should exercise restraint, avoid ‘‘[a]ttempting to label and then discriminate 

based on identity,’’ and be cautious in accidentally killing ‘‘the goose laying our golden egg.’’ 69

Senator MCCASKILL. Thank you, Mr. Mossoff. 

You know, I don’t think anybody, at this hearing anyway—this 

is not the Judiciary Committee. We’re not talking about systemic 

changes to the patent law system. We’re talking about bottom feeders. We’re talking about scam artists and my question to you, Mr. 

Mossoff, is how would we ever know anything other than anecdotal 

if these guys are completely free? And if you go on Ms. Samuels’ 

website, which I took a moment to do while she was testifying, I 

think you can clearly see that. I know you’re a smart guy, and you 

know this area of the law very well. You’re not going to sit there 

and tell me you don’t think these letters are scams. 

Mr. MOSSOFF. Well, thank you, Senator. 

I mean, it’s an excellent question about to what degree patent 

owners and even secondary owners of patents are deceptively asserting demand letters and are deceptively asserting invalid patents. The problem is that we don’t have any established statistical 

evidence in comparison to the entire patent system that tells us 

that this is actually a systemic problem. The types of regulations 

that would be adopted at the FTC or the type of legislation that 

would be adopted would effect a systemic change that all patent 

45 

owners who license their patents and send royalty requests would 

be affected by. 

Senator MCCASKILL. Well, how about if we just, to get beyond 

anecdotal, if we just—I don’t think Edison would have been offended if he would have been asked just to file the letter that he 

was sending that clearly states what patent he’s asserting and his 

bases for doing it. 

I mean, isn’t the registry a way we would get past anecdotal? 

How in the world would we get past anecdotal if we let these scam 

artists, these bottom feeders, operate in the shadows without—I 

mean, how do we ever do anything other than you saying we have 

anecdotal? 

How do we get at the problem? 

Mr. MOSSOFF. Again, Senator, these are excellent questions and 

you’re right. Anecdotes are a type of evidence, but when you’re 

talking about adopting a legal regime that will be applied to all 

patent owners, that’s a systemic change. And then we have to determine whether there is actually a systemic problem that justifies 

a great systemic change because costs are always symmetrical. 

And, yes, while we need to be concerned about the costs of inappropriately sent demand letters to retailers and other end users, 

we need to be aware of and sensitive to the cost that additional 

regulations or legislation impose upon companies working within 

the innovation industries. 

Senator MCCASKILL. Well, I got a good idea. We have somebody 

on the panel that owns a bunch of patents. 

Mr. Chandler, how many patents do you own? 

Mr. CHANDLER. We have about 10,000 issued U.S. patents. 

Senator MCCASKILL. Does anybody else own patents on the 

panel? 

All right, let’s talk to the expert. 

You own 10,000 patents. If you were going to send a letter asserting your patents, would you find it something that would really 

negatively impact your business if you had to file them on a registry with no other requirement other than you had to file them? 

Mr. CHANDLER. I’m conscious in being called an expert, that I’m 

always mindful of the fact there are people on my staff who have 

the word intellectual in their title and I don’t. 

Senator MCCASKILL. Right. 

Mr. CHANDLER. You know, we have no issue; we generally don’t 

assert our patents. Our position on standards bodies, for instance, 

is that not only do we license freely but we license for free because 

we believe in disseminating standards and encouraging the adoption of technology; that happens to be our personal policy. 

I propose a registry, whenever anyone is sending a letter to more 

than ten end users, and I’d have no problem complying with that 

myself were I going to be in that business. 

Senator MCCASKILL. The other part of your testimony, Mr. 

Mossoff, that I found interesting was that there are plenty of legal 

clinics out here for these small businesses. I don’t know how in 

touch you are with the legal community right now. They have suffered through this recession like all other communities. And one of 

the reasons probably a lot of these bottom feeder firms have popped 

up is that everyone is scrambling for legal business. 

46 

Now I don’t know what legal aid is like in your state, Senator 

Heller, but ours is on life-support. They are overwhelmed with desperately poor people trying to assert even basic rights. 

I’m not aware of any entities that are funded well in my state 

that any small business—that a local coffee shop that wasn’t a 

franchise—could call and say, hey, ‘‘I got a letter today that they’re 

threatening to sue me if I don’t pay them $3,000. What should I 

do?’’ I know no where that small businesses in Missouri can call. 

Are you aware of some burgeoning legal clinic, free pro bono 

services, that I don’t know, or should we just give them your phone 

number? 

Mr. MOSSOFF. That would be excellent, and thank you, Senator—— 

Senator MCCASKILL. Don’t say that would be excellent, because 

you don’t know me. 

[Laughter.] 

Senator MCCASKILL. I’ll give them your phone number. 

Mr. MOSSOFF. Well, you should give them my phone number because it gives me the opportunity to expand upon this point and 

I know exactly where to send to them. The App Developers Association has announced that it is now working with law schools and 

they have created six law school clinics and the announcement indicated that more are coming at law schools throughout the country that are specifically dedicated to assisting individuals. And I assume that the individuals that they would be most directing their 

services to are end users and small businesses who receive letters 

or become defendants in lawsuits. 

Thus, there appear to be private organizations that are working 

with law schools and providing them the funds to better assist in 

the provision of defense for the actual deceptive practices that 

you’ve heard about. As well, there are some organizations and law 

firms that actually are filing actions in the new administrative review procedures at the patent office. Thus, I am certain that Julie 

Samuels can tell us about the work that EFF has done in recently 

filing a challenge in the Inter Partes Review Program at the Patent 

Office to address the notorious podcasting patent. 

Senator MCCASKILL. I’ll save, for my next round, some of my 

questions about civil claims against the trolls and criminal behavior and for you, General Bruning, about your activity. And now, I 

will turn it over to Mr. Heller for questioning. 

Senator HELLER. Thank you, Mr. Chairman. And I certainly do 

appreciate everybody being here, spending time and sharing your 

stories with us. I think the message is loud and clear, what’s going 

on out there, and for that, I can’t thank you enough. 

We’ve heard all the words; this practice is deceptive, it’s wrong, 

it’s harassment, there’s fear. I think unfair is a clear, descriptive 

word of how this practice has impacted small businesses and the 

economy. 

But, Jon, out in Nebraska, I just want to ask you: When you deal 

with this, is anything that’s going on there, this practice, is it actually illegal? 

Mr. BRUNING. We believe it’s illegal on two fronts. Our consumer 

protection statutes, which I enforce as Attorney General, because 

these patent trolls, number one, don’t have any intent to sue and 

47 

number two, don’t have any evidence that the recipient of the extortion letter has actually violated their patent, we believe it’s a 

violation of our consumer protection statutes to send the letter. So 

before you send that extortion letter, you have to have knowledge 

that there has been some violation of the patent. They don’t have 

any knowledge. They don’t know anything about Eldon Steinbrink; 

they just got his name off a list somewhere. And they don’t actually 

have any intent to sue. MPHJ has never sued anybody, other than 

us. We alleged that in court and they said, well, we have sued 

somebody—we sued you, Mr. Attorney General. And they did sue 

us. But they never actually sued an alleged infringer. So, we think 

it’s a violation for that reason. We’re actually looking into the 

criminal statutes as well. We have a RICO statute in Nebraska 

we’ve modeled after the Federal RICO statute and we’re considering whether or not that’s applicable as well. 

So, we’re looking at this from all fronts. We consider this very 

similar to just garden variety extortion, where the mafia walks in, 

says, it’s nice that your front window hasn’t been broken out. For 

$50 a month, I can make sure it never gets broken. That’s essentially what this is, in our opinion. 

Senator HELLER. How much of your time do you deal on this 

issue? 

Mr. BRUNING. Well, we’ve been spending a lot lately, and I’ve got 

my chief deputy and one of my top lawyers with me. We have four 

or five of our top people. But we’re trying to get a national coalition 

group formed. Met with Mr. Chandler earlier and we’re very interested in having some of the top legal minds in the business community aid our coalition. We think we’re on the side of the angels on 

this one, and I’m very grateful that you Senators have called this 

hearing, because this is very, very important. As I think was mentioned by Ms. Samuels earlier, in the last 18 months, this has exploded. These letters now are going to individuals and non-profit 

organizations. That choir in Omaha? I mean, they must have $300 

in their checking account for robes. They get a letter? I mean, how 

on earth can they be alleged to have violated someone’s patent? 

They were simply culled off a list that these fraudsters have gathered from somewhere. 

Senator HELLER. Why do you think this has exploded in the last 

18 months? Is it economically driven? 

Mr. BRUNING. I think there’s no question. What has happened is, 

they have—these patent trolls have kind of run to the end of the 

line with Mr. Chandler in Cisco that actually has in-house patent 

lawyers. They’ve realized that Mr. Chandler’s going to fight. He’s 

willing to spend tens of millions of dollars. He’s gotten to the point 

where he says, I’m not going to put up with it anymore. Because 

what America’s larger businesses have realized is as soon as you 

pay out and you pay out again, they’ll come back for more. It’s a 

typical extortion scheme. If you pay the first time, they’re going to 

come back again and again. So they’ve run to the end of their rope 

with the big boys and now they’re going after the little guy who 

can’t fight back because they don’t have a patent lawyer, they’ve 

never had one, and when they call one, it’s $20,000 up front and 

$500 an hour to get that person in gear. 

48 

Senator HELLER. Ms. Samuels—your Trolling Effects website; 

what kind of activity do you get on that? 

Ms. SAMUELS. Thanks for the question, Senator Heller. We get 

less than we would like and that we would have hoped. I think 

we’ve had somewhere in the neighborhood of only 30 submissions. 

And we launched a couple months ago and it made a lot of news, 

so it’s not for lack of people knowing. 

We’ve held meetings with people from large companies, in-house 

attorneys from large companies and we’ve talked to a lot of smaller 

individuals. And pretty much across the board, everyone we’ve 

talked to says, we’d like to submit our letters, but we’re afraid to. 

We’re afraid to make it public. And we think that our website only 

has value if it’s public because we’re really worried about the small 

individuals that get these letters and have no idea what to do when 

they get them. I mean, no clue whatsoever. 

So we want to create a space where they can go and Google the 

name of who sent it, Google the patent number, end up at our site, 

say, oh, well you know, this person sent out thousands of letters 

and they only sued twice; maybe I’ll just ignore it. Or say, wow, 

this person sues all the time; maybe I do need to find a way to hire 

a lawyer. Understand what their options are; I mean, have the 

most basic facts. But, you know, the problem is, again, that people 

are afraid, which is why I think we need some Congressional help 

to give those companies some cover so that they’re more willing to 

share the data. 

Senator HELLER. Very good. Thank you. 

Senator MCCASKILL. Thank you. Senator Klobuchar. 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Well, thank you very much, Chairman 

McCaskill and Senator Heller, for holding this important hearing. 

I’m on the Judiciary Committee and chair the antitrust subcommittee. Many of you remember we had a hearing related to 

this—Senator Lee and I did. And I also wrote to the FTC asking 

them to examine the abusive assertion tactics and to bring enforcement actions if they violate the FTC prohibition on false and deceptive practices. I’ve heard a lot about this in my state. I actually got 

interested in this because what was happening to many of our companies who—we’re home to many innovative companies and are 

proud of that. We brought the world everything from the pacemaker to the Post-it note in Minnesota, so we care a lot about patents. 

And I know, Mr. Chandler, that this subcommittee, under Chairman McCaskill’s great leadership, is focused on protecting consumers from not only deceptive practices but also market inefficiencies. And using your case as an example, how did the demand letters drive up cost or negatively impact consumers? 

Mr. CHANDLER. Well, I think it’s clear that that’s what the goal 

ultimately is. Interestingly, just last week, one of the leading lawyers in Texas who represents patent assertion entities spoke at a 

conference in Austin and actually referred to the Innovatio case 

specifically and the fact that the judge, when he looked at it, found 

that all of the technology related to these patents was embodied in 

49 

chips that were sold to companies that built routers and that as a 

result, the chips were worth $5 a piece and this particular technology had a value of about $.10 a chip. And he bemoaned that result and described driving from Dallas to Austin and seeing signs 

for free Wi-Fi. And he said the reason Wi-Fi is free at all of these 

places is because the judiciary isn’t putting enough value on patents and allowing people, like in Innovatio, to collect the money 

they want to collect. 

So I think it’s—I viewed that statement last week as a gift in 

preparation for this hearing. 

Senator KLOBUCHAR. I imagine you did. 

Mr. CHANDLER. But what has gone on—and the answer to the 

question that was asked a moment ago is, we have a very vibrant 

and liquid market for patents in the country. And I think that ultimately is a good thing in general for a patent system; when it is 

leveraging litigation games, though, as opposed to underlying intrinsic economic value of patents, it runs amok. And, because of 

this liquid market, big companies often will have patents that no 

longer have economic value in their businesses like these Broadcom 

patents. But people who can exploit the litigation system can buy 

them up and rely on cost asymmetry to send letters to thousands 

of people and know that some of them will pay, either because they 

don’t know better or because it’s cheaper than hiring a lawyer, as 

the Innovatio people pointed out. 

And that’s really what has driven it over the last 18 months is 

big companies selling patents to people who will go do this, then, 

and take advantage of people. 

Senator KLOBUCHAR. Thank you. 

Attorney General Bruning, if I could. I have limited time, and 

then maybe at the end we’ll come back if the Chairman will allow 

me. 

Attorney General Bruning, I’d first like to note: I wondered if you 

watched the Nebraska-Minnesota game where the Gophers—— 

[Laughter.] 

Senator KLOBUCHAR. I know that the Chairwoman already 

brought up football, but I just wanted to make sure. 

[Laughter.] 

Mr. BRUNING. I was there, yes, thank you. 

Senator KLOBUCHAR. You were there? I was there, too. 

Mr. BRUNING. Yes. 

Senator KLOBUCHAR. I had a lot of fun. 

[Laughter.] 

Senator KLOBUCHAR. Really great. And I had a bet the last time 

with Senator Nelson, and so I had to call him afterwards to say 

that I bet the wrong year. But this was the time, so anyway. 

Mr. BRUNING. Congratulations. 

Senator KLOBUCHAR. Thank you very much. 

[Laughter.] 

Senator KLOBUCHAR. But now to some more serious questions. 

We’ve heard compelling testimony about abusive use of demand 

letters. But as we consider the issue, we need to also be mindful 

of the importance of intellectual property rights and the correspondence that takes place each and every day among patent 

owners and innovators to assert their patent rights in good faith. 

50 

How do we ensure that any potential solutions to the problems 

of abusive demand letters do not adversely impact generally accepted licensing practices, which could include demand letters or other 

similar types of correspondence? 

Mr. BRUNING. Senator, I thank you for the question. 

And I think, generally, the answer to that is, more disclosure, 

whether it’s a registry for a minimum number of letters, whether 

it’s a registry for each individual letter, whether it’s disclosure of 

the owner of the patents. Remember at MPHJ, that I talked about 

in my testimony in particular, they have a whole series of alphabet 

soup shell companies that they use that are registered in Delaware. 

We can’t even get to who owns this thing, who’s asserting the patent. It’s MPHJ through Accuver, whoever that is; we don’t even 

know. So this seems to be, by all accounts, a simple scheme. And 

so disclosure—if somebody stands up and says, I’m John Smith, I 

own the patent, even if they bought it on the open market, that’s 

OK, but explain who they are. That’s the first thing. The second 

thing is, explain how the person receiving the letter or the organization receiving it violated the patent. Right now, they don’t even 

have to assert that. They simply say in these letters, you have to 

prove that you didn’t violate our patent; that you didn’t infringe on 

our patent, which is a very topsy-turvy way to go about it. 

So Eldon Steinbrink, the 80-year-old gentleman in Phelps County, Nebraska, he gets this 20-page letter and it says, Mr. 

Steinbrink, we think you violated our patent. We have no evidence 

to prove that, but you have to prove to us that you didn’t. And 

that’s a very perverse result, where it’s simply extortion dressed up 

using the patent system. 

Your attorney general—if I may, Senator? Your attorney general 

in Minnesota, Attorney General Swanson, effectuated a settlement 

with MPHJ where MPHJ agreed not come into Minnesota. I 

haven’t talked to her yet, but I’m very interested in the terms of 

that, how she got that done. 

I want to protect all Americans, but, of course, I want to protect 

Nebraskans. How did she figure out to keep these people out of 

Minnesota? I don’t know. 

Senator KLOBUCHAR. Maybe it’s the cold weather. 

[Laughter.] 

Mr. BRUNING. She’s very smart. Good for her. 

Senator KLOBUCHAR. OK. Could I just follow up? I know, Mr. 

Mossoff—— 

Senator MCCASKILL. Sure. 

Senator KLOBUCHAR.—you wanted to, if that’s all right. You 

wanted to respond. 

Mr. MOSSOFF. Well, thank you, Senator, because I just wanted 

to have the opportunity to expand a bit upon Mr. Chandler’s comments because I worry that what patent lawyers call the secondary 

market, the buying and the selling of patent rights from inventors 

to other commercial entities, is being perceived in some sort of pejorative sense. That large companies are unloading patents to small 

companies that then exploit these for deceptive or inappropriate 

purposes. 

In fact, a vibrant market in the sale of patents and of patent 

rights has existed from the very early 19th century. People then 

51 

bought and sold patents in classified ads. The end of Scientific 

American issues were littered with offers to buy and sell patents 

and patent rights. And this was important for the efficiencies 

achieved by the American patent system from the very beginning 

because it permitted the division of labor to be embraced; for inventors to focus on inventing, for business persons to focus upon business; for manufacturers and retailers and others, etc. And it was 

a key to why the American patent system ultimately gave birth to 

an explosive growth in the economy in the 19th century. We were 

surpassing other countries—England and other countries—by the 

mid-19th century. And they were marveling at us and recognizing 

that it was our patent system that was bringing this innovation 

economy. 

Fundamental to this innovation economy was the secondary market in patents. And so, it wasn’t just Thomas Edison and Charles 

Goodyear, the inventors; there were also people who were buying 

and selling patents and were embracing what I call the patent licensing model, which involved sending royalty letters and making 

demands upon infringers. One historian found in 1883 that a thousand cases were filed in the Southern District of New York just 

that year, and almost all of them were involving a single patent— 

a well-drilling technology—and almost all of those lawsuits were 

filed against farmers. Well, the farmers were infringing, and this 

entity was going to these farmers and saying, we think you’re infringing, please pay us a royalty. And they did not, so they were 

required to enforce their patent rights in order to legitimately recoup the investment that they had in their property. 

Senator KLOBUCHAR. Thank you. 

Senator MCCASKILL. Thank you. 

Let me take a moment on the record to say how much we would 

welcome whistleblowers that work in any of these factories that are 

churning out these letters. 

Speaking of algorithms that are well-known to people in the tech 

world, clearly there’s a financial algorithm that has being used. 

You’re going to get an average of ‘‘x’’ dollars for every letter you 

send; let’s cast a wide net; you know, the chances of there being 

any negative consequences to casting a wide net are very low; the 

chances of driving up what you receive per letter are very high. 

Someone is working in one of these ‘‘law firms’’—I put ‘‘law firm’’ 

in quotes because I don’t consider this legal work—and we would 

welcome a whistle-blower that is inside one of these entities. And 

we are very used to, in my office, protecting whistleblowers because 

we’ve done so much work in the contracting area, where we have 

done great oversight work with contracting. So I wanted to put 

that on the record, that your identity and where you work will be 

protected if you can give us a dirty inside glance as to how this actually—how they’re figuring out what lousy patents to buy, how 

they’re figuring out who to send the letters to, where they’re getting the list, how much they’re receiving. Maybe that would get us 

beyond anecdotal if we could pull back the curtains and see what’s 

actually going on behind the scenes. 

Let me ask you this: Are any of you aware of anyone who has 

turned the tables and brought a civil cause of action for damages 

against these entities? It seems to me, there’s a great—I think it 

52 

would be really fun for somebody to get a really good class action 

going against one of these law firms. And, you know, I’m not a 

class action lawyer, but it seems to me that there’s a class here. 

Yes. 

Mr. CHANDLER. We brought a RICO claim against these individuals at Innovatio based on the deceptive letters that they were 

sending, their fraudulent purpose in doing so, and the conspiracy 

among the individuals to do it. And that approach failed in a ruling 

by Judge Holderman, the Chief Judge in the Northern District of 

Illinois. And the reason it failed was that our Constitution protects 

the right of citizens to petition the government for redress of grievances and litigation is considered a form of petitioning with an exception where the litigation is deemed a sham. And since they sent 

13,000 letters and we felt that since they knew that a huge proportion, if not a majority of devices were already licensed, that that 

was a sufficient sham to take action under RICO. And the judge 

said, no, that’s not a sufficient sham to shut off their ability to litigate or to hold their actions in litigating to be actionable under 

RICO. 

And I understand the ruling. I felt differently, which is why I 

brought the case. On the other hand, it brings me to this hearing 

and to the fact that I think some action to shed some light on this 

to create a registry to get the data to force them to tell end users 

who the manufacturers are will go a long way toward resolving the 

most abusive problems that are out there. 

So yes, we did take an action. It happened to fail, but I think 

that brings it back to all of you. 

Senator MCCASKILL. Mr. Potter. 

Mr. POTTER. On two counts. One is, there’s a company called 

Find the Best in California which is a member of ours. We brought 

them to D.C. last week and, in fact, I think they’re coming back 

next week. They have sued the plaintiff on a RICO action. They 

have counterclaimed, essentially against the so-called inventor and 

their so-called law firm and their eight or ten or twelve shell corporations that they pass it through so that this guy and this 

woman in Connecticut won’t be found out and uncloaked as, essentially, people who pushed through patents at the patent office and 

then go around and sue people. 

I want to reiterate. I want to respond to two other points, if I 

might, Madam Chairman. 

Senator MCCASKILL. Sure. 

Mr. POTTER. Number one, the Application Developers Alliance 

has launched the Patent Troll Defense Network with six law 

schools around the country. We’re pleased, we’re proud, and we’re 

doing the darn best we can. We now have 12 or 13 law students, 

while they’re not in class and while they’re not always studying for 

the bar and while they’re not trying to get some sleep, to—— 

Senator MCCASKILL. That’s a lawyer I want. 

[Laughter.] 

Senator MCCASKILL. No, just being a little sarcastic. 

[Laughter.] 

Mr. POTTER. They have made one or two students available to us 

for a certain number of hours per week at these law firms and 

we’re figuring it out. To say that they’re ready, willing and able to 

53 

fight arm-in-arm with highly trained, aggressive litigators who are 

around the country—is a sham. And it’s just pathetic. 

Number two, let me reinforce what Julie said about the fear. We 

brought, I think, 15 companies to D.C. two or three weeks ago, 

maybe 6 weeks ago, to meet with members and staff and talk about 

their experiences. And some of them I talk about in my testimony. 

If you go to our website and you look at that CEO on our website 

who the video’s on, his face is pixelated and his voice is changed. 

And it’s done that way because he’s afraid. He’s been funded by 

substantial brand-name venture capitalists who don’t want him to 

go public. The idea that anecdotal evidence isn’t good enough is 

preposterous. 

Senator MCCASKILL. Yes. 

Ms. SAMUELS. Thank you for the question. 

And while Jon and Mark have talked about going into court to 

go after these bad actors, I think EFF is probably one of the organizations in the country that has the most experience trying to 

challenge bad patents. You know, knock off one-by-one, protect consumers. And I briefly just want to tell you that that’s incredibly 

hard work. It is incredibly resource-intensive. We do it on a oneby-one basis and we recently, as Mr. Mossoff just said earlier, have 

challenged a patent that is being asserted against podcasters, and 

it took help from students at Harvard, pro bono help from a giant 

law firm, and we had to still pay more than $30,000 in fees. 

This is not an easy thing to do. And that’s why we need more 

help. 

Senator MCCASKILL. Transparency is what sounds like we need. 

Senator Heller. 

Senator HELLER. Thank you. 

Mr. Mossoff, listening to you, I’m trying to get a description of 

your testimony that you discuss the need for objective evidence— 

reasoning explanation before legislative steps are taken. I’d assume 

that’s a fair description of what you said. 

Mr. MOSSOFF. Yes. 

Senator HELLER. And also that your concern is that legislation 

enacted could weaken patent rights or increase legal hurdles. 

Mr. MOSSOFF. Yes. 

Senator HELLER. That could be a burden on innovation. 

Is that also a fair description? 

Mr. MOSSOFF. Yes. 

Senator HELLER. OK. 

Have you seen any specific proposals out there? Any specific proposals that address these demand letters that would weaken patent right? 

Mr. MOSSOFF. Well, the concern is over the proposal that we’re 

discussing here before this committee about authorizing the FTC to 

regulate and punish the sending of demand letters because under 

Section 5 the authorization is to protect consumer welfare. The inferential leaps that one has to go from receipt of demand letter to, 

ultimately, the impact upon consumer welfare is significant. I’m 

not saying that it may not necessarily be proven, but it would have 

to be shown. And it would have to be established through evidence 

that there is actually existing harm to consumer welfare that 

would then establish the basis for having definitive legal standards 

54 

that would not increase uncertainty for legitimate companies and 

owner of legitimate patents. Because I think the concern here is we 

have to get clear on what the underlying problem is, and that’s 

why we need more evidence. Because I don’t deny, and one can’t 

deny, that there are bad actors. But there are over 3,000 lawsuits 

filed every year in this country in Article 3 courts. And if the majority of the demand letters that are being sent are being sent by 

10 or 12 bad actors, then that’s not a significant impact within the 

patent system relative to the people who are filing legitimate patent lawsuits and will have increased burdens imposed upon them 

because costs are always symmetrical. 

And so, the increased ability to punish under vague legal standards the sending of demand letters in one context can be exploited 

by a real infringer of a legitimate patent in another context. And 

that’s something that we have to be aware of, understand and investigate as well. 

Senator HELLER. Mr. Sinewitz, do you want to respond? 

Mr. SINEWITZ. You know, I’m listening to organizations and I’m 

listening to all the other testimony. At the end of the day, maybe 

I come from a little bit of a different angle because we’re just a 

small company. And the answer, very simply, is when I call a patent attorney and he tells me I can settle something for $50,000 or 

$60,000 and probably $50,000 in his fees, or I can take this to court 

and it’s going the cost me $2 million, it’s just not happening. And 

even though I’m a small company compared to somebody who has 

a coffee shop, or somebody who only owns one little location, I 

mean, I’m huge compared to them. 

We had a call—or actually, a letter, just a week ago from a company called Red Star. Red Star owns the patent to DVD players 

and the ability to read the DVD players. And in it was a very detailed, very explicit letter explaining to us that we had a machine 

on our floor that came from China that had not paid the North 

American Philips patent. Within 15 minutes, I pulled every one of 

those machines off the shelf, contacted the manufacturer, or the 

person who imports them, and told them that I wanted a return 

authorization to send these back. Because they did identify the 

product, because they did make it very clear, and they were very 

specific as to where they felt this thing was being infringed, we 

were able to react to that. 

I will also probably tell you that at the end of the day, they will 

now pay that fee. They’ll pay for the royalties of that fee. And 

that’s what we’re really here for. You know, I said in my testimony 

that really the bottom line here is fairness, OK? We can get involved in all the websites you want, we can get involved in all the 

legal things that happened in the 1800s and 1900s; that’s really 

great. Today, technology is moving so quickly and there are so 

many more new things that are coming out and things are so much 

more broad and so much different than worrying about drilling 

rights and farmers. Today, every single day, some new technology 

is showing up. You know, as the Senator saw when her Apple 

wasn’t able to read and she had to go back to paper—the world 

changes every 24 hours for us in the electronics world. And the bottom line’s going to be is that if the consumer wants to continue to 

55 

participate in this kind of technology and everything else, then yes, 

we have to protect the people who are inventing things. 

Senator HELLER. Thank you. 

Mr. SINEWITZ. I don’t think anybody wants to argue that. 

Senator HELLER. Ms. Samuels, do you want to comment? 

Ms. SAMUELS. I have two brief points to make. 

First, just to be clear, we’re not talking about regulating all demand letters, ever. We’re talking about regulating certain bad behavior. And it can be limited. And I think that’s really important 

because there is a place for responsible technology transfer in this 

country and I don’t know anyone who would disagree with that 

statement. 

Senator HELLER. Do you believe the FTC has the authority to 

act? 

Ms. SAMUELS. I actually believe the FTC already has the authority to act. My understanding is the FTC also believes it already has 

the authority to act but, you know, a little nudge maybe wouldn’t 

be the worst thing in the world. 

And the second point I’d like to make, and I’ll try and be brief 

here, on this whole, you know, anecdotal versus real, let me just 

quickly tell you some things we do know. And this is in my written 

testimony. 

We do know that troll lawsuits are associated with half a trillion 

dollars of lost wealth to defendants from 1990 through 2010. Academics and economists average that patent trolls in 2011 imposed 

a direct cost of $29 billion to companies. And while, you know, 

we’re talking, of course, about mainly litigation costs because that’s 

the data we have, Innovatio’s a great example. 

Eighteen thousand letters, did you say? 

Mr. CHANDLER. Thirteen. 

Ms. SAMUELS. Thirteen thousand letters and about 30 lawsuits. 

Another professor, Colleen Chien, has said that she estimates 

there are about 100 demands per a single lawsuit. So to the extent 

the data we have surrounds lawsuits, when you extrapolate it, then 

that’s something. 

And finally, I would just say one business that goes out of business because of a patent troll is one business too many. 

Thank you. 

Mr. MOSSOFF. Senator, may I just quickly note, if I may, that the 

studies and figures that she’s citing are exactly the studies and figures that were identified by the Government Accountability Office 

as being ‘‘non-random and non-generalizable.’’ They were taken 

from proprietary, secret data owned by companies and firms with 

a real policy interest and financial interest in these issues. No one 

has any access to the data to test whether these claims are legitimate or not. And follow-on studies from publicly available data 

have actually shown that these figures are actually heavily inflated, including a study that was just placed up on the Internet 

this week by professors Jay Kesan, David Schwartz, and Chris 

Cotropia. 

Thank you. 

Senator MCCASKILL. Just as a note, it sounds like to me that, 

honestly, the more you testify, Mr. Mossoff, the more I believe we 

56 

need the registry, because then we will no longer have to worry 

about whether or not we’ve got real data. 

Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much. 

Mr. Sinewitz, Minnesota is also—I mentioned some of our innovative companies. We’re also a big place for retailers. As you know, 

the retail industry contributes $2.5 trillion to our Nation’s annual 

GDP. We’re the home of companies in Minnesota like Target and 

Best Buy as well as being the home to the Mall of America—the 

biggest retail space in the country, which I suggest everyone visit 

during the holidays. 

[Laughter.] 

Senator KLOBUCHAR. Mr. Sinewitz, how much do retailers end up 

paying out because of demand letters, either in settlement or in 

litigation? 

Mr. SINEWITZ. I’m not sure I can answer for either Best Buy’s or 

Target which are two of the, obviously, large firms that are based 

in Minneapolis. But I can tell you that we’ve spent a half a million 

dollars already either in settlements and legal fees. And a half a 

million dollars for a small company our size is outrageous. 

Senator KLOBUCHAR. And do you see this—has it been exponential in terms of the increase? What were you seeing, you 

know—— 

Mr. SINEWITZ. It has been—— 

Senator KLOBUCHAR.—ten years ago? 

Mr. SINEWITZ.reasonably steady, it’s, like, one a year that we’re 

getting. I will tell you that I sit with both of those companies on 

the Florida Retail Federation and on the Georgia Retail Association, where I have stores. Both of those companies are every bit as 

concerned about this as I am. And to be perfectly honest, one of the 

suits that we got hit with, they just took every major retailer in 

Atlanta and they nailed us. And they were both nailed in that 

same process because both of them have stores in Atlanta. 

So the reality of it is, is that if they win—and, you know, to answer the other question of a second ago about wanting to come out, 

I have real problems bringing you guys letters because when I settle these things, I have to settle non-disclosures. And it opens me 

right back up to getting sued again. 

Senator KLOBUCHAR. By someone else. 

Mr. SINEWITZ. By the same people. 

Senator KLOBUCHAR. The same? 

Mr. SINEWITZ. I mean, the same people that I gave them 

$50,000—— 

Senator KLOBUCHAR. Oh, because they’ll sue you because of your 

violation of the non-disclosure agreement. 

Mr. SINEWITZ. Because they gave me non-disclosures as part of 

settlement. Because they surely don’t want me to go out there and 

tell people what I’ve done. 

Senator KLOBUCHAR. Were you in this business 20 years ago? Or 

is it—— 

Mr. SINEWITZ. Oh, I’ve been with my company for 32 years. 

Senator KLOBUCHAR. So you’ve seen it change over time? 

Mr. SINEWITZ. For us, this is in the last six, seven years that we 

have seen this kind of a problem. 

57 

Senator KLOBUCHAR. But you have numbers because you know 

your bottom line. 

Mr. SINEWITZ. Yes, I do have that. I mean, I can tell you I’ve 

given the Committee the eight letters—heavily redacted, unfortunately—but I did give the Committee all eight letters that we had 

to settle on. I will tell you that that isn’t the only letters that we’ve 

gotten. And I will tell you again that when we see one and it’s legitimate, I don’t think there’s anybody that wouldn’t want to honor 

that. 

Senator KLOBUCHAR. And speaking of these trends, since there 

have been some issues raised—you know, I kind of believe my constituents when they tell me this stuff and then when I hear it 

about 15 times, I know it’s real. But there were some issues raised 

by Mr. Mossoff about whether this is truly a problem. 

And Ms. Samuels, when did the trend switch from primarily legitimate use of demand letters—from your perspective, largely to 

manufacturers—to more deceptive letters that go to all end users? 

Ms. SAMUELS. Thank you for the question, Senator Klobuchar. 

I will tell you my personal experience. It was about 18 months 

ago that it really was noticeable, and it started with a troll called 

LODSYS, L-O-D-S-Y-S, who started targeting app developers for 

using technology that’s provided to them by Apple and Google. You 

know, when they put their apps in the smartphone marketplaces. 

And, you know, I literally got to work one morning and my phone 

was ringing and I had a bazillion e-mails from these app developers who’d gotten these scary letters. There was one who is somewhere in Western Europe and the little FedEx package he had gotten, you know, the receipt showed how much it cost to send it. And 

it cost more to send a package to him than he’d ever made on his 

app. 

You know, these people did not know what to do. And that was 

kind of—from my perspective that was the tipping point. But since 

then it has really just been a torrent. 

Senator KLOBUCHAR. Mr. Chandler, just one last question here. 

As I mentioned before, I urged the FTC to approve a 6(b) study— 

and Chairwoman Ramirez testified at our hearings—and the Commission has taken the first steps now to begin this study. 

Do you think this study is enough, or should the FTC take additional action? Should it put out an interim report, for instance, to 

highlight the findings so far so the market sees what they’re looking at? And should it bring enforcement actions against the senders 

of the demand letters? It’s really a two-part question. Should they 

do some kind of interim report and then should they do something 

with enforcement? 

Mr. CHANDLER. Senator, thank you for your leadership on this 

issue, not just here but also in your other life on the Judiciary 

Committee. 

Senator KLOBUCHAR. That is another life. 

[Laughter.] 

Mr. CHANDLER. The FTC study is a very broad one that looks at 

the entire universe of non-practicing entities including large patent 

aggregators who license portfolios to operating companies such as 

Cisco, all the way down to individual non-practicing entities that 

pursue this type of activity. 

58 

So it’s a very broad study. I think it will take a long time to 

bring forward. I think an interim report would be a very good step, 

so I would urge the FTC to consider issuing an interim report and 

ask you to use your good offices with them to encourage that step 

as well. 

I do think more is needed sooner, given the trend that we’re seeing. And I don’t think the FTC today has been very—and historically—has not used its very unique rulemaking capability to pursue issues like this very effectively. They do enforcement. On some 

occasions, the Congress has asked them, such as in the Child Online Privacy Act, to adopt specific rulemaking to pursue particular 

problems. And I think that’s a step that this committee could 

begin, to ask the FTC to create a registry like this and to collect 

information and to allow manufacturers like me to then step in and 

help our customers deal with these. Because for the customers, 

when they’re told do you want to pay $2,000 to avoid spending 

$10,000 to solve a problem, they will pay the $2,000 even if the 

thing they’re paying for is worth $.10. If the manufacturers can get 

involved, we can aggregate it and deal with it. I spent $13 million dealing with Innovatio, but I’m proud of 

every cent, and I’m a guy who packs my lunch every day. 

[Laughter.] 

Senator KLOBUCHAR. Very good. 

Well, I think that I saw a lot of nodding heads and I know we 

have a new colleague here, so I’ll ask the questions later on the 

record to get your ideas. Because I think how we move forward is 

just as important as identifying the problem. 

So thank you, everyone. 

Senator MCCASKILL. Senator Ayotte. 

STATEMENT OF HON. KELLY AYOTTE, 

U.S. SENATOR FROM NEW HAMPSHIRE 

Senator AYOTTE. Thank you very much, Madam Chairwoman. 

I wanted to first of all say to my former colleague, Attorney General Bruning, it’s great to have you here today. And let me just ask 

you based on your testimony, you said the time is ripe for Federal 

and state authorities to work in concert to address this issue and 

stem the tide of patent trolling nationwide. 

What do you view the role of state attorneys general, state authorities, on this issue versus cooperation with Federal authorities 

on how to address these problems? Often people think that Washington is the answer to everything, but the state AGs and state authorities are much closer on the ground level. 

What role do you think they can play and how can we help consumers on this issue? 

Mr. BRUNING. Well, thank you for the questions, Senators. 

Very nice to see you as well. I always look forward to seeing you 

when I’m in Washington. I’m glad to be before the Committee 

today. 

I would say it’s a two-pronged effort. One, the attorneys general, 

as you recall, would gather, you know, in concert. Tobacco is an example that’s very well-known, in 1999, where the attorneys general 

pursued Big Tobacco. I would say this is a case where the collective 

action of the attorneys general is warranted. We can use our conVerDate Nov 24 2008 09:43 Mar 11, 2014 Jkt 075679 PO 00000 Frm 00062 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\86955.TXT JACKIE
59 

sumer protection statutes. These are fraudulent actions; they have 

no intention of suing, they have no knowledge of any of these individuals actually violating their patents. So I think it violates Nebraska’s consumer protection statutes. I think it probably violates 

most states’ consumer protection statutes. 

For those of us that also have concurrent criminal authority— 

which is, you know, 35 or so attorneys generals, to my recollection—we have to analyze that because this is fraud; is it a criminal 

fraud? And certainly, our office is analyzing that. That’s a higher 

bar to get over, but we’re analyzing whether or not we should use 

our criminal statutes as well. 

And at the Federal level, I certainly think the power of the FTC 

and the national scope of the FTC and the subpoena power of the 

U.S. Senate to lift the curtain on these folks, we can’t even figure 

out who’s behind MPHJ. Who are these people? Who is this? 

There’s some guy right now at his country club in Austin, Texas 

or Atlanta, Georgia and everybody thinks he’s a great, successful 

business guy, and what he is is a fraudster. And I want to see the 

U.S. Senate lift the curtain on it and say, here you are. And I want 

to see Steve Kroft at 60 Minutes standing on the guy’s driveway 

with a microphone—— 

[Laughter.] 

Mr. BRUNING.—saying, why is it you held hostage these voices 

for—you know, this choir in Omaha that got this letter? Or this 80- 

year-old man with Alzheimer’s in Holdrege, Nebraska that got this 

letter? I want to see those national news people standing on the 

driveway of this guy that everybody thinks is a preeminent business man; I want to see him exposed. And you can do that with 

your subpoena powers. 

And I think a small tweak in the statutes or in the rules at the 

FTC to require registration of these letters, I think there seems to 

be some agreement that that may be useful. 

Senator, I think you’ve said it extremely well. I mean, as we listen to Mr. Mossoff, perhaps registration is one way to lift the veil. 

We just need to have openness in this process. Legitimate patent 

holders, none of us have any problem with them enforcing their 

rights using the court system, but this isn’t about patents; this is 

about fraud. This is about extortion. This is about fear with little 

companies that Mr. Potter represents, little app developers that it’s 

their life or death. Some guy that has invested his last $100,000, 

this letter will take him down. 

Senator AYOTTE. Right. 

Mr. BRUNING. And so, I think that’s how—I know I went far 

afield there, Senator, but I think there is a role for each of us to 

play. 

Senator AYOTTE. Great. I appreciate it. Thank you. 

And this is something that I’m concerned about. We’re blessed, 

in this country, to have incredibly great innovators. Many of them 

start out of their garages. So in New Hampshire, we have a great 

one—Dean Kamen. So when I was preparing for this hearing, we 

reached out to him and he rightly raised the issue that I want to 

hear from you on, which is—and I think Mr. Chandler, you can 

help me with this. You think about Cisco’s revenue, so much of it 

comes from small businesses. And how do we make sure that by 

60 

trying to address the patent trolls, we aren’t harming or decreasing 

the value of legitimate small innovators? These people who start 

out of their garage and have such great ideas—and that is what 

America is all about. 

So when we address this problem, we’ve got to get that right to 

make sure that we are not hurting these wonderfully brilliant individuals who just have a great idea in America. 

So can you comment on this, Mr. Chandler? And can you also 

comment on it, Mr. Mossoff? 

Mr. CHANDLER. You know, I think that’s a very, very important 

concern and I’ve testified on a panel together on patent reform with 

Dean and have a huge amount of respect for his contributions. And 

I know that when he has concerns about infringement, he doesn’t 

send letters to individual Segway users asking them to send $10 

each and don’t look too closely at the patent. So he knows exactly 

how to enforce his patents in an effective way. And there are issues 

related to how the patent litigation system works and what’s fair 

and not. And I think those are being appropriately dealt with at 

the Judiciary Committee. 

I think what we’re looking at today is something that is not 

something that flows into the way Dean Kamen goes about conducting his business and enforcing his patents, and that is making 

sure people who are targeting end users who buy a product that 

incorporates someone else’s technology aren’t victimized when 

there’s a huge cost and information asymmetry, but that the information is out there and there’s some transparency so they know 

who to go to in order to get help and solve their problems. And 

that’s something that I would be arm-in-arm with Dean Kamen in 

supporting. And I’d be surprised if he would want a business model 

where he was out sending thousands of letters to people using 

counterfeit Segways. 

Senator AYOTTE. I would agree. 

Mr. MOSSOFF. Thank you, Senator. 

I think you raise a very, very important point. In fact, at a conference this past September here in D.C., Dean Kamen spoke and 

he spoke out on the issue of patent trolls. And he actually said, the 

phrase applies to me. In fact, he said, I am Trolls-R-Us. And he 

was very proud of that, he said, because I needed investors when 

I came up with my inventions when I was still working in my parents’ basement when I created my first inventions. And he said, so 

I embraced that division of labor where I was the inventor and 

there were business persons and other experts and lawyers who 

could commercialize and enforce my patents for me. And thus, 

that’s why he refers to himself as a troll. And it shows you the difficulties and problems with the labels that we’re using and the 

rhetoric that we’re using because it covers lots of different actors 

in a very complex and heterogeneous innovation economy. 

And as you mentioned, small businesses and individual inventors 

need very strong patent rights. And it’s individual inventors and 

small businesses, who are oftentimes not manufacturing yet, who 

in negotiating with large companies, are essentially told sue us. If 

you think we’re infringing, then sue us. And in fact, one transactional attorney who testified at the FTC/DOJ workshop last December actually stated that he hears that a lot from his clients and 

61 

in deals that he negotiates. That small businesses and individuals 

are told when attempting to negotiate licenses with large companies: sue us. And then those small companies and businesses are 

immediately painted as ‘‘patent trolls’’ that are attacking these 

large companies who are painted as innovators. 

And so this is a real concern because small businesses and inventors actually do need very strong patent rights—patent rights that 

are necessarily weakened by additional burdens that will be imposed upon them, both in trying to license their inventions as well 

as in trying to enforce them, which is always the backstop that 

makes licensing possible. 

And in this respect, to go back to Attorney General Bruning’s 

comments and Senator McCaskill’s—your comments about a registry—I think we also need to be aware of the existing legal tools 

and the implementation of regimes that actually address the issues 

of disclosure. The Patent Office is about to issue rules following notice and comment on transparency of ownership following President 

Obama’s Executive Orders last June 4. 

And so, we have to always hold in context that the discussion 

that we’re holding here is part of a very large and vast discussion 

about revising the patent system. And something that I really hope 

that we hold in context—that another massive revision of the patent system just 2 years after the America Invents Act, which was 

also a massive revision to the patent system, creates a lot of uncertainty. And that’s an uncertainty that effects and makes it much 

more costly not just for large companies to implement innovation 

into the marketplace, but also small businesses and individuals 

who are much more sensitive to cost, as Mr. Sinewitz has been reminding us about. 

Senator AYOTTE. Thank you, Mr. Mossoff. 

Senator MCCASKILL. Thank you, Senator Ayotte. 

Let me reassure you, Mr. Mossoff. This committee doesn’t have 

the jurisdiction or the appetite for any massive change to the patent system. We’re talking about end users and consumer protection—is what we’re talking about. 

So, I know, Ms. Samuels—I’m not going to take my full time because we’re going to have two votes at 11:45 and I want to make 

sure that if either Senator Heller or Klobuchar or Senator Ayotte 

has anything else to add to the record, they have an opportunity. 

I just want to follow up with something you said. I believe you 

stated that the FTC has authority now, which is correct for end 

users that are consumers of products in terms of fraud being committed upon them, but I don’t believe they currently have the authority to establish a registry—— 

Ms. SAMUELS. Correct. 

Senator MCCASKILL.—of these letters or require transparency in 

the letters as to who owns the patent and what patent is actually 

being asserted in the demand letters. 

Ms. SAMUELS. Thank you, Senator. 

That is actually what I meant, that the authority the FTC already has extends to what it can do under Section 5, not the registry. 

Senator MCCASKILL. Thank you. 

Ms. SAMUELS. Thanks for clearing that up. 

62 

Senator MCCASKILL. Senator Heller, do you have anything else 

for the record? 

Senator HELLER. I don’t. 

Senator MCCASKILL. Senator Klobuchar, do you have anything 

else for the record? 

I want to thank all of you very much. We will leave the record 

open for any submissions. 

I especially want to thank you, Mr. Sinewitz, for traveling as far 

as you have. 

And those of you from California, thank you for coming across 

the continent, and, certainly, thank you, General Bruning, for taking time away from Nebraska to come and talk with us. I hope you 

continue to educate your fellow attorneys general across the country about this opportunity we have. 

You know, I’m old-fashioned about this. I’m not a big fan of Federal law enforcement. I’m a big fan of local law enforcement. I’m 

a local prosecutor by my background, and I think that a lot of this 

work can be done on a state-by-state basis much more effectively 

than we can do from Washington. So good for you and your work, 

and I look forward to hearing that many of your colleagues across 

the country have joined your important crusade to protect innocent 

consumers from these kinds of scams. 

Thank you all for being here, and the hearing is adjourned. 

[Whereupon, at 11:38 a.m., the hearing was adjourned.] 

(63) 

A P P E N D I X 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. CLAIRE MCCASKILL TO

HON. JON BRUNING

Question 1. At the hearing, we heard about several policy proposals that could 

help protect consumers and small businesses from harmful demand letters. One potential idea widely discussed was the establishment of a demand-letter registry— 

whether at the Federal Trade Commission (FTC) or at the U.S. Patent and Trademark Office (PTO)—that would increase transparency and facilitate better data on 

the problem’s extent. What protections for consumers and small businesses would 

such a registry provide that would address the current harms inflicted on them by 

demand letters? 

Answer. The creation of a demand letter registry would add much-needed protection for consumers and small businesses who too frequently find themselves targeted by unscrupulous patent trolls. The simple knowledge that ‘‘someone is watching’’ can serve as a valuable deterrent to a patent troll who may otherwise feel free 

to send demand letters scattershot to hundreds of targets around the country without first performing some basic due diligence as to whether those targets actually 

merit contact. 

As it stands now, patent trolls can fairly view the demand letter process as a regulatory ‘‘Wild West.’’ Demands can be made and license fees extracted more or less 

in the shadows. Even if nothing else is done to address this problem, this relatively 

simple first step should be implemented, because it would provide valuable sunlight 

on those who are targeting so many of our constituents with unfair and deceptive 

patent enforcement demand letters. 

Question 1a. Do you have an opinion about whether it would be more effective 

to house such a registry at the PTO or the FTC? Please explain why. 

Answer. Though I am not fundamentally opposed to the housing of a demand letter registry at the PTO, I believe the problem of unfair and deceptive demand letters is, primarily, one of consumer protection. Accordingly, the creation of a Federal 

demand letter registry would best take place within the FTC as the Federal agency 

best equipped to engage in consumer protection activities. 

However, I believe there is a role for state consumer protection authorities to play 

on this proposal, as well. In Nebraska, we are currently drafting legislation which 

would include a requirement that any person who sends demand letters to a certain 

number of Nebraskans over a specified period of time must notify the Attorney General’s Office. Such a notification requirement would do nothing to burden the lawful 

enforcement of a legitimate patent, but would enable my office to know in real time 

when such campaigns are underway. That way, if we observe evidence of unfair or 

deceptive practices in the sending of such demand letters, we can take appropriate 

action. 

Question 2. Another potential idea from the hearing was to require certain baseline disclosures in demand letters to provide recipients with more useful information 

and to help stem the large numbers of demand letters being sent. Do you believe 

such mandatory disclosure requirements would protect consumers and small businesses from the current harms inflicted on them by demand letters? Would mandatory disclosure requirements provide a more effective consumer protection solution 

than a registry? 

Answer. Absolutely and I do not view it as an either-or proposition. Mandatory 

disclosure requirements and the creation of a registry should go hand-in-hand. 

Many of the demand letters patent trolls send to targeted small businesses and 

consumers are heavy on threats but light on specifics. Given the one-sided nature 

of patent litigation, it is inevitably extremely expensive for a target to defend itself, 

or even to simply determine whether the ‘‘specifics’’ exist. This creates strong incentives for targets to settle or pay license fees, which in turn keeps the patent trolls’ 

business model profitable and worth continuing. Requiring more detail in demand 

64 

letters would work to level the playing field between trolls and targets, and likely 

reduce the most egregious examples of demand letter abuse. 

Question 2a. Please detail, specifically, the types of information that should be required in demand letters to achieve the goal of improved consumer protection. 

Answer. At minimum, every demand letter should include the name, address, and 

contact information of the owner of the patent, the patent number, an admonishment to seek counsel from an attorney and specific factual allegations regarding how 

the target has infringed or is believed to have infringed on the patent. The fourth 

item is perhaps most important given how little research so many patent trolls perform before sending demand letters. If enforcers of patents were required to inform 

a target of why they were targeted, those targets for which there is no substantive 

evidence of infringement would likely not receive demand letters in the first place. 

This shifts some of the due diligence responsibility back to the patent enforcer, 

which is appropriate. 

Question 3. We also discussed whether current law would allow effective implementation of the various policy proposals to protect consumers and small businesses 

from unfair or deceptive demand letters. Do you believe the FTC—under its existing 

Section 5 authority to prevent unfair and deceptive practice or any other statutory 

authority—has the ability to effectively carry out any of the proposed solutions that 

you have proposed or that were discussed at the hearing, such as establishing a demand-letter registry or including mandatory disclosure requirements? Please specify 

which potential solutions the FTC would or would not be able to implement. 

Answer. I believe the FTC already possesses the authority to implement either 

a demand letter registry or specific disclosure requirements. I note that FTC officials have commented publicly on the need to address the problem of patent trolls 

and that the agency is currently considering launching a broad investigation into 

the practices, composition, and structure of patent trolls nationwide. The implementation of certain rules to limit demand letter abuse seems a logical next step and 

entirely consistent with the FTC’s consumer protection mission and statutory mandate. 

I would also note that I believe states possess the authority under their own consumer protection laws to address this problem. To prevent bad actors from using 

unfair or deceptive demand letters to extort license fees from legally unsophisticated 

small businesses and consumers is indisputably a consumer protection problem. Our 

authority to combat such violations is not and should not be limited by Federal preemption of any type. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. RICHARD BLUMENTHAL TO

HON. JON BRUNING

Question 1. Demand letters are often sent to people who will never see the inside 

of a courtroom. They will settle—often they will feel that they must settle—before 

a case is even filed. In your opinion, are the reforms being considered in pending 

legislation targeted at what happens during litigation adequate to fully address the 

problem with demand letters? 

Answer. I believe there are provisions in the bills currently pending in both the 

Senate and House which contain valuable increased protections against bad faith 

demand letters. Furthermore, the provisions in those bills which clarify the FTC has 

the authority to go after the ‘‘worst of the worst’’ abusers of the patent demand letter process are commendable. I also believe that, though not specifically related to 

consumer protection, addressing the structural issues within our patent system 

which have allowed patent trolls to thrive is necessary. The pending Senate and 

House bills each contain provisions which would structurally level the playing field 

between trolls and their targets. More can be done, however. 

Question 1a. Are there additional reforms Congress should consider specifically 

targeted at the issue of demand letters? 

Answer. Yes. I touched on several of them above. Though I believe the FTC is 

already empowered to create a demand letter registry, Congress should expressly 

provide for it to ensure it happens in a timely and effective manner. Additional demand letter specificity requirements, such as those discussed above, should be included. Finally, it should remain expressly clear that state consumer protection authorities possess the requisite powers to address unfair or deceptive demand letter 

abuses which violate consumer protection laws. The states and Federal government 

must work as partners on this issue, never as competitors. 

65 

Question 2. As a former Attorney General, I believe that the states have an important role to play in protecting consumers. Do you agree that states have a role to 

play in protecting consumers from abusive demand letters? 

Answer. Absolutely. In fact, my office has already initiated consumer protection 

investigations into several entities which have undertaken coordinated demand letter campaigns within Nebraska over the past year. We have engaged in active litigation related to one of those investigations and are preparing patent troll-specific 

legislation to be introduced in our Legislature’s upcoming spring session. 

I view consumer protection as being among my office’s top priorities. I view the 

use of unfair or deceptive demand letters to extract costly license fees from small 

businesses and consumers as clear consumer protection violations. Accordingly, I believe it is my obligation as Nebraska’s chief law enforcement officer to aggressively 

pursue those violations to protect consumers. 

Question 3. Are there advantages to state enforcement in this area? 

Answer. Yes. Though, as summarized above, I believe there are important steps 

the Federal government can and should take, there are distinct advantages to state 

enforcement against unfair and deceptive demand letter practices. 

First, my office is invariably going to be more responsive to and aware of consumer protection violations within our state. This is simply a matter of proximity 

and recognition of the fact that our resources can more quickly be marshalled to address a problem as it arises than the Federal government can. 

Second, we have already made the determination that our existing consumer protection laws provide us the tools to go after patent enforcement abuse. Understandably, it may take the Federal government some time longer to come to a point at 

which it is actually taking enforcement action. Meanwhile, the harm to targets of 

patent trolls continues unabated and state authorities, especially our nations Attorneys General, are ideally suited to addressing the problem head on. 

Question 4. Should Congress take action to allow states to protect their citizens? 

Answer. See answer to question [5]. 

Question 5. What kind of action would be helpful? 

Answer. I will answer questions [4] and [5] together. First, I do not believe Congress needs to take any specific action which would ‘‘allow states to protect their 

citizens.’’ We already have a variety of consumer protection tools at our disposal. 

To the extent patent troll-specific legislation is useful at the state level, states are 

already free to pursue such statutes. Vermont has already done so and, as stated 

above, we plan to follow suit in Nebraska. 

Congress should ensure that any action it takes complements state efforts and enables state consumer protection authorities and the FTC to work in concert against 

patent trolls. The magnitude and complexity of this issue necessitates that we work 

as partners and not ever engage in jurisdictional turf battles. Accordingly, I would 

ask that Congress continue to allow for concurrent jurisdiction between the states 

and the FTC to address unfair or deceptive demand letters from a consumer protection standpoint. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. CLAIRE MCCASKILL TO

JON POTTER

Question 1. At the hearing, we heard about several policy proposals that could 

help protect consumers and small businesses from harmful demand letters. One potential idea widely discussed was the establishment of a demand-letter registry— 

whether at the Federal Trade Commission (FTC) or at the U.S. Patent and Trademark Office (PTO)—that would increase transparency and facilitate better data on 

the problem’s extent. What protections for consumers and small businesses would 

such a registry provide that would address the current harms inflicted on them by 

demand letters? 

Answer. A demand-letter registry would be very beneficial to consumers and small 

businesses. Today, one of the primary reasons that consumers and small businesses 

pay extortionist license fees to trolls is because the fees—though unjustified—are 

significantly less than the cost of determining the validity of the asserted patent 

and its associated claims and determining whether one has actually infringed the 

patent. Paying these extortionist licensing fees is also, though unjustified—extraordinarily less than the cost of defending an infringement litigation. A publicly accessible and easily searchable demand-letter registry would enable victims of demandletter scams to contact each other and to act collectively in their common interests. 

Groups of letter recipients are more likely to stand strong against the abuses of patent trolls, as they will be better able to collectively finance challenges to patents’ 

66 

validity, and collectively challenge the patent assertions as fraudulent. Knowing 

that one does not have to fight alone is beneficial; the ability to develop collective 

strategies and responses will be empowering. 

Question 1a. Do you have an opinion about whether it would be more effective 

to house such a registry at the PTO or the FTC? Please explain why. 

Answer. The PTO has extraordinarily qualified staff and surely is capable of developing this database. But the PTO is also extraordinarily burdened with many 

new programs and modernization efforts, and to my knowledge has not had the opportunity to build publicly accessible databases like the proposed registry. 

In contrast, I understand that the FTC has developed registries like this, and 

done so successfully. 

Regardless of where the registry is housed, the PTO should be willing to consider 

evidence of fraudulent, abusive or otherwise questionable demand-letter tactics that 

registry analysts uncover, and should use this evidence in its consideration of director-initiated re-examinations and petitions to waive fees associated with re-examinations and post-grant reviews. 

Question 2. Another potential idea from the hearing was to require certain baseline disclosures in demand letters to provide recipients with more useful information 

and to help stem the large numbers of demand letters being sent. Do you believe 

such mandatory disclosure requirements would protect consumers and small businesses from the current harms inflicted on them by demand letters? Would mandatory disclosure requirements provide a more effective consumer protection solution 

than a registry? 

Answer. Mandatory disclosures aid consumers and small business by reducing the 

cost of responding substantively to a demand/assertion letter. Lowering the cost of 

substantive responses reduces the likelihood of unjustified settlements that are due 

solely to the costs of responding and fighting. 

Mandatory disclosure requirements provide needed transparency to each recipient 

of a patent assertion/demand letter, and they are a necessary supplement to a registry that provides transparency to all recipients. Neither is effective individually, 

but in combination they are very helpful. 

Question 2a. Please detail, specifically, the types of information that should be required in demand letters to achieve the goal of improved consumer protection. 

Answer. Five types of information should be required in demand letters: 

1. The number of the patent being asserted. 

2. The specific claims of each patent that are alleged to have been infringed. 

3. The specific technology, functionality or activity, that the defendant is employing or doing, that triggers or implicates each assertion of infringement. 

4. The basis of a proposed license amount if any specific license amount is proposed. 

5. The names of all other entities that have been sent assertion/demand letters 

relating to the specified patents. 

Question 3. We also discussed whether current law would allow effective implementation of the various policy proposals to protect consumers and small businesses 

from unfair or deceptive demand letters. Do you believe the FTC—under its existing 

Section 5 authority to prevent unfair and deceptive practice or any other statutory 

authority—has the ability to effectively carry out any of the proposed solutions that 

you have proposed or that were discussed at the hearing, such as establishing a demand-letter registry or including mandatory disclosure requirements? Please specify 

which potential solutions the FTC would or would not be able to implement. 

Answer. I am not an expert on the FTC’s Section 5 authority, but my initial concern is that the FTC’s authority is limited to (a) investigational authority; and (b) 

enforcement authority with respect to specific actions and actors. Thus, I am not 

certain that FTC Section 5 authority is sufficiently broad to regulate either (a) the 

form or content of demand letters, or (b) to require that demand letters be uploaded 

into an online registry. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. RICHARD BLUMENTHAL TO

JON POTTER

Question 1. Demand letters are often sent to people who will never see the inside 

of a courtroom. They will settle—often they will feel that they must settle—before 

a case is even filed. In your opinion, are the reforms being considered in pending 

67 

legislation targeted at what happens during litigation adequate to fully address the 

problem with demand letters? 

Answer. Ninety percent of patent assertions are resolved prior to litigation, but 

the bills currently being considered by the Congress do not fully address the problems with abusive pre-litigation demand letters. Specifically, these bills do not (a) 

authorize the FTC to define what data points must be included in a demand letter; 

(b) require that the FTC use its enforcement authority against unfair and deceptive 

demand letters; or (c) impose self-executing penalties against those who send abusive demand letters. 

Question 1a. Are there additional reforms Congress should consider specifically 

targeted at the issue of demand letters? 

Answer. Five additional reforms should be considered: 

1. The Director of the Patent & Trademark Office should be required to consider 

Director-initiated re-examinations and post-grant reviews when there is evidence of demand letter abuse by a patent owner or its agent. 

2. Demand-letter abuse should be punishable by permanent elimination of the 

patent owner’s right to heightened damages, e.g., for willful infringement, or 

by elimination of all enforcement authority with respect to that patent. 

3. Demand-letter abuse should be punishable by a lower-standard for fee-shifting 

by courts. 

4. Upon an administrative holding that a patent owner has sent demand letters 

abusively (either by asserting a substantively overbroad interpretation of a patent), that patent owner should pay for the costs of the administrative proceeding and should pay a remedial penalty directly to all recipients of the abusive demand letters. 

5. Demand letters should be required to include a certification of honesty and 

good faith with regard to the patent’s validity, its interpretation as asserted 

in the letter, and the infringement that it asserts. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. CLAIRE MCCASKILL TO

MARK CHANDLER

Question 1. At the hearing, we heard about several policy proposals that could 

help protect consumers and small businesses from harmful demand letters. One potential idea widely discussed was the establishment of a demand-letter registry— 

whether at the Federal Trade Commission (FTC) or at the U.S. Patent and Trademark Office (PTO)—that would increase transparency and facilitate better data on 

the problem’s extent. What protections for consumers and small businesses would 

such a registry provide that would address the current harms inflicted on them by 

demand letters? 

Question 1a. Do you have an opinion about whether it would be more effective 

to house such a registry at the PTO or the FTC? Please explain why. 

Answer. While Cisco has first-hand experience with the harms of deceptive demand letter practices, the full scope and extent to which deceptive practices are taking place, and the harm it is inflicting on small businesses and consumers, is not 

known because much of it is not publicized, and it is difficult for recipients of such 

letters to coordinate and collect the information on their own. A registry would call 

attention to the magnitude and scope of demand letter campaigns, and make it easier for recipients of letters to gather and disseminate information regarding the demands against them. It would also give everyone the full picture. For example, a 

demand letter recipient may be more likely to learn that the asserted patents are 

RAND-encumbered, that certain accused products are already licensed and do not 

infringe, or that manufacturers have stepped up and initiated litigation to defend 

their products. A registry would therefore discourage deceptive and unfair practices, 

while adding a basic level of transparency and accountability that will help protect 

innocent end users. 

Question 2. Another potential idea from the hearing was to require certain baseline disclosures in demand letters to provide recipients with more useful information 

and to help stem the large numbers of demand letters being sent. Do you believe 

such mandatory disclosure requirements would protect consumers and small businesses from the current harms inflicted on them by demand letters? Would mandatory disclosure requirements provide a more effective consumer protection solution 

than a registry? 

Question 2a. Please detail, specifically, the types of information that should be required in demand letters to achieve the goal of improved consumer protection. 

68 

Answer. In addition to a registry, it is important that demand letters provide adequate notice to the recipients concerning what is being accused, as well as other critical information from which a demand letter recipient can either reach out to the 

appropriate supplier[s] of infringing technology, or better understand its rights and 

the patent holder’s obligations. At a minimum, demand letters should disclose: 

• a list of products which are deemed to infringe, including the manufacturer and 

model number, and informing them that they may have the right to have the 

manufacturer defend the case, and providing contact information for the manufacturer; 

• the names of the entities which own the patents or benefit from their enforcement and any related entities; and 

• a list of all previous licenses granted for those patents, with a notice that if the 

recipient of the letter is using the products or services of a licensed entity, the 

recipient may require no further rights or permission from the patent holder, 

as well as whether there is a relevant licensing commitment to a standards organization. 

Question 3. We also discussed whether current law would allow effective implementation of the various policy proposals to protect consumers and small businesses 

from unfair or deceptive demand letters. Do you believe the FTC—under its existing 

Section 5 authority to prevent unfair and deceptive practice or any other statutory 

authority—has the ability to effectively carry out any of the proposed solutions that 

you have proposed or that were discussed at the hearing, such as establishing a demand-letter registry or including mandatory disclosure requirements? Please specify 

which potential solutions the FTC would or would not be able to implement. 

Answer. The FTC presently has the authority to under Section 5 to prohibit unfair or deceptive acts or practices, and this includes deceptive or unfair demand letter assertions. However, specific legislation requiring a registry and that demand 

letters include specific information would be helpful in curbing deceptive demand 

letter practices. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. MARK PRYOR TO

MARK CHANDLER

Question 1. I have heard reports that some foreign governments have formed, or 

announced intentions to form, state-sponsored patent assertion entities (PAEs). According to these reports, it is unclear how these PAEs might assert their patent 

holdings in the future and to what extent. Are state-sponsored PAEs something 

your company is aware of? If so, how would you characterize the nature of such organizations? 

Question 1a. Has your company had any experience in dealing with a state-sponsored PAE? If so, could you please describe the nature of the interaction? 

Question 1b. Would you please describe any other role, be it positive or negative, 

you believe state-sponsored PAEs may play in the technology sector? 

Question 1c. Do you see a need for Congressional action with respect to statesponsored PAEs? If so, please describe. 

Answer. State-sponsored PAEs have already filed suit against Cisco and other 

American companies. For example, we have been sued by CSIRO, an agency of the 

Australian government and our customers have been sued by TR Labs from Canada. 

These entities are exploiting the imbalances of the American system against American companies. 

Furthermore, a new form of large scale well-funded state-sponsored PAE is now 

emerging in some foreign countries. We have not yet directly interacted with them 

but are aware that they are accumulating large amounts of capital to purchase large 

numbers of patents including U.S. patents. In many ways we expect them to function like other PAEs but due to state sponsorship these are unusually large and 

well-funded. They also are intended to serve national economic objectives in taxing 

our industries to generate a return for their industries. They will likely harm U.S. 

companies and consumers but it will be a harm that we have inflicted upon ourselves by having an imbalanced patent enforcement system in the United States. 

The solution is to reform our own system so that foreign entities cannot exploit it 

against us. 

69 

1See http://arstechnica.com/tech-policy/2013/01/patent-trolls-want-1000-for-using-scanners/ 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. RICHARD BLUMENTHAL TO

MARK CHANDLER

Question 1. Demand letters are often sent to people who will never see the inside 

of a courtroom. They will settle—often they will feel that they must settle—before 

a case is even filed. In your opinion, are the reforms being considered in pending 

legislation targeted at what happens during litigation adequate to fully address the 

problem with demand letters? 

Answer. Legislative reforms to patent litigation and proposals to specifically address demand letters are complementary solutions to the problems of meritless patent assertions. Because demand letters often seek an amount that is so low—a few 

thousand dollars—that litigation is unlikely, the current legislative proposals directed to litigation do not fully address the harm caused by deceptive demand letter 

campaigns. Also, hundreds of demand letter recipients may pay for a license before 

a single case is litigated, at which point the damage to such innocent end users is 

already done. Demand letter reform would therefore address problems not addressed by litigation reform. 

Question 1a. Are there additional reforms Congress should consider specifically 

targeted at the issue of demand letters? 

Answer. Congress should pass legislation directed to the problem of demand letters. For example, in my testimony I called for the establishment of a repository at 

the FTC. Everyone who sent more than ten letters to end users would have to log 

their letter into the repository and the letters would have to include, among other 

things, complete information on ownership, the basis for the infringement accusation, and the licensing history of the patents. Making this information broadly available will allow us as suppliers to give the patent assertion entities a fair fight. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. CLAIRE MCCASKILL TO

JULIE P. SAMUELS

Question 1. At the hearing, we heard about several policy proposals that could 

help protect consumers and small businesses from harmful demand letters. One potential idea widely discussed was the establishment of a demand-letter registry— 

whether at the Federal Trade Commission (FTC) or at the U.S. Patent and Trademark Office (PTO)—that would increase transparency and facilitate better data on 

the problem’s extent. What protections for consumers and small businesses would 

such a registry provide that would address the current harms inflicted on them by 

demand letters? 

Answer. Such a registry would provide protection by supplying information— 

something that the system currently woefully lacks. For instance, if a consumer 

finds him or herself facing a threat, he or she will often have no idea how to respond. Hire a lawyer? Call the sender? Ignore the letter? Hiring a lawyer to navigate the process is not cheap; often costing well into the thousands of dollars just 

to understand the scope of the threat and how it relates to the technology at issue. 

Take the now infamous troll, MPHJ (otherwise known as the ‘‘scanner troll’’). MPHJ 

created a series of shell companies with names constructed of random letters,1 making it nearly impossible to google the letter’s sender and understand the scope of 

the threat. A robust database would give consumers basic information about who 

is sending the letter and what kind of threat that entity poses. Does it often sue 

its targets? If so, it might be worth hiring a lawyer. Does it rarely so? If so, the 

best advice might be to ignore the letter. 

A registry could also include additional crucial content, such as basics on the patent system and resources for how to understand and respond to the immediate 

threat. (This is something we’ve tried to do at Trolling Effects at https:// 

trollingeffects.org/learn and something that the President has already instructed the 

Patent Office to do; we understand the Patent Office is currently working on education materials in response to that request.) 

A registry would also protect consumers by chilling dangerous trolling activities. 

We believe that trolls target ordinary consumers, end-users, and non-patent-sophisticated parties because of the asymmetry of information problem and the ability of 

those trolls to hide behind shells. Simply, it is cheap and easy for a party to send 

out hundreds or even thousands of demand letters and see what kinds of payments 

come back. In fact, a letter sender need not even be an attorney. A registry’s ability 

to lift this veil of secrecy would solve the asymmetry of information problem, thus 

making the patent troll ‘‘business model’’ a less attractive one. Will certain bad acVerDate Nov 24 2008 09:43 Mar 11, 2014 Jkt 075679 PO 00000 Frm 00073 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\86955.TXT JACKIE
70 

2 U.S. Patent No. 6,368,227 at http://www.google.com/patents/US6368227 

tors still exploit the system and target consumers? Probably. But we believe at a 

much slower rate. We also believe emboldening consumers with information will increase the instances of those consumers fighting back, another important element 

that will help squelch the trolls’ dangerous actions. 

Question 1a. Do you have an opinion about whether it would be more effective 

to house such a registry at the PTO or the FTC? Please explain why. 

Answer. I strongly believe the most important thing is to have a publicly available, easily searchable registry. To that end, I believe one held at either FTC or 

PTO would be effective and efficient. That said, each has unique benefits, which I 

will discuss in turn. 

The FTC has valuable experience in hosting public-facing registries, such as the 

Do Not Call Registry. While the Do Not Call Registry’s submissions are not public 

facing, the educational materials and outreach are directed to everyday consumers 

and citizens, the same class of people who would most benefit from a demand letter 

registry. Moreover, the FTC could monitor submissions and, upon receiving a certain number involving a particular patent or patent holder, could begin an investigation under 15 U.S.C. § 45. Finally, and arguably most significantly, the FTC has 

experience defending consumer interests, unlike the Patent Office, whose sole relevant experience for the most part has been dealing with patent owners. 

The PTO, on the other hand, has valuable experience navigating and compiling 

information on the patent system. It keeps voluminous files on every patent—from 

application and through its lifecycle. Those databases are notoriously hard to navigate and are not user-friendly, however, which is something that should be considered. Simply put, the PTO is an agency that, for the majority of its life, has been 

tasked with growing the patent system. However, the PTO has recently shown aptitude and interest in making its site more user friendly and in reaching out to and 

working with third parties who are not necessarily patent applicants. 

Finally, the PTO (not unlike the FTC) could monitor submissions and chose to sua 

sponte reexamine certain patents. To my knowledge, the PTO has only done this 

once (for a method of swinging on a swing, of all things 2), yet there is no reason 

to believe it could not institute similar reexams in the future. 

Question 2. Another potential idea from the hearing was to require certain baseline disclosures in demand letters to provide recipients with more useful information 

and to help stem the large numbers of demand letters being sent. Do you believe 

such mandatory disclosure requirements would protect consumers and small businesses from the current harms inflicted on them by demand letters? Would mandatory disclosure requirements provide a more effective consumer protection solution 

than a registry? 

Answer. I believe certain mandatory disclosures would protect consumers and 

small businesses from the current harms inflicted by demand letters for many of 

the same reasons I believe a registry would help. First, such disclosures would provide valuable information to consumers and small businesses who need it to make 

informed decisions. Second, it would discourage the worst actors who use the guise 

of the patent system to extort funds from consumers. 

I believe that a combination of mandatory disclosures and a registry would be the 

most effective solution to the problem. That said, if I had to chose just one, I would 

have a slight preference for a demand letter registry. It is a longer-term solution, 

which would provide valuable information not just to consumers and small businesses, but to academics and policymakers and others who try to understand the 

scope of the problem. Also, if constructed properly, it provides a better safeguard 

against the actions taken by current letter senders to get around disclosure requirements. In short, the registry would impact all bad actors, the disclosure requirement 

would only impact the bad actors who don’t provide enough information. While this 

is an incredibly dangerous subset of letter senders, it is still only a subset. 

Question 2a. Please detail, specifically, the types of information that should be required in demand letters to achieve the goal of improved consumer protection. 

Answer. The types of information include: 

• Every party that has an ongoing financial interest in the patent(s) at issue. 

• The specific patent(s)—and claims of those patent(s)—at issue. 

• The products or services that allegedly infringe those claims. 

• Any obligations to license the patent(s) on reasonable terms. 

• Any current instances of reexaminations of the patent(s) at the PTO or any ongoing litigation surrounding the patent(s). 

71 

• If any of the above information is not included, the sender must include a statement explaining why it was not accessible, and what efforts it made to find that 

information. 

Question 3. We also discussed whether current law would allow effective implementation of the various policy proposals to protect consumers and small businesses 

from unfair or deceptive demand letters. Do you believe the FTC—under its existing 

Section 5 authority to prevent unfair and deceptive practice or any other statutory 

authority—has the ability to effectively carry out any of the proposed solutions that 

you have proposed or that were discussed at the hearing, such as establishing a demand-letter registry or including mandatory disclosure requirements? Please specify 

which potential solutions the FTC would or would not be able to implement. 

Answer. I believe the FTC, under its existing Section 5 authority, could target certain entities currently sending letters for unfair and deceptive practices. However, 

legislation would be helpful in defining certain practices—such as failure to include 

certain information in a demand letter—as per se deceptive or unfair. 

As to an FTC registry, legislation is likely necessary for its creation, not unlike 

15 U.S.C.A. § 6101, et al, which authorizes the Do Not Call registry. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. RICHARD BLUMENTHAL TO

JULIE P. SAMUELS

Question 1. Demand letters are often sent to people who will never see the inside 

of a courtroom. They will settle—often they will feel that they must settle—before 

a case is even filed. In your opinion, are the reforms being considered in pending 

legislation targeted at what happens during litigation adequate to fully address the 

problem with demand letters? 

Answer. Certain legislative proposals would help the demand letter problem, but 

those proposals contain provisions that are directed specifically at letter sending, 

not litigation. The more traditional litigation reforms that largely currently make 

up the Innovation Act (H.R. 3309) that is quickly moving through the House would 

help the demand letter problem insomuch as they would chill the so-called ‘‘troll 

business model.’’ So the short answer to the question of whether the pending litigation reforms would ‘‘fully address’’ the demand letter problem must be no. 

To be fair, other proposals, such as Sen. Leahy’s Patent Transparency and Improvement Act (S. 1720), do directly address the demand letter problem. For instance, that bill’s current Section 5, entitled Bad-Faith Demand Letters, would define certain practices (‘‘widespread’’ sending of letters that, for example, make false 

threats) as violations of existing Section 5. The Patent Transparency and Improvement Act also contains a so-called savings clause that explicitly says it is neither 

an expansion nor a reduction of its existing Section 5 authority. 

Question 1a. Are there additional reforms Congress should consider specifically 

targeted at the issue of demand letters? 

Answer. The reforms I believe Congress should consider that would specifically 

and successfully address the demand letter problem include: 

• Legislating the creation of demand letter registries at either the FTC or PTO 

(see answers above for details). 

• Mandating that certain information be included in demand letters, and when 

that information is not included the letter sender must detail why. 

• Defining certain practices as per se violations of existing FTC Section 5 authority, which would also have the added benefit of triggering state statutes already 

on the books in various states. 

Question 2. Congressional action specifying when the use of demand letters constitutes an unfair or deceptive act or practice could actually limit FTC authority by 

defining the standard against which the FTC must operate. In your opinion, would 

such Congressional action constitute an expansion or contraction of FTC authority? 

Answer. Such Congressional action could be done in a way to neither expand nor 

contract current FTC authority. Ideally, legislation could define certain practices as 

per se deceptive or unfair (some examples would be making false threats or purposely hiding information on who retains an interest in the patent(s) at issue). The 

legislation should explicitly not preclude the FTC from finding other unlisted practices as violating Section 5. 

Of course, by listing certain activities as per se deceptive or unfair, the legislation 

merely makes the FTC’s job a little easier by reducing the amount of elements it 

needs to prove in the most egregious cases. 

72 

Question 2a. Could Congressional action in this area give companies that are not 

engaged in wrongdoing greater certainty as to what does and what does not constitute unfair or deceptive conduct? Could this greater certainty actually facilitate 

licensing activity that is legal, reasonable, and appropriate? 

Answer. Congressional action could help shape and create public guidelines about 

practices that are and are not unfair and deceptive. At a minimum, it could delineate what is per se unfair and deceptive. Resulting FTC rulings, which we believe 

would be issued more quickly following legislation, would help create even additional certainty. 

To be certain, there is undoubtedly a place for legal, reasonable, and appropriate 

licensing activities. Not only could legislative action help define what that looks like, 

but it would also push the bad actors out of the market, leaving more space for 

those acting responsibly. 

Question 3. As a former Attorney General, I believe that the states have an important role to play in protecting consumers. Do you agree that states have a role to 

play in protecting consumers from abusive demand letters? 

Answer. Without a doubt. States like Nebraska, Minnesota, and Vermont have 

been leaders in the fight against abusive patent troll practices. 

Question 3a. Are there advantages to state enforcement in this area? 

Answer. States are closer to their own business communities and will be able to 

more quickly assess the entities that pose the greatest risk. The current economic 

climate also dictates that states are competing to be pro-business. One way to do 

this is to protect local businesses from threats posed by demand letter abuses. Congress should help incentivize states to continue this trend. 

Question 3b. Should Congress take action to allow states to protect their citizens? 

Answer. I believe Congress should take action that would allow states to protect 

their citizens. 

Question 3c. What kind of action would be helpful? 

Answer. First, as discussed above, Congress could define certain actions as per se 

unfair or deceptive. This act of defining alone would trigger statutes already on the 

books in many states. 

Second, Congress should make clear that any action it takes will not preempt the 

efforts of state Attorneys General to bring consumer protection actions based on patent demand letters. Moreover, Congress should confirm that states do indeed have 

the right to bring such actions. 

Third, Congress should clarify that sending unfair and deceptive patent infringement letters into a state satisfies the due process requirement for personal jurisdiction. 

Finally, the creation of a registry at FTC or PTO would also benefit the states 

who want to bring consumer protection actions. States would be able to investigate 

who is sending letters and to whom, making their job deciding which entities to 

focus on easier. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. CLAIRE MCCASKILL TO

LARY SINEWITZ

Question 1. At the hearing, we heard about several policy proposals that could 

help protect consumers and small businesses from harmful demand letters. One potential idea widely discussed was the establishment of a demand-letter registry— 

whether at the Federal Trade Commission (FTC) or at the U.S. Patent and Trademark Office (PTO)—that would increase transparency and facilitate better data on 

the problem’s extent. What protections for consumers and small businesses would 

such a registry provide that would address the current harms inflicted on them by 

demand letters? 

Answer. Most retailers do not have the resources to litigate a patent infringement 

lawsuit, let alone the legal fees to assess purposely vague, unfair, and deceptive demand letters. As such, Congress ought to provide the FTC with more statutory guidance on what, under its existing unfair and deceptive trade practices authority, 

should be in a demand letter to make them more transparent to the recipient. Consumers and small businesses would benefit greatly from such transparency because 

it will allow businesses to make more efficient, economical decisions as they investigate the claim. In conjunction with such a provision, an appropriately-scaled demand letter registry could assist small businesses and their counsel, along with public interest groups, in discerning and exposing patterns of demand letter abuse. 

Question 1a. Do you have an opinion about whether it would be more effective 

to house such a registry at the PTO or the FTC? Please explain why. 

73 

Answer. If, as requested above, Congress provides the FTC with more statutory 

guidance as to what should be in a demand letter, it might make sense to include 

such a registry at the FTC, as it might assist the FTC in discerning targets for enforcement. 

Question 2. Another potential idea from the hearing was to require certain baseline disclosures in demand letters to provide recipients with more useful information 

and to help stem the large numbers of demand letters being sent. Do you believe 

such mandatory disclosure requirements would protect consumers and small businesses from the current harms inflicted on them by demand letters? Would mandatory disclosure requirements provide a more effective consumer protection solution 

than a registry? 

Answer. Yes, as described above, disclosure requirements would provide more effective consumer protection than a registry. Disclosure in demand letters is a critical 

component to reform because it will allow businesses to make more efficient, economical decisions as they investigate the claim. They will also be able to spend less 

money on patent attorneys’ fees because the claim will be better laid out. 

Question 2a. Please detail, specifically, the types of information that should be required in demand letters to achieve the goal of improved consumer protection. 

Answer. At a minimum, disclosure should include: Requiring the letter to identify 

the owner of the patent, the specific patent alleged to be infringed, and the reasons 

for the good faith belief that the patent in being infringed. 

Question 3. We also discussed whether current law would allow effective implementation of the various policy proposals to protect consumers and small businesses 

from unfair or deceptive demand letters. Do you believe the FTC—under its existing 

Section 5 authority to prevent unfair and deceptive practice or any other statutory 

authority—has the ability to effectively carry out any of the proposed solutions that 

you have proposed or that were discussed at the hearing, such as establishing a demand-letter registry or including mandatory disclosure requirements? Please specify 

which potential solutions the FTC would or would not be able to implement. 

Answer. Yes, we believe the policy solution proposed above (i.e., giving the FTC 

additional guidance on demand letters) could be implemented by the FTC since it 

well comports with the FTC’s existing authority under Section 5. In fact, the FTC 

recently stated that it already has authority under Section 5 to pursue patent assertion entities for unfair methods of competition or false or deceptive acts or practices. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. RICHARD BLUMENTHAL TO

LARY SINEWITZ

Question 1. Demand letters are often sent to people who will never see the inside 

of a courtroom. They will settle—often they will feel that they must settle—before 

a case is even filed. In your opinion, are the reforms being considered in pending 

legislation targeted at what happens during litigation adequate to fully address the 

problem with demand letters? 

Answer. Most retailers do not have the resources to litigate a patent infringement 

lawsuit, let alone the legal fees to assess purposely vague, unfair, and deceptive demand letters. As such, in addition to litigation reforms (which we generally support), Congress also ought to focus on pre-litigation issues and provide the FTC with 

more statutory guidance on what, under its existing unfair and deceptive trade 

practices authority, should be in a demand letter to make them more transparent 

to the recipient. Consumers and small businesses would benefit greatly from such 

transparency because it will allow businesses to make more efficient, economical decisions as they investigate the claim. We would note that Section 5 (‘‘Bad Faith Demand Letters’’) of the Leahy-Lee ‘‘Patent Transparency and Improvement Act of 

2013’’ represents a very meaningful approach to the problem, and we look forward 

to working the Senate Commerce Committee on this issue. 

Question 1a. Are there additional reforms Congress should consider specifically 

targeted at the issue of demand letters? 

Answer. In conjunction with an FTC provision (discussed above), an appropriately-scaled demand letter registry (perhaps housed within FTC) could assist 

small businesses and their counsel, along with public interest groups, in discerning 

and exposing patterns of demand letter abuse. 

74 

1See Demand Letters and Consumer Protection: Examining Deceptive Practices By Patent Assertion Entities: Hearing Before the Subcomm. on Consumer Prot., Prod. Safety, and Ins. of the 

S. Comm. on Commerce, Sci. and Transp,, 113th Cong. 67 (Nov. 7, 2013) (statement of Adam 

Mossoff, Professor of Law, George Mason University School of Law) p. 3–5, http://www 

.commerce.senate.gov/public/?a=Files.Serve&Filelid=c5cc328a-af61–4f12-bea7-e2ae6fb42ce3 2GOVERNMENT ACCOUNTABILITY OFFICE, INTELLECTUAL PROPERTY: ASSESSING FACTORS THAT

AFFECT PATENT INFRINGEMENT LITIGATION COULD HELP IMPROVE PATENT QUALITY 26 (Aug. 

2013), http://www.gao.gov/assets/660/657103.pdf. 3 Richard Maulsby, President Obama Signs the America Invents Act, INVENTORS EYE, vol. 2, 

issue 5 (Oct. 2011), http://www.uspto.gov/inventors/independent/eye/201110/americainvents 

act.jsp. 4MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007). 5See Mossoff, The Rise and Fall of the First American Patent Thicket: The Sewing Machine 

War of the 1850s, 53 ARIZ. L. REV. 165, 187–189 (2011). 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. RICHARD BLUMENTHAL TO

ADAM MOSSOFF

Question 1. Demand letters are often sent to people who will never see the inside 

of a courtroom. They will settle—often they will feel that they must settle—before 

a case is even filed. In your opinion, are the reforms being considered in pending 

legislation targeted at what happens during litigation adequate to fully address the 

problem with demand letters? 

Answer. As a preliminary matter, it is important to recognize that there are no 

reliable, scientifically valid studies that have definitively proven that there is in fact 

a systemic problem with demand letters requiring legislation making systemic 

changes to how all patent-owners license their property or assert their property 

against infringers. The policy debates thus far are defined almost entirely by nonobjective rhetoric, such as the term, ‘‘patent troll,’’ 1 and what the Government Accountability Office has described as ‘‘nonrandom and nongeneralizable’’ studies, 

which means that the studies done thus far are unscientific and unreliable.2 Thus, 

there is no definitive proof yet that there is a widespread, systemic problem with 

the issuance of demand letters, as opposed to merely a few bad actors who are requesting royalties for potentially bad-quality patents. 

In fact, the real concern about the demands for royalties or even threats of lawsuits is that many people believe that the patents are invalid. In other words, the 

policy concern that needs to be addressed is the validity of the underlying property 

right, as an owner of a valid patent has every right to demand licenses from unauthorized users and to seek relief in court against recalcitrant infringers. For this 

reason, the pending legislation that proposes significant changes to litigation practices still does not address the real policy concern—the validity of the underlying 

property right—and instead imposes substantial legal burdens and additional costs 

on legitimate owners of valid patents. 

In recognizing that the real policy concern that animates the many complaints 

about demand letters is the invalidity of the underlying patents, one can then focus 

on the proper legal tools that are necessary to address this entirely valid and legitimate concern. In fact, the concern about bad actors improperly using bad patents 

to squelch legitimate commercial activity in the marketplace is not new; Congress, 

the courts and the U.S. Patent & Trademark Office (PTO) long ago created many 

legal tools, and even more exist today, for challenging and weeding out these bad 

patents. Even more important, the America Invents Act of 2011 (AIA), a product of 

a six-year policy debate and rightly recognized as ‘‘the most significant reform of the 

U.S. patent system since 1836,’’ 3 vastly expanded these tools as well. 

Consider two longstanding examples of such legal tools (among the many that 

exist). First, potential defendants have long had the right to sue patent owners in 

Federal court to invalidate patents that might be asserted against them in a future 

lawsuit. It is a special type of lawsuit called a declaratory judgment action. The Supreme Court recently liberalized the rules for when someone can bring a declaratory 

judgment action in its 2007 decision in Medimmune v. Genentech,4making it even 

easier for retailers or consumers to initiate proceedings against patent owners when 

they receive improper demand letters. Second, defendants or potential defendants 

have long had access to the PTO to challenge improperly issued patents. In 1850, 

for instance, Isaac Singer instigated a lengthy proceeding at the Patent Office in attempting to invalidate Elias Howe’s patent on the lockstitch following Howe’s demand that Singer pay him royalties, and defendants in all of Howe’s lawsuits repeatedly argued (and reargued) in Federal court that Howe’s patent was invalid as 

well.5

Today, such legal mechanisms continue to exist in the PTO and in the courts, 

which serve as a check on both bad actors and bad patents. Such legal tools necessarily affect the calculus of individual patent owners who are bluffing in demand 

75 

6See Committee on the Rules of Practice and Procedure of the Judicial Conference of the 

United States, Preliminary Draft of Proposed Amendments to the Federal Rules of Bankruptcy 

and Civil Procedure (Aug. 2013), available at http://www.uscourts.gov/uscourts/rules/preliminary-draft-proposed-amendments.pdf; see also Honorable Katherine O’Malley, Key Note Speech 

at Intellectual Property Owners Association Annual Meeting (Sep. 17, 2013), p. 9, available at 

http://www.ipo.org/wp-content/uploads/2013/02/IPO-Annual-Meeting-Keynote-Speech-09–17– 

13.pdf (discussing this process). 7See Octane Fitness, LLC v. Icon Health & Fitness, Inc., No. 12–1184, 2013 WL 1283843 (U.S. 

Oct. 01, 2013); Highmark Inc. v. Allcare Health Mgmt. Sys., No. 12–1163, 2013 WL 1217353 

(U.S. Oct. 01, 2013). 8See generally Innovation Act of 2013: Hearing on H.R. 3309 Before the Comm. on the Judiciary, 113th Cong. l (Oct. 29, 2013) (statement of David J. Kappos, Partner, Cravath, Swaine 

& Moore LLP), available at http://judiciary.house.gov/hearings/113th/10292013/Kappos%20 

Testimony.pdf. 9On behalf of individual women lacking the funds to pay for expensive DNA testing (and thus 

lacking the funds to bring a lawsuit), the Public Patent Foundation brought the challenge to 

the patents on the BRAC1 and BRAC2 genes, which correlated with breast cancer. The Public 

Patent Foundation ultimately won before the Supreme Court. See AMP v. Myriad Genetics, 133 

S. Ct. 1747 (2013). 10See Law Schools Join App Developers Alliance to Fight Patent Trolls (Oct. 10, 2013), available at http://www.ipwatchdog.com/2013/10/15/law-schools-join-app-developers-alliance-tofight-patent-trolls/. 11See EFF Files Challenge With Patent Office Against Troll’s Podcasting Patent: Massive 

Crowdsourcing Effort Leads to Strong Petition Before the USPTO (Oct. 16, 2013), available at 

https://www.eff.org/press/releases/eff-files-challenge-patent-office-against-trolls-podcasting-patent. 12See Demand Letters and Consumer Protection: Examining Deceptive Practices By Patent Assertion Entities: Hearing Before the Subcomm. on Consumer Prot., Prod. Safety, and Ins. of the 

S. Comm. on Commerce, Sci. and Transp, 113th Cong. l (Nov. 7, 2013) (statement of Julie 

Samuels, Senior Staff Attorney, EFF) p. 67 of draft transcript of hearing. 13See https://supporters.eff.org/donate/save-podcasting (‘‘Wow. In under 10 hours, you met 

and exceeded our funding goal to bust the bogus, overbroad patent being used to threaten 

podcasters!’’). 14 Id. (stating that the funding goal was $30,000). 

letters, because those bluffs may called and courts will make it harder to bring the 

actual lawsuits and will punish bad-faith assertions. Thus, in the courts, the Judicial Conference’s Committee on Rules of Practice and Procedure has officially published proposed revisions to the pleading requirements in patent lawsuits, one of the 

sources of the much maligned minimal notice requirements in patent infringement 

complaints.6 Additionally, the Supreme Court recently granted cert in two cases 

that will likely result in liberalizing the rules on the issuance of sanctions in patent 

cases.7

Even more important, at the PTO, the many new, AIA-created review proceedings 

for eliminating improperly issued patents are just beginning to be implemented and 

to produce results.8

And for those who lack the knowledge or wherewithal to navigate these PTO or 

court processes, assistance is now provided by many law firms and policy organizations, such as Public Patent Foundation, Electronic Frontier Foundation (EFF), the 

Berkman Center for Internet and Society, and others.9 For instance, the App Developers Alliance has created the ‘‘Law School Patent Troll Defense Network,’’ which 

involves law school clinics providing legal services to individuals or small businesses 

receiving demand letters or complaints.10 Moreover, EFF recently announced that 

it joined with the Berkman Center in filing an inter partes review at the PTO of 

the notorious ‘‘podcasting patent,’’ which has been the subject of thousands of demands letters being sent to individuals, small companies, and large companies.11

In a world in which Internet searches easily and effortlessly produce such information, it is hard to maintain that recipients of demand letters lack the resources 

and capabilities to respond effectively. The Internet also makes it easier for law 

firms and organizations to provide this assistance. During the November 7 hearing, 

for instance, Julie Samuels of EFF stated that filing the inter partes review proceeding at the PTO against the podcasting patent cost ‘‘$30,000 in fees’’ and that 

it was ‘‘incredibly resource intensive,’’ 12 but she failed to mention that EFF raised 

over $77,000 in just 10 hours in its fundraising campaign on the Internet.13 It bears 

emphasizing the significance of this fact: EFF raised in less than one-half day more 

than double the $30,000 it needed to file an inter partes review of one of the patents 

underlying many improper demand letters being sent to consumers and retailers— 

the podcasting patent.14 This certainly proves that there are existing resources and 

legal tools to address the very problems with improper patents about which EFF 

and others are complaining. 

It is against this backdrop that Congress must assess any proposals to intervene 

via legislation or regulation in patent licensing and patent litigation practices. First, 

76 

15GOVERNMENT ACCOUNTABILITY OFFICE, supra note 2, at 26. 16Kappos, supra note 8, at 2. 17 Id. 

there is too much rhetoric and too many ‘‘nonrandom and nongeneralizable’’ studies 

in the policy debates,15 and too little actual evidence definitively establishing that 

more revisions to the patent system are needed. Second, while there are certainly 

bad actors, there are a number of existing legal mechanisms at the PTO and in the 

courts to address them, especially after the enactment of the AIA just two years ago. 

Third, and certainly not least, there is too little regard for the serious costs that 

legislative and regulatory overreach imposes on the individuals and businesses who 

create the real-world innovative products and services that have become basic commodities of modern life. 

Question 1a. Are there additional reforms Congress should consider specifically 

targeted at the issue of demand letters? 

Answer. As discussed above, the real policy concern is the quality and validity of 

the patents underlying the offers of licenses or threats of litigation being sent to retailers and consumers. Congress should consider reforms that will address this legitimate policy concern by securing full funding of the PTO to ensure complete and 

timely examination of patent applications. Full funding of the PTO will also ensure 

proper implementation of the many new administrative review programs created by 

the AIA to weed out invalid and vague patents that clog the innovation economy. 

As former PTO Director David Kappos recently remarked in testimony before the 

House Judiciary Committee, the U.S. patent system is ‘‘the greatest innovation engine the world has ever known.’’ 16 He rightly cautioned that Congress should exercise restraint and be cautious in accidentally killing ‘‘the goose laying our golden 

egg.’’ 17 Thus, Congress should ensure that the PTO and the courts have the financial resources to deploy the preexisting tools specifically directed at any low-quality 

patents, as these are the real scourge of innovation and economic growth. 

Æ