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88–080 2014

THE IMPACT OF PATENT ASSERTION ENTITIES 

ON INNOVATION AND THE ECONOMY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

NOVEMBER 14, 2013 

Serial No. 113–96 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

(II) 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

RALPH M. HALL, Texas 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Missouri 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

BEN RAY LUJAN, New Mexico 

PAUL TONKO, New York 

JOHN A. YARMUTH, Kentucky 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

TIM MURPHY, Pennsylvania 

Chairman 

MICHAEL C. BURGESS, Texas 

Vice Chairman 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

GREGG HARPER, Mississippi 

PETE OLSON, Texas 

CORY GARDNER, Colorado 

H. MORGAN GRIFFITH, Virginia 

BILL JOHNSON, Ohio 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

DIANA DEGETTE, Colorado 

Ranking Member 

BRUCE L. BRALEY, Iowa 

BEN RAY LUJAN, New Mexico 

JANICE D. SCHAKOWSKY, Illinois 

G.K. BUTTERFIELD, North Carolina 

KATHY CASTOR, Florida 

PETER WELCH, Vermont 

PAUL TONKO, New York 

JOHN A. YARMUTH, Kentucky 

GENE GREEN, Texas 

JOHN D. DINGELL, Michigan 

HENRY A. WAXMAN, California (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Tim Murphy, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 1 

Prepared statement .......................................................................................... 3 

Hon. Diana DeGette, a Representative in Congress from the state of Colorado, 

opening statement ................................................................................................ 4 

Hon. Peter Welch, a Representative in Congress from the State of Vermont, 

opening statement ................................................................................................ 5 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

prepared statement .............................................................................................. 84 

Hon. G.K. Butterfield, a Representative in Congress from the State of North 

Carolina, prepared statement ............................................................................. 85 

WITNESSES

Robin Feldman, Director, Institute for Innovation Law, University of California Hastings College of the Law .................................................................... 7 

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

Answers to submitted questions ...................................................................... 89 

Charles Duan, Director, Patent Reform Project, Public Knowledge; Lee Cheng, 

Chief Legal Officer, Newegg, Inc. ....................................................................... 13 

Prepared statement .......................................................................................... 15 

Answers to submitted questions ...................................................................... 91 

Lee Cheng, Chief Legal Officer, Newegg, Inc.; ...................................................... 29 

Prepared statement .......................................................................................... 31 

Answers to submitted questions ...................................................................... 10 

Daniel Seigle, Director, Business Operations, Findthebest.com .......................... 35 

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

Answers to submitted questions ...................................................................... 102 

Justin Bragiel, General Counsel, Texas Hotel & Lodging Association ............... 56 

Prepared statement .......................................................................................... 58 

Jamie Richardson, Vice President, Government and Shareholder Relations, 

White Castle System, Inc. ................................................................................... 60 

Prepared statement .......................................................................................... 62 

SUBMITTED MATERIAL

Majority memorandum ............................................................................................ 86 

(1) 

THE IMPACT OF PATENT ASSERTION ENTITIES ON INNOVATION AND THE ECONOMY 

THURSDAY, NOVEMBER 14, 2013 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 2:00 p.m., in room 

2123 of the Rayburn House Office Building, Hon. Tim Murphy 

(chairman of the subcommittee) presiding. 

Members present: Representatives Murphy, Burgess, Blackburn, 

Scalise, Harper, Griffith, Johnson, DeGette, Lujan, Welch, and 

Tonko. 

Staff present: Carl Anderson, Counsel, Oversight; Charlotte 

Baker, Press Secretary; Sean Bonyun, Communications Director; 

Matt Bravo, Professional Staff Member; Karen Christian, Chief 

Counsel, Oversight; Brad Grantz, Policy Coordinator, Oversight 

and Investigations; Brittany Havens, Legislative Clerk; Gib 

Mullan, Chief Counsel, Commerce, Manufacturing, and Trade; 

John Stone, Counsel, Oversight; Tom Wilbur, Digital Media Advisor; Brian Cohen, Democratic Staff Director, Oversight and Investigations; and Kiren Gopal, Democratic Counsel. 

OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA 

Mr. MURPHY. Well, good afternoon. We convene this hearing of 

the subcommittee on Oversight and Investigations to gain a better 

understanding of the impact that abusive patent assertion practices are having on businesses, jobs, and the economy. 

Back in August of 1787 when James Madison was drafting the 

Constitution, he and Charles Pinckney offered amendments dealing 

with copyrights and premiums for the advancement of useful 

knowledge and discoveries. In September of 1787, the wording included in the Constitution in Article I, Section A, Clause A, discussed the powers to secure for unlimited times to inventors the exclusive rights to their discoveries. This is the basis of U.S. patent 

law, and patents and trademarks are covered in the Commerce 

Clause which makes this issue a defined jurisdiction of the Energy 

and Commerce Committee. 

Now, let me state at the outset that a strong and fair patent system is essential to an innovative marketplace. Inventors and companies should be encouraged to research and develop ideas, technologies, and products and be rewarded for their risk and investVerDate Nov 24 2008 09:16 Sep 02, 2014 Jkt 037690 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-96 CHRIS
2 

ment. In addition, I fully recognize that patent rights are only as 

valuable as the holder’s ability to enforce them. 

The intent of today’s hearing is not to assess the current state 

of our Nation’s patent system or to opine on the various legislative 

proposals that have recently been introduced or discussed in this 

area, nor is this hearing intended to be a comprehensive look at all 

the patent assertion activity that occurs in advance of litigation. 

This is about gathering facts about the nature and scope of this 

problem. Our purpose in holding this hearing is to learn more 

about a number of questionable practices that have recently proliferated and the significant direct and indirect costs they have imposed on businesses, large and small. 

Specifically, most of the witnesses testifying today are representatives of companies from different industries who have received letters from various entities demanding licensing fees or threatening 

litigation over the purported use of patented technologies or products. Frequently, they are little more than form letters blasted off 

to hundreds or even thousands of recipients with the hope that 

some of them will quickly cave in order to avoid the prospect of expensive litigation. It has been estimated that the average patent 

trial can last over a year and cost upwards of $6 million. This is 

simply not a viable course of action for a small business, and unfortunately, this makes them attractive targets. 

We will hear today about some of the more egregious types of demand letters and whether they even contain sufficient information 

to allow for an informed response. Most importantly, we will hear 

about how responding to such demanding letters impacts a 

business’s ability to attract new capital, utilize new technologies, 

hire new workers and ultimately grow their company and our overall economy. One recent study from researchers at Boston University calculated that patent assertion activity directly cost defendants and licensees $29 billion in 2011. This figure represents a 400 

percent increase since 2005 and does not even include the indirect 

costs to businesses such as diversion of resources, delays in new 

products, and loss of market share. 

A number of other studies on patent assertion, entitled PAEs, 

have recently been conducted. We will hear from a number of individuals with significant experience in this area about how such 

practices have evolved, whether more egregious tactics are currently being employed and, if so, what can be done to stop them 

without weakening legitimate intellectual property rights, enforcement activities, and pre-litigation communications. 

Further, the Federal Trade Commission announced in September 

that it will be conducting a formal inquiry examining the business 

practices of patent assertion entities in order to expand the empirical picture on the costs and benefits of PAE activity. We look forward to reviewing the results of this inquiry and in the meantime 

will continue to further our understanding of such practices. As always, we will follow the facts so that our oversight can inform any 

solutions that may be proposed to address the underlying problems 

relating to abusive demand letters and related practices. Today is 

a first step in that process. I look forward to hearing the examples 

and perspectives provided by our witnesses, and I look forward to 

hearing from those who may disagree with them in the near future. 

3 

I fully anticipate that we can work together on a bipartisan basis 

on these issues going forward. 

[The prepared statement of Mr. Murphy follows:] 

PREPARED STATEMENT OF HON. TIM MURPHY

We convene this hearing of the Subcommittee on Oversight and Investigations to 

gain a better understanding of the impact abusive patent assertion practices are 

having on businesses, jobs, and the economy. 

Let me state at the outset that a strong and fair patent system is essential to 

an innovative marketplace. Inventors and companies should be encouraged to research and develop ideas, technologies, and products and be rewarded for their risk 

and investment. In addition, I fully recognize that patent rights are only as valuable 

as their holder’s ability to enforce them. 

The intent of today’s hearing is not to assess the current state of our nation’s patent system or to opine on the various legislative proposals that have recently been 

introduced or discussed in this area. Nor is this hearing intended to be a comprehensive look at all patent assertion activity that occurs in advance of litigation. 

This is about gathering facts about the nature and scope of this problem. Our purpose in holding this hearing is to learn more about a number of questionable practices that have recently proliferated and the significant direct and indirect costs 

they have imposed on businesses, large and small. 

Specifically, most of the witnesses testifying today are representatives of companies from different industries who have received letters from various entities demanding licensing fees or threatening litigation over the purported use of patented 

technologies or products. Frequently, they are little more than form letters blasted 

off to hundreds or even thousands of recipients with the hope that some of them 

will quickly cave in order to avoid the prospect of expensive litigation. It has been 

estimated that the average patent trial can last over a year and cost upwards of 

six million dollars. This is simply not a viable course of action for a small business. 

Unfortunately, this makes them attractive targets. 

We will hear today about some of the more egregious types of demand letters and 

whether they even contain sufficient information to allow for an informed response. 

Most importantly, we will hear about how responding to such demand letters impacts a business’s ability to attract new capital, utilize new technologies, hire new 

workers, and ultimately grow their company and our overall economy. One recent 

study from researchers at Boston University calculated that patent assertion activity directly cost defendants and licensees $29 billion in 2011. This figure represents 

a 400% increase since 2005 and does not even include the indirect costs to businesses such as diversion of resources, delays in new products, and loss of market 

share. 

A number of other studies on patent assertion entities have recently been conducted. We will hear from a number of individuals with significant experience in 

this area about how such practices have evolved, whether more egregious tactics are 

currently being employed and, if so, what can be done to stop them without weakening legitimate intellectual property rights, enforcement activities, or pre-litigation 

communications. 

Further, the Federal Trade Commission announced in September that it will be 

conducting a formal inquiry examining the business practices of patent assertion entities in order to ‘‘expand the empirical picture on the costs and benefits of PAE activity.’’ We look forward to reviewing the results of this inquiry and in the meantime 

will continue to further our understanding of such practices. As always, we will follow the facts so that our oversight can inform any solutions that may be proposed 

to address the underlying problems relating to abusive demand letters and related 

practices. Today is a first step in that process. I look forward to hearing the examples and perspectives provided by our witnesses and I look forward to hearing from 

those who may disagree with them in the near future. I fully anticipate that we can 

work together on a bipartisan basis on these issues going forward. 

# # # 

Mr. MURPHY. With that I recognize the Ranking Member of the 

Subcommittee, Diana DeGette, for an opening statement, and I 

know she has a high level of interest in this issue. 

4 

OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF COLORADO 

Ms. DEGETTE. Thank you very much, Mr. Chairman, and I do believe we can work together in a bipartisan basis on this because 

it is a real concern, and it is a concern that has been increasing 

a lot. Several people have bills that they are planning to introduce, 

and I think this would give us some good facts as we look toward 

writing legislation. 

In the past few years, a number of companies have emerged and 

their sole business model is to assert overly broad patent rights 

and use the threat of litigation to extort settlements. This is an 

abuse of the patent process which, as the Chairman accurately 

said, is a very important process, but recently we have seen the 

abuses getting worse and worse as these actors are targeting not 

just large corporations but also small businesses who are just using 

everyday technology like office scanners or wireless routers. The 

small businesses, nonprofits, and startups using these technologies 

lack the expertise and resources to litigate the questionable infringement claims, and frankly they are being singled out because 

they cannot afford to defend themselves. And so what they end up 

doing is paying money so they can return to focusing on their business. 

Now, clearly, this is not acceptable. It is extortion, plain and simple, and it results in significant harm to inventors, small businesses, and start-ups. It costs the economy over $80 billion a year. 

And you know, I agree, the U.S. patent system is an incredible tool 

for innovation and economic growth. In theory, legitimate patent 

assertion entities could protect small inventors by enforcing their 

rights if in fact those rights are legitimate against more powerful 

companies. But in practice some of these firms transfer only a 

small amount of settlements or funds back to technology, inventers 

and producers. They have purchased these patents or acquired 

them in some way, and then they are asserting their rights over 

people who cannot afford to defend themselves. And that is why we 

have the name patent troll because of these predatory tactics. 

One notorious patent troll, Inevado, sent over 13,000 demand letters to users of Wi-fi routers. Small businesses have received intimidating and harassing letters demanding costly settlements or 

licensing fees. Too many of these Mom-and-Pop establishments pay 

hefty settlement fees just to avoid protracted, multi-million dollar 

patent litigation. 

Last week Nebraska’s Attorney General testified in the Senate 

about an elderly gentleman, Mr. Eldon Steinbrink, who received a 

demand letter from MPHJ Technologies alleging infringing use of 

a scan-to-email patent through his work for Phelps County Emergency Management. Well, in fact, Mr. Steinbrink never worked for 

the county. He once served on the county board many years ago, 

and now he lives in a nursing home. Patent tolls like MPHJ fail 

to do even basic due diligence about their targets, and I think that 

is because frankly they just do not care. They hope somebody will 

pay the money. 

So I think it is important that we find the right balance with 

patents, but I think we can all agree that these end users should 

5 

not be targeted at all by patent tolls and the abusive and harassing 

practices have got to stop. 

And so, I think there is a lot we can do. The demand letter 

should be transparent. They should contain meaningful information. My colleague, Jared Polis, is looking at legislation that has 

more registration of people who are sending these letters out. 

There is a lot going on, and I think because of this Committee’s 

history of protecting consumers and small businesses, this is the 

perfect place. 

So I want to thank our witnesses. This is going to be a good 

hearing. 

Ms. DEGETTE. And I want to yield my last minute to Mr. Welch 

if he would like to have it. Oh, do you want 5 minutes? 

Mr. WELCH. Yes, that is good. 

Ms. DEGETTE. Then I will yield back and he will just take our 

other 5 minutes. 

Mr. WELCH. Thank you. 

Mr. MURPHY. I do not think we have anybody else on our side 

with an opening statement and you are recognized. We are going 

to have votes soon if you want to—— 

Ms. DEGETTE. Go ahead. 

Mr. MURPHY [continuing]. Take the next one. 

Mr. WELCH. Well, just to—— 

Mr. MURPHY. Recognized. 

OPENING STATEMENT OF HON. PETER WELCH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VERMONT 

Mr. WELCH. I do appreciate it, just a minute, Mr. Chairman. I 

appreciate the hearing. This is an unbelievable rip-off, obviously, 

and it is incredibly detrimental to large businesses and to small 

non-profits. And my concern is because in Vermont, we have just 

been getting hammered. MyWebGrocer, which is a start-up company doing really well, has 180 employers, they have had six patent troll attacks, and it has resulted in that company not being 

able to hire eight to ten people. 

Then at the other end we have got a small non-profit where they 

provide help for disabled kids, and it is a hand-to-mouth operation. 

They are raising money from folks in the local community doing 

work that is incredibly important to those kids and to the parents. 

They got attacked by patent trolls. They are in no position to do 

it. They opened up the mail, and it is a demand letter, all formal, 

all threatening, all you are going to—this is the end of the world. 

And it creates enormous emotional anxiety as well as financial 

peril. And it is such a small community in Vermont where it is not 

just the big business and the small business. There is a real ripple 

effect in the community that the Attorney General in the State has 

taken the lead in bringing the first-in-the-Nation lawsuit against 

the patent troll, MPHJ Technologies based on our consumer protection laws. And the State itself, under Governor Shumlin, has 

passed a bill that makes it a civil offense if there are bad-faith assertions of patent infringement and allows victims to see actual 

and punitive damages. 

So we are trying to act as a state, but this clearly is something 

that requires national attention. So I am so grateful to each of you 

6 

to be here today to help the Congress get focused, and you have 

got a bipartisan buy-in here in the halls of Congress. So we have 

got a chance to break the mold and actually get something that 

needs to be done, done. And with your help, we will succeed. Thank 

you. I yield back. 

Mr. MURPHY. The gentleman yields back. Just for the members 

here, we know we are going to have votes probably about 20 of or 

a quarter of the hour. So we believe during that time between now 

and then we can get through all of your testimony and then try 

and start some questions. Immediately after votes we will reconvene and be able to continue on with other questions. 

So I would now like to introduce the witnesses for today’s hearing, quite a distinguished panel. Our first witness is Robin Feldman, the Director of the Institute for Innovation Law at the University of California Hastings College of Law. She has written extensively on patent assertion practices and how they have changed 

over time. 

Our second witness is Charles Duan. He is the Director of the 

Patent Reform Project of Public Knowledge. Public Knowledge is 

dedicated to promoting technological innovation, protecting the 

rights of all users in technology and ensuring technology law serves 

the public interest. 

Our third witness is Lee Cheng. He is the Chief Legal Officer at 

Newegg, Inc. Newegg is a global internet retailer that is the largest 

privately held e-commerce company in North America. 

Our fourth witness is Daniel Seigle. He is the cofounder and Director of Business Operations at FindTheBest.com. FindTheBest is 

an online research engine that equips people with information and 

tools to make informed consumer decisions. I felt like I just did a 

commercial there. 

Ms. DEGETTE. You did. 

Mr. MURPHY. And act now and you get one more free. Next we 

have Justin Bragiel. He is a General Counsel for the Texas Hotel 

& Lodging Association. He manages and oversees the legal program servicing over 2,500 Association members. He serves as the 

primary legal counsel to over ten local lodging associations across 

Texas. 

Our last witness is Jamie Richardson. He is the Vice President 

of Government and Shareholder Relations for White Castle Restaurants. 

I will now swear in the witnesses. Now, you are all aware that 

the Committee is holding an investigative hearing, and when doing 

so has a practice of taking testimony under oath. Do you have any 

objections to testifying under oath? None of the witnesses have objected to that. So the Chair then advises you that under the Rules 

of the House and the Rules of the Committee, you are entitled to 

be advised by counsel. Do any of you desire to be advised by counsel during your testimony today? None of the witnesses have said 

they wanted to be advised by counsel. In that case, if you all please 

rise and raise your right hand, I will swear you in. 

[Witnesses sworn.] 

Mr. MURPHY. All right. Thank you. All answered in the affirmative. You are now under oath and subject to the penalties set forth 

in Title 18 Section 1001 of the United States Code. You will now 

7 

begin a 5-minute summary of your written statement beginning 

with Ms. Feldman. Welcome. You have 5 minutes. 

TESTIMONY OF ROBIN FELDMAN, DIRECTOR, INSTITUTE FOR 

INNOVATION LAW, UNIVERSITY OF CALIFORNIA HASTINGS 

COLLEGE OF THE LAW; CHARLES DUAN, DIRECTOR, PATENT 

REFORM PROJECT, PUBLIC KNOWLEDGE; LEE CHENG, 

CHIEF LEGAL OFFICER, NEWEGG, INC.; DANIEL SEIGLE, DIRECTOR, BUSINESS OPERATIONS, FINDTHEBEST.COM; JUSTIN BRAGIEL, GENERAL COUNSEL, TEXAS HOTEL & LODGING ASSOCIATION; AND JAMIE RICHARDSON, VICE PRESIDENT, GOVERNMENT AND SHAREHOLDER RELATIONS, 

WHITE CASTLE SYSTEM, INC. 

TESTIMONY OF ROBIN FELDMAN 

Ms. FELDMAN. Mr. Chairman and esteemed members of the committee, I am honored to be here today. As an academic, I have 

studied patent assertion behavior both in the litigation context, and 

in the pre-litigation context. 

And in recent years, a new business model of patent demands 

has exploded on the scene. It preys on people’s fears of the costs 

and risks of litigation, and it takes place largely outside the courthouse with no judge, jury or regulator in sight. Much of the time, 

it is shrouded in nondisclosure agreements, so no one is allowed to 

talk afterwards. 

The behavior is based on the following. There are millions of patents outstanding, and it is very difficult to know what any patent 

covers. It will cost about $1 million to $6 million dollars in litigation expenses to find out. And if you take the litigation route, there 

is a risk. If you lose, you could be subject to massive penalties for 

damages and you could also have your product shut down. 

So with that leverage, here is a sample of some of the modern 

techniques that have appeared. The first is what one could call the 

peddler’s bag. Suppose you are a computer manufacturer, and I 

claim that your manufacturing process infringes my gumball patent. Now, you may think that is pretty far-fetched. But suppose 

that I threaten to throw 50 more patents at you as well. You may 

be tempted to fight off the first, you may not have the stomach or 

the litigation budget to fight off all 50 of them. The cost of investigating 50 patents is substantial, also the risks of litigation. 

Maybe not the gumball patent but maybe something in there will 

stick. So perhaps it is better just to pay a license fee. 

Another behavior is what I call the assault rifle technique. With 

this approach, patent assertion entities target a vast number of 

people, hoping to obtain moderate settlement amounts from as 

many of them as possible. For example, patent assertion entities 

have targeted small businesses for using scanner equipment they 

have purchased and coffee shops for using Wi-fi equipment. Those 

who receive the letters know nothing about the patents that are involved and have no idea how to respond to these demands. 

Still another behavior is known as privateering. If I am a product 

company and I launch my products against a competitor, ordinarily 

that competitor will launch its products back at me and put my 

products at risk. So I might not bother. But in this new world of 

8 

*The full testimony has been retained in committee files and is also available at http:// 

docs.house.gov/meetings/if/if02/20131114/101483/hhrg-113-if02-wstate-feldmanr20131114.pdf. 

entities that don’t make any products, I have many options. I can 

transfer some of my patents to an assertion entity that could target 

my competitors. I could even structure the transfer so that I share 

in the returns. In that way, I damage my rivals, get a return on 

some of my patents, and my hands are clean. 

These three are samples of the techniques that are being utilized, and as with many pressure sales techniques, the demand letters may say things like the settlement cost will go up if you consult a lawyer, if you ask for more information, if you wait until a 

lawsuit is filed or if you wait until others accept the offer. Some 

demand letters require that the company sign a broad nondisclosure agreement even to get basic information. 

This leads me to one of the many troubling aspects of this behavior which is that much of it is shrouded in nondisclosure agreements and hidden behind layers of shell companies. This makes it 

very difficult for regulators to see bad behavior when it is occurring. It is also difficult to hold anyone accountable because the 

shells may have no meaningful assets at the end of the day. 

Now, the impact of these patent demands on companies large 

and small is troubling. A recent study of mine showed that one in 

three startup companies has received patent demands and that 

most of these demands are coming from assertion entities that 

don’t make any products. Other scholars have estimated that very 

little of the vast amount of money changing hands ever gets back 

to the inventors who actually filed for the patents. And really, it 

does not take fancy economics to know that time spent analyzing 

patent demands is time away from innovating, and money spent on 

patent demands is money not spent hiring workers. 

In closing, I do want to stress one important issue. Patents are 

essential for innovation in this country, and patent rights are useless if they cannot be enforced. I am not talking about the legitimate protection of an invention. I am talking about shadow games 

that prey on people’s fears and that exploit the system. 

I have submitted several pieces of my research as my full testimony for the record, and I look forward to answering any questions. Thank you. *

[The prepared statement of Ms. Feldman follows:] 

9 


88080.001
10 


88080.002
11 


88080.003
12 


88080.004
13 

Mr. MURPHY. Thank you for staying both under the time limit. 

I am impressed you have memorized most of your document. 

Thank you so much. 

Mr. Duan, you are recognized for 5 minutes. 

TESTIMONY OF CHARLES DUAN 

Mr. DUAN. Thank you, Chairman. Mr. Chairman Murphy—sorry, 

is this on? Yes. Mr. Chairman Murphy, Ranking Member DeGette, 

and members of the subcommittee, thank you for inviting me to 

testify today on this important issue. My name is Charles Duan, 

and I am the Director of the Patent Reform Project at Public 

Knowledge. 

As a bit of background, Public Knowledge is a nonprofit organization dedicated to ensuring that technology law serves the public interest. Prior to working at Public Knowledge, I served as a patent 

attorney where I both obtained patents and defended against demand letters. I also worked as a Silicon Valley software developer, 

and these experiences along with my conversations with various 

stakeholders inform my views on the patent system. 

We are here today to discuss the role of patents in our innovation 

economy, and it is worth beginning from the beginning, I think. 

The principle behind the patent system is an exchange. Patents are 

granted to encourage inventors to contribute their inventions to the 

public. Our patent system ultimately must serve the public interest, and in many areas of our patent system, it does indeed work 

this way. But far too often scheming speculators and clever lawyers 

find ways to abuse patents and profit off of the system while detracting from the social good. 

The most egregious among these abusers include patent assertion entities and so-called patent trolls. Instead of innovating and 

creating jobs for Americans, patent trolls manipulate the small 

businesses and individuals who actually innovate and create these 

jobs extorting unjustified fees through nuisance threats of litigation. 

One of the ways they succeed in doing so is through the sending 

of demand letters. These letters assert that the recipient infringes 

a patent and then demand a settlement or a license fee. Abusive 

demand letters exploit at least two problematic techniques. First, 

many demand letters are vague, misleading and deceptive. They 

are threateningly intimidating and yet wholly uninformative, failing to explain what products infringed the patents, how they infringe or even why. Some of the letters that I have seen fail to 

demonstrate even basic knowledge of the businesses of the recipients. MPHJ, for example, which we have talked about, merely alleges that ‘‘a substantial majority—OK. Worse yet, some demand 

letters contain plain falsehoods and deceptions. I once represented 

this client who received a demand letter, and when we actually investigated the patent, we found that the patent had been invalidated in court. The sender simply bet that the targets would settle 

before those targets discovered that the patents were actually 

worthless. 

The sender could win that bet because of the second exploited 

technique, sending letters to small, unprepared businesses. Small 

businesses lack the resources, funding, and expertise to fight an exVerDate Nov 24 2008 09:16 Sep 02, 2014 Jkt 037690 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-96 CHRIS
14 

pensive and complex patent lawsuit and are often forced to succumb to the letter’s demands. This is especially true of non-technology businesses, like the hotels, restaurants and retailers represented by my colleagues. Just to give a sense of the price comparison, at the start-up that I worked at, we ran our entire operation off of a couple hundred thousand dollars of angel investments. Now, $100,000 will buy you perhaps a single detailed analysis of a certain patent by a lawyer like myself. The full lawsuit 

will cost in the millions. This is an unfair situation that must be 

addressed. 

These abuses take advantage of two-way symmetries of information. First, demand letter recipients lack information to react on an 

informed basis. Second, researchers and regulators lack information about the shrouded world of demand letters and the abuses 

therein. I’ll present solutions for both. 

The first solution I call demand letter transparency. Senders of 

demand letters in appropriate situations should be required to disclose relevant details of their campaigns. Those disclosed details 

should be aggregated into a searchable database accessible to individuals, businesses, researchers and regulators. All of these parties 

stand to benefit from demand letter transparency. The only parties 

who stand to lose are abusers of the patent system. 

The second solution I call truth-of-demand letters. Congress has 

repeatedly dealt with misleading advertisements, loan offers and 

other solicitations by requiring solicitors to prominently disclose 

truthful, relevant information in the text of the message. A patent 

demand letter is no different. It is an uninvited solicitation to purchase an intangible product, namely a patent license. And it should 

be regulated as such. Senders ought to be required to disclose 

truthful, relevant information in their demands. 

These are straight-forward reforms that would minimally burden 

legitimate patent owners, provide fairness to small business, aid 

regulators in crafting good policy and prevent abusive practices 

that ultimately detriments the public interest in promoting innovation. I urge Congress to consider them closely. 

I thank the Committee for taking on this important and timely 

topic. Thank you for inviting me to testify, and I look forward to 

your questions. 

[The prepared statement of Mr. Duan follows:] 

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Mr. MURPHY. Thank you, and I also appreciate you staying within the time as well. 

Mr. Cheng, you are recognized for 5 minutes. 

TESTIMONY OF LEE CHENG 

Mr. CHENG. Thank you, Mr. Chairman and members of the subcommittee. 

Patent trolling is a growing and uniquely American problem 

caused by loopholes in patent law that were estimated to cost the 

American economy over $80 billion in 2011 and probably a lot more 

today. 

American businesses and consumers, who ultimately pay higher 

costs for everything because of patent trolling, need relief from 

Congress, and soon. 

I am the Chief Legal Officer of Newegg.com, an internet retailer. 

We are members of the Consumer Electronics Association which 

represents the interests of over 2,000 members of the innovation 

industry. We deeply appreciate patents and innovation. 

Newegg is a uniquely American success story, founded by four 

immigrants in 2000 on a shoestring budget to sell electronic products online. We are now the second largest online-only retailer, 

after Amazon. We employ almost 1,000 Americans. We have always 

been profitable in a notoriously low-margin business and achieve 

profitability largely by keeping our costs down. I work in a cube in 

a warehouse, we serve Folgers in our office, and everywhere I go 

I fly coach. 

Upon joining Newegg in 2005, I was very surprised to get a number of demand letters asserting that we infringed someone’s patents because we don’t really make anything. We are a retailer, buying products from innovative companies and selling them to end 

user customers. The demand letters were generally vague, and the 

patents asserted against us covered common and obvious 

functionalities used in every single e-commerce web site, like the 

shopping cart or search boxes. 

In one instance, a patent troll sent us a demand letter claiming 

we infringed six of their patents. After being told that our patent 

counsel said we didn’t infringe on any valid patent claims, the troll 

told us that they had thousands of patents, that we likely infringed 

something and to just pay up. Many, if not most demand letters declare that the troll is the owner either of patents or patent portfolios without much if any analysis as to why the alleged infringer 

actually infringes. They allude to the high cost of litigation and 

suggest that it makes sense to resolve the issue early by having the 

infringer pay money to take a license. These letters may reference 

other companies who have taken such forced licenses to add credibility to a demand. And for a small company that gets such a letter, the only practical path is to pay up, and serially. Patent trolls 

and their contingency fee lawyers view small companies as sheep 

to be sheered every couple of months. And these demand letters 

can be crippling to a start-up company. 

In Newegg’s case, the trolls who hit us offered to settle for, initially, high six figures to low seven figures, and all of our co-defendants in the early cases settled, sometimes for millions of dollars. Not being a seasoned patent litigator or patent attorney, I 

30 

wasn’t smart enough to not ask some basic questions like why do 

we have to pay millions of dollars for utter crap, and soon realized 

that patent trolling was a complete scam like securities class action 

litigation. Settling with trolls to avoid the cost and inconvenience 

of litigation might save a little bit of money up front but would encourage more and more lawsuits. Settling would simply feed the 

beast. 

Since Newegg’s profit margins are low, we simply could not afford to serially cut settlement checks. We also couldn’t spend what 

our competitors spent on legal defense. We needed another path. I 

spent a lot of time and effort on ways lower defense costs without 

compromising quality. 

I was very nervous when the jury for our shopping cart case in 

Texas came out of deliberations, and they could have awarded the 

troll $34 million. They didn’t, and on appeal, we invalidated all of 

their patents. Despite being sued or threatened over 30 times in 8 

years, Newegg has never lost a patent suit after appeal, and not 

surprisingly, smart trolls don’t sue us anymore. 

Unfortunately, we are the exception to the rule. Small companies 

and startups don’t have the resources to fight. Large companies 

settle because it is cheaper to do so. The overwhelming majority of 

patent troll suits settle, even when the asserted patents are terrible quality or when a defendant likely does not infringe because 

of the high cost of defense. 

Although our strategy of resisting frivolous lawsuits appears to 

be working, we remain committed to helping reform patent law. We 

stay in the fight because not long ago we were a small company 

and could not possibly have launched if our programmers had to 

look over their shoulders and pay millions of dollars every single 

time they wrote a line of code. Moreover, it is just the right thing 

to do. 

Patents are legal monopolies, granted under a visionary piece of 

legislation to spur innovation to benefit society. The Patent Act was 

not passed to reward extortionists who are taking advantage of 

loopholes in patent laws to force honest, hardworking 

businesspeople and entrepreneurs to pay premiums to avoid the 

cost of litigation. It was passed to benefit society. Those who abuse 

patents do not deserve windfall profits. 

Congress must step in. Common sense steps can be taken to increase the cost of abusively asserting patents and to allow small 

companies and startups to innovate and operate without fear. Provisions included in H.R. 3309, the Innovation Act, and also heightened requirements for demand letters would be a great start. 

Thank you again for the opportunity to testify. 

[The prepared statement of Mr. Cheng follows:] 

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Mr. MURPHY. Thank you. Just made it. We are going to try and 

get through a couple more before we have to run to the floor and 

vote. 

Mr. Seigle? 

TESTIMONY OF DANIEL SEIGLE 

Mr. SEIGLE. Chairman Murphy, Ranking Member DeGette, and 

members of the subcommittee, thank you very much for this opportunity to testify in front of you on this pivotal issue of the abuse 

of the patent system and demand letter reform. 

I am Danny Seigle, Director of Operations at FindTheBest, a research platform that helps 20 million consumers and businesses 

each month get the information they need to make an informed decision on a variety of topics. 

In the last 6 months, we have unfortunately received two demand letters. The first was from the shell company Lumen View. 

It is a 5-page document as you can see here. You would think in 

these 5 pages they could provide some details into how we actually 

infringe on their said patent. But aside from naming the patent 

and naming the feature that infringes, there are no specifics. The 

rest of the 5 pages are simply spent using threats to scare us into 

settlement. These threats include full-motion litigation that they 

are prepared if we defend ourselves, protracted discovery process 

and settlement escalations if we defend ourselves. In other words, 

if you try to defend yourselves, they will make it an expensive and 

time-consuming process for us. 

The correct business decision for us would have been to accept 

their 1-day, special offer of $50,000 and have this issue go away. 

However, that is just blatant extortion. We were even told by the 

Plaintiff that this was the correct business decision and our investors and board members would have preferred we did this as well. 

However, our CEO, Kevin O’Connor, took a different stance. He decided to do what was right and personally finance litigation to 

prove that we were innocent and to call out the scam that was 

going on. 

Yesterday morning the judge on the case denied the protective 

motion for the gag order that they filed against us. They wanted 

to silence us so we could not share this story with you today. 

The second demand letter we received was a four-sentence demand letter as you can see here, all of four sentences. It simply 

states we infringe on their auto scrolling technology, names three 

possible patents and then gives a link to our homepage as evidence 

of infringement. These three patents have 78 claims. That is a lot 

of claims for a small company like ourselves to go through and figure out if we actually infringe or not. Without inside counsel and 

scarce resources, it takes a lot of time and effort for us to go and 

decide what the best course of action is. Additionally, they sent this 

letter certified mail so we could be in violation of willful infringement if we do not actually do our proper research. We had to hire 

an outside counsel to spend several thousand dollars investigating 

this to write a letter of reply. In our letter of reply, we asked for 

specifics because we can’t figure out how we actually infringe. 

These vague tactics are all too common in these demand letters. 

36 

I wish I could say that our story was unique, but it is not. The 

only unique thing about our story is our public stance. We have 

heard from hundreds of people in similar situations like us that 

wish they had a voice, that wish they could talk out about this. 

They have been coerced into signing NDAs in order to settle, and 

their voice has been silenced. I am here today to represent them 

as well. 

Comprehensive patent litigation reform is necessary, and demand letter reform is essential. Proper disclosure guidelines would 

greatly help companies like FindTheBest understand how we actually infringe, which claims we actually infringe on and provide details so we could actually research this in a matter to resolve the 

issue. 

The FTC should also look into investigating several of these unfair, corrupt practices. It is very blatant there is no good-faith examples of how we actually infringe and how we infringe. 

We did what was right. We fought this patent. We did not have 

to. In fact, taking the $50,000 settlement would have been the easy 

and less costly option, and I ask that you guys do what is right and 

stop this abuse of the patent system. Thank you. 

[The prepared statement of Mr. Seigle follows:] 

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Mr. MURPHY. Thank you. Mr. Bragiel, you may take 5 minutes. 

TESTIMONY OF JUSTIN BRAGIEL 

Mr. BRAGIEL. Thank you, Mr. Chairman and members of the 

committee. My name is Justin Bragiel. I am General Counsel at 

Texas Hotel and Lodging Association. Thank you for inviting me to 

testify today. 

We represent approximately 2,000 hotels across the great State 

of Texas, about 500 additional members on top of that. We have 

been in existence since 1903, and our mission is to advocate for and 

serve the Texas lodging industry. 

Our members work and live all across Texas, but one region in 

particular of the State has been plagued recently by a great deal 

of patent litigation activity, and this is, for historical reasons the 

Eastern District of Texas, known often as the rocket docket, sees 

and hears more cases related to patents per capita than any other 

jurisdiction in the United States. 

Our members sell a product we are all familiar with, hotel 

rooms, right? I represent the hotel industry. It is really simple. And 

so oftentimes I have been asked over the last couple of days, why 

are you going to Washington to testify on a patent issue? What in 

the world does a hotel do that is related to patents? Our members, 

our operators, don’t understand patents. We don’t file for patents 

when we build our lodging properties, nor when we operate them. 

But our members have been given and served with not only demand letters but actually lawsuits as well for failing to answer demand letters, simply for providing Wi-fi in the hotels to guests. We 

all understand that concept as well. Our guests expect and demand 

wireless technology. It is a part of this day and age in staying at 

a hotel. It is a very simple product that we offer. And yet, we have 

been sued, our members have been sued. Almost 100 hotels across 

the State of Texas were sued in the last 6 months or 9 months for 

allegedly infringing upon the Wi-fi patent held by one particular 

patent troll. The letters start as a shakedown. Pay us $5,000. This is a significantly smaller sum, but a sum that would be attractive for an independent lodging operator to seize upon to settle. Pay us $5,000 as 

a licensing fee, and we won’t file suit against you. If our member, 

our hotelier ignores that letter, they receive a lawsuit in the mail 

months later that alleges the hotel is continuing to infringe upon 

the patent holder’s patent by providing Wi-fi to hotel guests, and 

a suit like this, as we have heard, can cost upwards of a million 

dollars to defend, $100,000 just to start the process with an IP attorney. And again, all our hotelier does is operate a hotel, right? 

We don’t deal with patents. We have no way to know when we buy 

a wireless access point or a wireless router whether or not the 

manufacturer has provided all pertinent licensing on fees and patents to the patent holders. We don’t know that. We are not in that 

business. We have no way of knowing which brands of equipment 

will be singled out. We have no way of identifying which one of our 

members will be targeted for a demand letter or a lawsuit. It is 

really incredible. 

So I get calls every day from hoteliers across the State of Texas 

with legal questions. They ask the most basic legal questions you 

57 

can imagine oftentimes, and usually all of our questions are related 

to how can I avoid potential litigation, how can I avoid potential 

liability. I have no answer for any my members on this issue, none 

at all. There is not a brand of Wi-fi router or piece of equipment 

that I can tell them and assure them that they will not be sued 

for purchasing and operating. It is a real problem for us. 

So we are here to ask for smart patent reform to look at this 

process. We need some protection for the end users here. We are 

not experts in the patent field, we are not. And, you know, to be 

targeted like this, it really is just a shakedown. 

I am here for questions. Thank you so much for inviting me to 

testify. 

[The prepared statement of Mr. Bragiel follows:] 

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Mr. MURPHY. Thank you. I think we can—do you have a full 5 

minutes you need because we will have to come back then and—— 

Ms. DEGETTE. OK. I am going to go vote. 

Mr. RICHARDSON. I have time to do this. 

Mr. MURPHY. All right. I will do it. Real quick then, thank you. 

Go ahead. 

TESTIMONY OF JAMIE RICHARDSON 

Mr. RICHARDSON. Chairman and Ranking Member DeGette and 

esteemed members of the committee, thank you so much for the 

chance to testify on behalf of White Castle and the National Restaurant Association. 

For us, White Castle is a family-owned business. It started in 

1921 in Wichita, Kansas. Today we are based in Columbus, Ohio. 

But throughout our entire history, it has been a history of famous 

firsts. So we are big believers in intellectual property rights and 

understand the importance of this debate when it comes to patents. 

But for White Castle specifically, what we have been faced to 

deal with in the past year are four specific patent troll cases that 

we have had to face. And a lot of it has to do with how we connect 

with our customers. So we have lots of new technologies that we 

are trying to employ. For instance, the CR codes, the QR codes, 

that will go on a package that make it easy to scan and to find out 

for a customer how to link to information, we got a letter about 

that, asking that we refrain from using that further. We had a second one show up because we inserted a link into a customer email, 

to once again make it easier for customers to get the information 

they crave and received a letter on that. Most recently we received 

a letter about having our White Castle logo appear on a White Castle map on our mobile app that we have created for our phone with 

a firm claiming that they own the patent to place a logo on a map. 

And most discouraging of all is we are trying to be compliant with 

things like menu labeling that require that we soon post nutritional information on our menu boards. We have started to look at 

digital menu boards. Along the path towards implying digital menu 

boards, we didn’t even get the benefit of a demand letter, we got 

a suit filed by one of the patent trolls. And that is what we are 

going to call them at White Castle because that is what they are 

to us. And in that suit it claimed that we can’t transfer information 

electronically to our digital menu boards, that that is an infringement. 

Unfortunately for us, we are small. We are a medium-sized fastfoot chain. We are a family-owned business. We don’t have the dollars to litigate. We have got two very gifted attorneys internally. 

They are awesome, but we have to rely on outside counsel when 

these patent cases come up to try to get the right guidance to understand where we can go with it. 

So what it has caused us to do, it has stopped us in our tracks 

when it comes to moving forward in talking to our customers. So 

the patent trolls are living under the bridge to tomorrow, and as 

we are trying to progress and move forward, they are slapping duct 

tape over our face and not allowing us to share with our customers 

what’s really going on in providing the information that they want. 

61 

So it is a real issue for us. We have chose not to pursue these 

technologies. We have had to set them on the shelf. We can’t afford 

to get involved in some type of settlement. Who knows how high 

that is going to go, nor can we risk litigation because we are not 

going to bet the White Castle system and the 10,000 people who 

rely on us for their livelihoods and the communities that rely on 

us because some folks have decided that it is OK to not obey the 

law and just go outside of that on their own. 

So thank you for the chance to share. 

[The prepared statement of Mr. Richardson follows:] 

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Mr. MURPHY. Thank you. I appreciate your winding that up. We 

have zero time left, so we have to run to the floor and vote real 

quick. I will be back here within half-an-hour, so don’t go too far 

away, and we will be right back. Thank you. 

[Recess.] 

Mr. MURPHY. Thank you. We are reconvening this hearing of the 

Oversight and Investigation hearing on patent assertion practices, 

and thank you for your patience, panelists, as we move forward 

with this. 

A number of my colleagues are on the floor in speeches, et cetera. 

We will go through and perhaps I might ask if it is a matter that 

we will go through our questions back and forth, but if I have a 

couple extra questions on behalf of other members, I don’t think we 

will be going much more than probably a half-an-hour behind. 

Ms. DEGETTE. That is fine, and you know, this Committee has 

a history of allowing questions in writing. And Mr. Chairman, if 

you would agree to that, unfortunately, most of the rest of the 

Democrats probably won’t be back because we have a Democratic 

Caucus meeting right now, and I don’t know what the Republicans 

have going. 

But I know that Members on this Subcommittee are very concerned about this issue. So if we could allow members to submit 

written questions, that would be wonderful. 

Mr. MURPHY. I absolutely will. And so what I will do is I will 

take 5 minutes, yourself and then if—— 

Ms. DEGETTE. Sure. 

Mr. MURPHY [continuing]. Go to a colleague there and I may ask 

couple other questions with unanimous consent. We will proceed 

from there. See how nice we get along? This is an important issue 

to all of us. 

Well, obviously from the panelists here, and I will start with myself for 5 minutes, you have similar perspectives on the impact of 

these demand letters that had on your companies or on businesses 

in general. They are rather remarkable, the vagueness of them and 

the content and the impact they have. 

For those of you who have actually received demand letters, is 

this a recent phenomenon? Who can speak to that? Who received 

this? Mr. Cheng, did you receive one of those letters? Is this a recent issue? 

Mr. CHENG. Well, we have been getting them for about 8 years. 

So it depends on what you define as recent, right? So it somewhat 

coincided with my arrival at Newegg, but I had nothing to do with 

it. 

So we crossed the billion dollar revenue mark right around that 

time. Historically trolls, they just had such a wide field, easy pickings, that they would literally go down lists of the largest or the 

largest companies or the most accessible companies. Getting your 

name as the fastest-growing company in the Los Angeles Business 

Journal was going to make you—that is what they based their demand letters on. And in recent years, as the trolling industry has 

demonstrated how lucrative trolling can be, more and more companies are getting demand letters. 

In some areas, the volume of demand letters is actually declining 

with larger trolls. They just go straight to litigation because under 

72 

the Medtronic, there is case law that states that a demand letter 

that is very detailed will give a prospective defendant the right to 

file declaratory judgment action in a venue not of the troll’s choosing. 

So with larger defendants, sometimes the trolls will actually just 

go straight to litigation now. But for the smaller companies and 

start-ups, in all likelihood, their demand letter volume is increasing. 

Mr. MURPHY. Ms. Feldman, why have these trends gone the way 

they have, with more of these taking place and with the kind of 

problems that have been described here today? 

Ms. FELDMAN. I think some very clever and very sophisticated 

people figured out how to game the system. Once that had happened, it was so lucrative that everyone became interested in jumping on the bandwagon. 

In the start-up study that I mentioned, most of those who financed start-up companies say that these demands have increased 

dramatically in the last 5 years against the portfolio companies. 

Mr. MURPHY. Ms. Feldman, you are an attorney, correct? 

Ms. FELDMAN. I am a professor. 

Mr. MURPHY. Anybody here who is an attorney in this? Mr. 

Duan, you are an attorney. Why hasn’t the Bar Association brought 

up ethics concerns against those who just do this without information and just move forward? 

Mr. DUAN. Well, I think there are a number of concerns, you 

know. Number one, as I think a number of the witnesses have alluded to, we often don’t know who is behind a lot of these sorts of 

things. They hide behind shell companies, we don’t know all who 

is really behind a lot of the demand letters. So it would be hard 

for the bar to go after them. 

Now, in terms of what the lawyers are sending out, they are 

sending out letters that are threatening, they are sending out letters that are uninformative. But they are not sending out letters 

that are illegal. Everything that they are saying is just communication, and there is nothing wrong with communication. The problem 

is that the underlying demands, which are being made not by the 

law firms themselves but by the companies that are being represented by the law firms, those are the aspects that are problematic. 

Mr. MURPHY. But what separates a good-faith request or goodfaith letter from one that is a trolling one? 

Mr. DUAN. Well, I think it starts from the investigation that goes 

behind the letter. In my practice, if we thought that there was infringement of a legitimate patent, we would look at the products, 

we would identify what features the product infringed, why they 

infringed, we looked carefully at the patents to make sure that everything was set and then we would have a conversation. 

What I think we are seeing with a lot of these demand letters, 

they are taking the shotgun approach that Professor Feldman 

talked about. We are not seeing the sort of investigation. I think 

I mentioned that MPHJ has sent out letters that don’t even talk 

about what the business itself does to infringe. The simply say that 

businesses like yours infringe. So therefore you should pay us a licensing fee. You know, I think there are plenty of examples. If you 

73 

take a look at some of the demand letters on EFF’s Trolling Effects 

Web site, you’ll see plenty of examples of letters that really evince 

no knowledge of what the company does, why they think the products infringe, what they think is wrong and what they want the 

companies to do. And that is where the abuse comes in. 

Mr. MURPHY. Real quickly, Ms. Feldman, I have just a few seconds left, you testified that in recent years a new business model 

of patent demands have developed. Can you expand on what this 

old business model entailed, why it has changed, what impact this 

change has had on businesses and consumers? 

Ms. FELDMAN. Yes, traditionally most patents didn’t garner a return. It is very difficult to translate a patent into an actual product. It normally takes lots of patents and lots of knowhow to do 

that. The Patent Office has about 18 hours over a period of 2 years 

to look at patents, and these patents may have dozens of claims in 

them. 

So no one really worried that lots and lots of patents were being 

granted because the ones we cared about ended up in court. With 

a new business model, all of these patents, each individual ones, 

can be separated out and launched against companies. It is that 

particular business model that is wreaking havoc for companies 

across the country. 

Mr. MURPHY. Thank you. I see my time—I appreciate it. I now 

recognize Ms. DeGette for 5 minutes. 

Ms. DEGETTE. Well, following up on that, Ms. Feldman, and then 

what happens? So there are all these patents that were granted. 

The review, the patent examiner was minimal in many cases. So 

there are a lot of patents, and a lot of them are duplicative, right? 

Ms. FELDMAN. Yes, and also a legitimate patent doesn’t mean 

that you are launching it at an appropriate target. 

Ms. DEGETTE. Right. 

Ms. FELDMAN. You may have a valid patent. You are just sending it indiscriminately to lots of people. 

Ms. DEGETTE. And it doesn’t mean that the people who you are 

targeting have in any way infringed against that patent, right? 

Ms. FELDMAN. That is right. 

Ms. DEGETTE. And most of these patents that we are talking 

about here are patents that have been obtained by these third parties. So it is not like it is the inventor who filed the patent application and had it granted. It is some third party, right? 

Ms. FELDMAN. It is true, although there is a new approach that 

appear to be happening which is let’s file patents and see if we can 

go after companies with these. 

The key question is, are there products being made or are you 

just knocking on the door of existing companies asking for a handout? 

Ms. DEGETTE. Right. When Mr. Duan and Ms. Feldman, when 

you were answering that question, I was reading one of the letters 

that Mr. Cheng was referring to where it says FindtheBest is using 

automatic scrolling technology on their Web site, technology which 

we believe to be covered, and it doesn’t even say specifically what 

that is, right? 

Mr. CHENG. It is actually—— 

Ms. DEGETTE. Oh, it is Mr. Seigle? 

74 

Mr. CHENG [continuing]. Seigle’s letter—— 

Ms. DEGETTE. Sorry. 

Mr. CHENG [continuing]. But we have gotten letters like that, 

too. 

Ms. DEGETTE. Yes. Sorry, Mr. Seigle. 

Mr. SEIGLE. Yes. When you get this letter, and you are not a 

legal expert like me, you have to start investigating this, and there 

are 78 claims in those three patents and you have noticed they 

don’t mention which claims we can be infringing on. 

Ms. DEGETTE. Right. 

Mr. SEIGLE. So there is no due diligence on their part. There is 

no reason to believe they have a good-faith reason to believe we infringe. They just take this template, insert company name, insert 

link to home page and send it out. 

Ms. DEGETTE. Yes. I can see that. Mr. Chairman, I don’t know 

if these are in the record, but I would like to put these two letters 

that Mr. Seigle had referred to in the record because it is frightening. 

And you know, even if you are a legal expert, if you look at 

these—I am sure you sent them along to your lawyer, and then the 

lawyer is having to—because I myself am a lawyer, and I used to 

represent companies before I came to Congress, and I had clients 

who got letters like this. And we had to comb through the patents, 

and it is even confusing to the lawyers. 

This goes back, Mr. Chairman, to what you were asking about, 

why doesn’t the Bar Association enforce this. Oftentimes if the patent trolls are the legal owners of these patents, then it is really legally a matter for the court to decide whether or not they are infringing. And it is really a problem. 

I wanted to ask both you, Mr. Duan, and you, Professor Feldman, 

what separates a so-called patent troll from a legitimate company 

asserting its patent? Can we really come up with a bright line 

here? 

Ms. FELDMAN. I think the question to focus on is whether there 

are new products coming out of this. There has been a lot of attention on patent trolling, and no one wants to be the bad guy and 

everyone wants to draw a definition that says I am not a bad guy, 

that is over there. And you can parse these in many different ways, 

but it all comes back to, it seems to me, grant patents in order to 

get new products out for society and strengthen the economy. And 

the question is, where are the new products of this activity? Is any 

of that coming out of here or is this just a tax on current production? You have to pay it in order to go about your business. 

Ms. DEGETTE. What do you think, Mr. Duan? 

Mr. DUAN. So I agree. I think there is a very simple definition 

for what a patent troll is. A patent troll is somebody who uses patents to abuse the system to reduce social value for their own personal profit. 

Ms. DEGETTE. OK, but that is not a legal standard. 

Mr. DUAN. I understand that it is not a legal standard. I think 

that when we look at what we want to do in terms of regulation, 

right, we shouldn’t be focusing on how are you making your money. 

We should really be focusing on, what is the behavior that you are 

taking advantage of, right? 

75 

In this case, the behavior that they are taking advantage of in 

order to threaten people in detriment to society is they are sending 

out letters that really don’t provide information, that basically just 

tax companies that are actually producing and on the flipside, they 

don’t produce anything themselves. 

Ms. DEGETTE. Well, there are a lot of suggestions different people have, both in front of the Judiciary Committee and this committee and in the Senate, so I would ask both of you and also the 

rest of the panel, if you have ideas for things we can do in statute 

to help prevent this kind of behavior, to set that bright line, that 

would be really helpful to us. And I yield back. Thank you, Mr. 

Chairman. 

Mr. MURPHY. Thank you, yield back. Now we will go to the gentleman from Virginia, Mr. Griffith, for 5 minutes. 

Mr. GRIFFITH. Thank you, Mr. Chairman. Following up on that, 

Mr. Seigle, I was intrigued with some of your comments in regard 

to what Ms. DeGette was just talking about, some ideas. And I believe, if I remember your testimony correctly, what you indicated 

was that if you were going to send a letter of this nature, because 

you might have a legitimate claim, then make it a requirement 

that that claim be stated up front. Did I understand that correctly 

and would you expand on that, please? 

Mr. SEIGLE. That is correct. If they actually had proof that they 

did proper due diligence to have a reasonable belief that we infringed, we would happily discuss the infringement contentions 

with them and try to come to a resolution if they were in good 

faith. It is very clear from the letters we have been getting that 

they do not have that good-faith intention. It is spray and play, although the demand letters are all the same, just with a different 

company name. 

Mr. GRIFFITH. And so all they say we have reason to believe that 

you may have violated—— 

Mr. SEIGLE. Yes. 

Mr. GRIFFITH [continuing]. The terms of our patent and therefore 

pay up? 

Mr. SEIGLE. And then when we called them at Lumen View, it 

was very clear they hadn’t even been to our Web site, didn’t really 

understand the functionality, didn’t even understand their patent 

that well, too. So it is very hard to deal with the situation when 

they are actually more concerned on the cost of defense as their 

main reason for exercising these demand letters as opposed to the 

merits of the infringement. 

Mr. GRIFFITH. Right. Of course, it is not always easy to figure 

that out, and somebody may have a legitimate claim. Even though 

their motives may not be great, they may actually have a legitimate claim. But it does seem to me that we ought to be able to 

work out some language probably in the Judiciary Committee, but 

perhaps we can in this Committee as well figure out some language 

that ought to be included in that letter that would be a requirement that you notify the company prior to filing a lawsuit. I don’t 

think you can say necessarily the first letter, but you could say 

that prior to filing a lawsuit on such a claim, you have to provide 

the defendant company or defendant individual, whichever it may 

be, with the following information and then go A, B, C, D, E to baVerDate Nov 24 2008 09:16 Sep 02, 2014 Jkt 037690 PO 00000 Frm 00081 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-96 CHRIS
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sically, to state a reasonably articulate theory of why you think you 

have been damaged. 

Mr. SEIGLE. Yes, and at a very minimum, the claims and the patent that they are actually inserting, there are usually lots of claims 

on a given patent. In our case, they don’t mention which claims. 

And so that has an undue amount of work and time and effort on 

our part to then have to research every claim. So at a minimum, 

they should disclose which claims, provide some evidence of due 

diligence, screen shots from your Web site, what evidence they 

have to believe that you infringe, and with that, we are OK with 

those. That shows they have a good intent to potentially resolve 

this issue. It is this type of behavior that we think needs to stop, 

and I think a lot of it is just because it is so easy to send a demand 

letter. There should be some minimum standards of what that 

should entail. 

Mr. GRIFFITH. Well, I appreciate that very much. Mr. Richardson, you indicated that you all had gotten a letter for just linking 

a site? Was it the site that they were upset about or the fact that 

you used linking technology because I am surprised—— 

Mr. RICHARDSON. Yes—— 

Mr. GRIFFITH [continuing]. Every Member of—if it is linking 

technology, I am surprised every Member of Congress hadn’t gotten 

a letter. I link stuff through my Web site every day. 

Mr. RICHARDSON. You never know. Today’s mail might not be 

here yet. 

Mr. GRIFFITH. Well, that is a good point. 

Mr. RICHARDSON. That is exactly what the claim was, and it was 

insertion of a hyperlink, a URL into Tweets, into a customer email, just to make it easier to direct our customers who had opted 

in, who wanted this information, an easier path to get to it. 

Mr. GRIFFITH. Wow. And then of course there is the safety factor 

because not only are there more requirements in regard to service 

of food as your industry does with White Castle and lots of other 

fast-food chains out there, people want to know what all those ingredients are. And it is not only the calorie intake, it is, you know, 

what are you actually putting in there because food allergies are 

on the rise. And you are saying that you got a letter on trying to 

do something like that, too, that you had to put on the shelf because you just couldn’t afford to the price of litigation? 

Mr. RICHARDSON. Very similar to that because as we are looking 

at new menu board technologies to make it easier to share that nutritional information or to change a price or change an offer, the 

claim there was that that was a violation actually because of how 

we were using the internet to send the information digitally. We 

would be OK if we wanted to put it on a jump drive and drive from 

Columbus to Louisville. But not to be able to use the internet to 

do that just didn’t seem to make much sense to us. But that is one 

where they didn’t even send us a letter. It went straight to litigation as others have referenced. 

Mr. GRIFFITH. Wow. That is incredible. I will tell you that that 

is of great concern because particularly for the smaller chains or 

the Mom and Pops, you know, they just don’t have the ability to 

get that information out there if they can’t put it on the internet. 

And that is a real problem that will affect their businesses. 

77 

Mr. Chairman, I appreciate you doing this hearing. I appreciate 

all our witnesses being here. This is a subject area—I, too, am a 

lawyer, but this was—but I never represented corporations. Unless 

they were small Mom and Pops, I didn’t do this kind of work. But 

I really appreciate this has been an eye-opening hearing, and 

thank you so much for doing it. I yield back. 

Mr. MURPHY. The gentleman yields back. I now recognize Mr. 

Lujan for 5 minutes. 

Mr. LUJAN. Mr. Chairman, thank you very much. Mr. Chairman, 

I appreciated it very much a point that you made in your written 

testimony about focusing on the abuse of activity itself rather than 

the form of the party involved. The point that I would like to make 

is your promotion of the term abusive patent asserter as opposed 

to the more commonly used terms of non-practicing entity and patent assertion entity because national labs-universities fall into that 

category. And so I am hopeful that as we talk about developing our 

legislation that we are very careful to go after the bad actors and 

make a clear differentiation between universities and the national 

labs coming from a State that has two national labs and a district 

that has what I would describe as the strongest and best national 

lab in the country. 

But with that being said, Mr. Cheng, to you and to all of the witnesses, I would like your thoughts on that as we target this area, 

what can we do in that specific arena, or are you seeing activity 

coming from any entities such as those that I have described? 

Mr. CHENG. Big picture, Congressman Lujan, I think that reform 

efforts at some point have to take the economic incentive to engage 

in abusive patent litigation away or they have to give the victims 

this type of litigation some recourse. Presently the system is very, 

very asymmetrically stacked, both substantively and procedurally 

against parties that get demand letters and parties that get sued. 

It is very easy not just to crank out demand letters but also to 

crank out lawsuits. Filing a lawsuit is actually not much more expensive, a form lawsuit not much more expensive than sending out 

a demand letter. And in all sorts of different ways, in the ways for 

example a shell entity can be created to file lawsuits and issue demand letters with no recourse for the victims at all, even when 

they win, right? I mean, there are opportunities I think for Congress to take a look at what is being done by these abusive patent 

asserters. 

In my written testimony that you cited, my goal is to focus not 

on the form of the sinner but on the sin itself. We love the sinners 

or you know, we could, but it is their actions and activities that actually are causing a lot of harm to society. It is causing companies 

and entrepreneurs not be able to start their companies, not be able 

to spend money on creating jobs and making products that your 

constituents use. 

Mr. LUJAN. OK. Anyone else? Mr. Seigle? 

Mr. SEIGLE. I agree that educational institutions are in this 

weird area where they are not practicing entities, but I believe 

their belief in creating this technology is to license it out so that 

it can become a product and help spur innovation and help consumers. When I have been lobbied on The Hill the last couple of 

days, I have heard that the University of California school system 

78 

has been against patent reform, and as a graduate of the University of California at Berkeley, I am not so happy with that. But I 

think they have a good faith in what they are doing with their patents, and I would be OK with them having exclusion for being an 

educational institution. 

Mr. LUJAN. I appreciate that, Mr. Seigle. 

Ms. FELDMAN. Sir, may I comment? 

Mr. LUJAN. Professor? 

Ms. FELDMAN. Yes. 

Mr. LUJAN. Dr. Feldman, Ms. Feldman? 

Ms. FELDMAN. Thank you. The universities have a unique position as keepers of the academic flame and also recipients of taxpayer money. There is increasing pressure on universities to transfer their patents to those who would assert patents in licensing and 

litigation. The Association of University Technology Managers has 

just announced that it is going to rethink its policy of not transferring patents to non-practicing entities, and that can be troubling. 

So in any legislation you draft, you might want to be careful about 

how you craft it because if you leave out universities and joint ventures, you may create large loopholes for those who would simply 

purchase from, purchase rights from or join hands and hide behind 

universities for their activities. 

Mr. LUJAN. Very important point. I appreciate that, Professor 

Feldman. Mr. Bragiel? 

Mr. BRAGIEL. We would like to see some protections for end 

users. You know, again, our operators don’t manufacture the technology. They just purchase it off a shelf and then installed at their 

property and operate it for the public. 

So some sort of protection that provides protection for the end 

user would be fantastic. It is not just the hotelier that could be 

sued for a Wi-fi infringement. It could be you or I for purchasing 

a Wi-fi product and operating it out of our household. Allegedly we 

would be violating that same patent. 

So we would like to see some sort of reform that involves protecting the end users, having us last in line for a lawsuit for technology we don’t understand, we don’t manufacture, we just merely 

purchase and use. 

Mr. LUJAN. I appreciate that. As my time has run out, Mr. Chairman, I want to commend both the majority and minority staff for 

the witnesses that we have today and would invite their input and 

recommendations to the Committee that we could get to the FTC 

with the upcoming study in 2013, and I think it would be great if 

the FTC would actually invite the witnesses to sit down and have 

serious conversations with them to include those aspects of the 

study’s law. 

So thanks again, Mr. Chairman, to you and to the staff and 

Ranking Member DeGette. 

Mr. MURPHY. Thank you. The gentleman’s time has expired, and 

he yields back. 

Speaking of the FTC, so let me follow up on that. I want to— 

just so you know that they are going to be conducting a formal inquiry, touch on many of the issues you have discussed today. Has 

any one of you had a chance to review the proposed scope of the 

FTC inquiry? 

79 

Ms. FELDMAN. I have looked at it. 

Mr. MURPHY. Ms. Feldman? Can you talk about that? 

Ms. FELDMAN. I think it is an important step. We can’t solve 

what we can’t see, and much of this is shrouded in non-disclosure 

agreements. I applaud those who are here and willing to speak because people have been afraid to share their experiences for fear 

that they will be targeted by those who propagate these lawsuits. 

The FTC action contemplates looking at 25 patent assertion entities. That is a start, but it is a small piece of the puzzle. My own 

view is that it will probably take several types of steps so there is 

low-hanging fruit that can be addressed now, and then there will 

probably be some longer-term efforts once we understand the problem better once the FTC has finished its investigation. 

Mr. MURPHY. Have any of you met with the FTC in this issue? 

Ms. FELDMAN. I have spoken to staff members. 

Mr. MURPHY. Have you have done that? Let me ask this of other 

people or two. Are there any specific issues you have encountered 

prior to litigation that you think the FTC should prioritize or other 

areas you think are receiving less attention that they should, especially those who have been involved with litigation? Mr. Seigle, is 

there anything that you think they should prioritize? 

Mr. SEIGLE. What I was most surprised about prior to litigation 

was just how deceptive they are. It is very much a corrupt behavior. They threatened criminal charges against us for calling them 

patent trolls at one point. So behavior like that, where it is very 

clear just how corrupt and unfair it is, I think you will see a lot 

of it out there. It would be interesting for the FTC to investigate 

that, and I think specifically a demand letter registry would be interesting as well because I don’t think anyone knows the complete 

scope of how many demand letters have been out there because 

there is no way to track it. 

And if you are given a patent, you are basically given a golden 

ticket, the right to have a monopoly, and with that responsibility 

comes the right to act in good faith. And I think it would be reasonable to have them register all the demand letters they send because we are giving them that monopoly. 

Mr. MURPHY. Thank you. Mr. Bragiel, do you have some comments on this in terms of what the FTC should look at? 

Mr. BRAGIEL. Yes, and again, I think, some sort of protection for 

end users here is really key, some sort of regulation by the FTC 

would be helpful that prohibited this sort of predatory behavior on 

behalf of patent trolls prior to filing a lawsuit, be that a registry, 

be that some sort of a system or mechanism in place that prevents 

them from filing just masses of lawsuits. This is a numbers game 

for my clients. These patent trolls will sue hundreds of individuals 

and corporations all with one form letter just swapping out the 

name of the company. So some sort of regulation that prohibits 

that type of behavior from occurring would be very beneficial to us. 

We would see quite a bit fewer lawsuits filed, I think, in the State 

of Texas. 

Mr. MURPHY. Mr. Richardson, can you talk about any comments 

you would want the FTC to pay attention to? 

Mr. RICHARDSON. Yes, we would echo the sentiment that it needs 

to be focused on the end user. A registry is a great idea, but we 

80 

think it is a two-step, that it is real important to look at the demand letter as well and to get the clarity and understand that. You 

know, in our instance to echo that sentiment, one of the things we 

have had to deal with is using outside counsel, but our legal cost 

is a percentage of—our legal cost has gone from a quarter of 1 percent for patent-related issues to 20 percent in the most recent year. 

So it is real cost. 

And Congresswoman, you referenced abuse, and the victims of 

the abuse are our customers and our team members and it is not 

just the companies, it is our neighborhoods that are suffering as a 

result of this. 

Mr. MURPHY. Curious, what does it add to the cost of your products, all this? 

Mr. RICHARDSON. You know, at this point, the real cost is opportunity cost because we are avoiding moving forward with the technology because that is our only defense. So we haven’t had the big 

lawsuit or had any big settlements. But it is holding us back. That 

is the big issue. 

Mr. MURPHY. Then let me ask you this. Are there other areas 

outside of technology that have been impacted by these recent patent assertions? Anybody? 

Ms. FELDMAN. So in this start-up demand study, 70 percent of 

those who financed start-ups said that they had seen this in technology, but the 30 percent said that they are seeing it in life 

sciences as well. We know anecdotally that we are also seeing it 

everywhere, Mom-and-Pop stores, restaurants, coffee shops across 

the board. It started in technology, but it seems to have spread. 

Mr. MURPHY. Thank you. Mr. Cheng? 

Mr. CHENG. Yes, Mr. Chairman, we are a retailer, and it is all 

over—they have been targeting retailers for a couple of years already. They are hitting logistics companies. It is literally anybody 

with a business they think they can get money from. 

But if I could have your indulgence and just to echo and expand 

on what Mr. Bragiel was saying earlier in terms of protections for 

end users I think is some sort of regulation that could expand the 

doctrine of exhaustion to help at least end users at least have a defense up front to patent infringement assertion as long as they are 

licensing or purchasing technology or products in good faith from 

another party. That would be very, very helpful. 

Mr. MURPHY. Thank you very much. I see my time has expired. 

I really wanted to ask Mr. Richardson if square burgers were patented but—— 

Mr. RICHARDSON. The five holes are. 

Mr. MURPHY. Five holes, thank you. OK. Thank you. Ms. 

DeGette? 

Ms. DEGETTE. Thank you. Mr. Chairman, just a couple of questions. Mr. Richardson, you talked about Congress doing something 

about the demand letters, and that is I think a good idea. Some 

people have suggested that the FTC should establish a demand letter database. I am wondering what our witnesses think about that. 

Let us start with you, Ms. Feldman. 

Ms. FELDMAN. I think some type of registry would be very important. Patent is supposed to be a notice system, and a lot of those 

in assertion behavior claim that the way they are asserting their 

81 

patents is something that is private to them. But what you claim 

as your territory is something that everybody should have notice of. 

Ms. DEGETTE. Right. Yes. 

Ms. FELDMAN. And that is important. These non-disclosure 

agreements are very corrosive for getting information about what’s 

happening. 

Ms. DEGETTE. Mr. Duan, what do you think? 

Mr. DUAN. So I agree. I think that it is important that we have 

this sort of information about the demand letter economy, about 

what sort of assertion is going on. I think it helps out a lot of parties. It helps out the businesses that receive the demand letters because they are able to see, you know, a lot of the facts that they 

may not be presented with immediately. It helps related businesses 

in that they can see what sort of patents have been asserted, and 

they know what sort of technologies they should look at and what 

sort of technologies they should avoid if they have to avoid infringements. It helps researchers obviously because they will be able to 

do better studies, and I think it helps lawmakers like you. 

Ms. DEGETTE. Well, it would help regulate them, too. 

Mr. DUAN. Because—— 

Ms. DEGETTE. There are unfair trade practices going on, right? 

Mr. DUAN. I think that is the first step. I definitely applaud the 

FTC for taking on their six-piece study of patent assertion. 

But you know, I think an important point to realize is that for 

every one of these big patent assertion entities that we are talking 

about, there are dozens or hundreds of much smaller ones, the ones 

we have been talking about today that would just fly under the 

radar. The FTC would never find out about them, Congress would 

never find out about them. The only people that would find out 

about them are the people who receive the letters. 

Ms. DEGETTE. Well, unless you had a demand letter database. 

Mr. DUAN. Exactly. 

Ms. DEGETTE. Yes. 

Mr. DUAN. And I think that is the importance of that—— 

Ms. DEGETTE. Mr. Cheng, you are nodding your head yes. 

Mr. CHENG. In complete agreement, and also I think one of the 

other benefits of a demand letter registry is simply to let victims 

know they are not alone. 

Ms. DEGETTE. Yes. 

Mr. CHENG. A lot of people who get these letters, they don’t know 

what to do, they don’t know who to turn to. It is going to help defendants in some cases organize a legitimate defense against sometimes truly, truly craptastic patents. 

Ms. DEGETTE. Mr. Seigle, let me ask you and others as well, if 

there was a demand letter database and you knew about it, then 

I would assume if you got a demand letter, that would help you try 

to figure out—— 

Mr. SEIGLE. That would be an absolute huge help. When I got 

my first demand letter, I went and searched for the docket to see 

who else they had sued, and I reached out to 20 people on 

LinkedIn. We formed a joint defense group. It took a lot of time 

and effort to email them all individually, see where they were, and 

of course, the litigation. If that was made available and easy, it 

would have saved me a lot of time. 

82 

And ironically, when I reached out to them, their reply was that 

was so smart of you to try to pull us together. I didn’t think of that, 

which, I know it sounds funny, but it is actually what happens. 

I have heard from the meetings they have had on The Hill that 

the U.S. PTO or FTC doesn’t want to have to deal with the administration or technology burden of hosting a registry. I would like to 

offer that at FindTheBest, we are a data company. We deal with 

data a lot, and we can easily do that and we would be happy to 

work with the public sector and host that for them. 

Ms. DEGETTE. Well, you know there is some debate about whether the PTO is the office to do it or the FTC, and the FTC is more 

used to taking issues like this. Mr. Bragiel, what do you think? 

Mr. BRAGIEL. Well, like everyone else on the panel I think that 

is a good first step. But from our standpoint it is not just the demand letters we are dealing with. There are actual lawsuits that 

have been filed. And so, some of those, most of those were preceded 

by a demand letter, but either way, the lawsuit was going to be 

filed because it is relatively inexpensive to file a lawsuit and extract a $5,000 settlement from my member at that point. 

In our case, it wasn’t difficult to organize. They are all members 

of mine. So I know who these folks are that have been sued. They 

all called my office, you know, immediately upon receiving the lawsuit. But the question was once they’d been sued, they have to individually defend themselves so we couldn’t do some sort of joint, 

mass defense like a reverse class action. And so, we were forced to 

inform clients that they should consider settlement. 

So but you know, again, it is always good to know who is after 

you, right, and it is good to know who is behaving in this sort of 

behavior. And there is so much in terms of hiding behind shell corporations and whatnot that this would lend some transparency to 

that. So we would support that. 

Ms. DEGETTE. Mr. Richardson, you are the one that started the 

conversations about the demand letters. So what do you think 

about this? 

Mr. RICHARDSON. As a family-owned business, for us it is about 

mutual gain through voluntary exchange. That is how for the past 

92 years we have built our business. And patent trolls don’t use 

that business model, they use coercion. So anything, the registry, 

other things that can shed more light on it, we think turn the tables and start to get us back to an even keel and bring more truth 

to the situation. 

Ms. DEGETTE. Thank you. Thanks to all of you for coming. This 

is a good hearing. 

Mr. MURPHY. Thank you. Mr. Griffith, you are recognized for 5 

minutes for final questions. 

Mr. GRIFFITH. Thank you, Mr. Chairman. I would be interested 

in hearing from any of you in regard to—and I think it was the 

hotel folks that said, they were being sued for using Wi-fi. They 

bought it from Best Buy or other provider, from a manufacturer, 

but they purchased it. The hotel purchases the Wi-fi unit, installs 

it and then they are the ones getting sued. And I am wondering 

if anybody has looked at seeing if one of the manufacturers or the 

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suits, either by warranty of their product or in some other way. 

Has anybody heard anything in that regard? 

Ms. FELDMAN. Some of the larger manufacturers have tried to 

step into court and defend these lawsuits, and they have been 

rebuffed. They are not allowed to because those who are bringing 

the demands are smart enough not to see the big guys, they just 

see the little guys. And so they can’t get in there. So rule along 

those lines would be important. 

Mr. GRIFFITH. So perhaps we as a Congress, it may not be our 

Committee but as we as a Congress look at this, we may want to 

look at some standing issues and create some special standing for 

the manufacturer if they are the folks who put it into the Wi-fi in 

the example that we are using. 

Ms. FELDMAN. I think the other—— 

Mr. GRIFFITH. They would have the right to come in and defend 

themselves or defend their product in such a suit. 

Ms. FELDMAN. I think that is right, sir, and the key issue is to 

get only interested parties in the courtroom or in whatever the bargaining room is. So one of the problems is you can’t figure out who 

is behind these letters, so some type of disclosure of who has a beneficial interest in these companies, then you could figure out that 

perhaps you actually did buy something that comes with a license 

or regulators could see what’s happening behind the scenes. There 

is just no way to penetrate through all these shells and figure out 

where it is coming from. 

Mr. GRIFFITH. And also, correct me if I am wrong and I know we 

have got a couple of attorneys on the panel, but if we bring all the 

parties to the table, wouldn’t we be able to use collateral estoppel 

res judicata and then future litigations and then shut it down nationwide if we got one, good lawsuit on the Wi-fi situation? What 

do our lawyers have to say about that? Yes, sir. 

Mr. DUAN. I think that is correct, and that is the reason that you 

don’t see them going after the big manufacturers. They could just 

go after the company who makes the Wi-fi router, right? If they did 

that, they would get one settlement, that would be the end and 

there would be no further lawsuits. 

Instead, they can go after as many people as they want by never 

touching the manufacturers. And this is really what creates the incentive for a lot of these abusive companies to go after end users 

rather than to go after the manufacturers. The fact that instead of 

having just one lawsuit that you fight and, maybe you win, maybe 

you lose, you have an endless stream of revenue. 

Mr. GRIFFITH. All right. 

Mr. BRAGIEL. If it is not Wi-fi today, it is our lock system tomorrow we are afraid or that treadmill in our fitness center. Where 

does this end? That is where we are with this, and you know, if 

we settle one case, does that make us a target for additional patent 

trolls that may say we are an easy target? 

Mr. GRIFFITH. And once they find that you are not an easy target, then they go after the individual consumers who may have 

purchased the same product for their home. 

Mr. BRAGIEL. That is correct. 

84 

Mr. GRIFFITH. They may not be asking for the $5,000, but they 

might very well be asking for $150 or $200. And I can assure you, 

most households are not prepared to receive a letter of that nature. 

I have about a minute-and-a-half left. Does anybody have something that we haven’t touched on today that they would like to 

bring up? Yes, sir? 

Mr. CHENG. In touching on the subject of getting manufacturers—people upstream to stand behind their product, one of the unfortunate side-effects of patent trolling is the fact that a lot of suppliers have actually stopped honoring their indemnification obligations. We have actually had to sue one of our technology platform 

providers because after being sued twice, after they honored the 

first indemnity obligation, they just decided it was too expensive to 

keep stepping up. 

And so even though we are not being—I have submitted this in 

my written testimony—even though we are not really being sued 

anymore, we are still in the game because we are still paying. We 

are still paying, and our customers are still paying. And patent 

trolling is a toll on everybody. 

Ms. FELDMAN. I would like to stress the important role that this 

committee has to play. According to the figures in the White House 

report this summer, conservative estimates show that 90 percent of 

this activity never proceeds to the courthouse. And so the committee has an important role to play in establishing what are fair 

and reasonable business practices as opposed to deceptive practices 

in this particular area of commerce. 

Mr. GRIFFITH. Thank you very much. I yield back, Mr. Chairman. 

Mr. MURPHY. Thank you, and I want to thank everyone for being 

part of this hearing today and also to note that you have stepped 

forward and gave some valuable information. And those of you who 

were willing to come forward in this I think also inspired, hopefully 

inspired, many other businesses not only to step forward when they 

have these concerns, do the kind of things you have done to reach 

out and form some coalitions to fight this but also shine some light 

on this for those who did not even know it was coming. And I hope 

that we will continue this. 

I ask unanimous consent that written opening statements from 

the members be introduced in the record, and without objection the 

documents will be entered into the record. 

So in conclusion, once again, I thank all the witnesses and all the 

members who attended today. I remind members they have 10 

business days to submit further questions for the record, and I 

hope you will be willing to respond to those letters. Thank you very 

much, and please respond promptly to them. 

With that, this hearing is adjourned. 

[Whereupon, at 4:00 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

PREPARED STATEMENT OF HON. FRED UPTON

Today’s hearing will examine certain practices relating to ‘‘patent assertion,’’ or 

the practice of bringing—or threatening to bring—a lawsuit against an organization 

who is allegedly infringing on a patent. Litigation related to patent infringement 

has dramatically spiked in recent years. According to the Government Accountability Office, from 2010–2011, the number of these lawsuits increased by one-third. 

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A report released by the White House in June stated that as many as 100,000 companies were threatened last year with patent infringement lawsuits. 

Members of both the House and Senate have proposed legislation to address patent assertion litigation. Our purpose today is somewhat different. We are taking a 

step back to get the facts about what happens before these patent suits are filed. 

Each of the companies testifying today has received something called a ‘‘demand letter’’ from a patent assertion entity. Typically, these letters claim that the company 

is infringing on a patent and ask the company to either settle and pay a licensing 

fee—or prepare to be sued. 

For some of these companies, dealing with these demand letters and the threat 

of litigation has drained resources that could have been spent on innovation, expanding their companies, and hiring additional employees. In many cases, identifying the specific patent at issue, and who is behind the demand letter, is a challenge, complicating a company’s ability to defend itself and determine whether to 

settle or fight the claim. What entities are sending these demand letters? What patents are being asserted? Do these demand letters specify the particular patent at 

issue and the alleged infringement? What effects and costs do these demand letters 

and litigation threats have on your companies? These are a few of the issues we 

want to address today, so we can get a better understanding of the facts relating 

to these letters, and how they affect the companies who receive them. 

I think all of us recognize that protecting patents and inventions is important. 

Bringing a lawsuit to protect a patent, to protect an invention, is warranted in 

many cases. Those types of cases—where a valid patent is being asserted and protected—seem to be a very different thing from the recent rash of demand letters 

that are vague, do not contain simple information about the patent at issue or the 

alleged infringement, and contain threats to sue unless a company pays up. As job 

creation and innovation are threatened, we want to figure out today what separates 

legitimate patent disputes from the types of demand letters and actions that seem 

to be brought simply to exact a settlement payment. 

# # # 

PREPARED STATEMENT OF HON. G.K. BUTTERFIELD

The importance of patents is highlighted in our Constitution and integrated into 

our country’s legal framework. Patents are designed to spur innovation and stimulate commerce, but more frequently the system is being manipulated to impede 

progress. 

A 2011 piece on National Public Radio titled ‘‘When Patents Attack!’’ discussed 

the ongoing problem of patent assertion entities using intimidating demand letters 

to make opaque patent claims and collect on settlements from other businesses. According to the NPR program, ‘‘our patent system sometimes seems to be discouraging rather than encouraging innovation in high tech businesses.’’ 

NPR aired follow up piece in May showing that the problem has increased in 

scope. Much of the testimony submitted for today’s hearing shows that patent assertion entities are now sending demand letters with contrived patent claims to a wide 

variety of businesses from the high tech to lodging. 

We must find ways protect small businesses and consumers from deceptive and 

malicious practices while ensuring legitimate patent claims are protected. 

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