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Lawmakers differ on how to stop abusive patent-demand letters

WASHINGTON (Reuters) - Members of a U.S. House of Representatives panel disagreed on Wednesday on elements of a bill to rein in companies that demand licensing fees for invalid patents or are otherwise dishonest in writing what are known as "demand letters."

The measure would give the Federal Trade Commission (FTC) the power to impose civil penalties on patent assertion entities, sometimes called "patent trolls," which make dishonest licensing demands.

The bill, introduced by Representative Lee Terry, a Nebraska Republican, would require the agency to prove that a company it wants to penalize has acted in "bad faith." Further, the bill would pre-empt stricter laws already passed by a handful of states.

Terry said his measure "strikes the appropriate balance" by respecting the free speech rights of companies while also stopping them from sending dozens or hundreds of aggressive and sometimes inappropriate letters demanding licensing fees.

A subcommittee of the House of Representatives Energy and Commerce committee debated the bill on Wednesday, with a vote on whether to advance the measure expected on Thursday. It is called the "Targeting Rogue and Opaque Letters Act of 2014," or TROL Act.

Representative Henry Waxman, a California Democrat, opposed portions of the bill that pre-empt state laws or put additional burdens on the FTC to prove a licensing demand is dishonest.

Jan Schakowsky, an Illinois Democrat, agreed. "I don't think the TROL Act adequately solves the problem," she said.

Following the hearing, Terry said he would oppose any effort to allow state laws to supersede the federal bill. He said such a change "simply emasculates" it.

Lawmakers have made several attempts to tackle frivolous patent litigation, which has recently moved from the tech and pharmaceutical sectors into areas such as retailing, where intellectual property is less well known.

In some instances, critics complain companies write letters demanding licensing fees without first establishing that infringement exists or disclosing who owns the patent. Critics say these companies hope to badger their targets into paying out of fear.

The bill allows the FTC to pursue companies that write demand letters if they misrepresent who owns a patent; blanket recipients with unfounded threats of lawsuits; or demand licensing fees for patents that have been declared invalid. The bill sets a maximum penalty of $5 million.

Senator Claire McCaskill, a Democrat from Missouri, has introduced a similar bill in the Senate.

An attempt to win congressional approval for a broader attack on frivolous patent litigation fizzled earlier this year. That effort was led by Senator Patrick Leahy and Representative Bob Goodlatte.

The White House has urged lawmakers to take steps to curb abusive lawsuits. And the FTC has begun a study of patent assertion entities with an eye toward reining in the worst of them.

(Reporting by Diane Bartz, editing by Ros Krasny and David Gregorio)

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