[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]




 
          UPDATE: PATENT DEMAND LETTER PRACTICES AND SOLUTIONS

=======================================================================

                                HEARING

                               BEFORE THE

           SUBCOMMITTEE ON COMMERCE, MANUFACTURING, AND TRADE

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 26, 2015

                               __________

                           Serial No. 114-14
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                           



      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov
                        
                        
                        
                             _________ 

                U.S. GOVERNMENT PUBLISHING OFFICE
                   
 22-285 PDF                WASHINGTON : 2016       
____________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Publishing Office,
Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
  Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001                          
                        
                        
                        
                        
                        
                        


                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
  Chairman Emeritus                    Ranking Member
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
JOSEPH R. PITTS, Pennsylvania        ELIOT L. ENGEL, New York
GREG WALDEN, Oregon                  GENE GREEN, Texas
TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
  Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
CATHY McMORRIS RODGERS, Washington   KATHY CASTOR, Florida
GREGG HARPER, Mississippi            JOHN P. SARBANES, Maryland
LEONARD LANCE, New Jersey            JERRY McNERNEY, California
BRETT GUTHRIE, Kentucky              PETER WELCH, Vermont
PETE OLSON, Texas                    BEN RAY LUJAN, New Mexico
DAVID B. McKINLEY, West Virginia     PAUL TONKO, New York
MIKE POMPEO, Kansas                  JOHN A. YARMUTH, Kentucky
ADAM KINZINGER, Illinois             YVETTE D. CLARKE, New York
H. MORGAN GRIFFITH, Virginia         DAVID LOEBSACK, Iowa
GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
BILL JOHNSON, Ohio                   JOSEPH P. KENNEDY, III, 
BILLY LONG, Missouri                 Massachusetts
RENEE L. ELLMERS, North Carolina     TONY CARDENAS, California
LARRY BUCSHON, Indiana
BILL FLORES, Texas
SUSAN W. BROOKS, Indiana
MARKWAYNE MULLIN, Oklahoma
RICHARD HUDSON, North Carolina
CHRIS COLLINS, New York
KEVIN CRAMER, North Dakota

                                 

           Subcommittee on Commerce, Manufacturing, and Trade

                       MICHAEL C. BURGESS, Texas
                                 Chairman
LEONARD LANCE, New Jersey            JANICE D. SCHAKOWSKY, Illinois
  Vice Chairman                        Ranking Member
MARSHA BLACKBURN, Tennessee          YVETTE D. CLARKE, New York
GREGG HARPER, Mississippi            JOSEPH P. KENNEDY, III, 
BRETT GUTHRIE, Kentucky                  Massachusetts
PETE OLSON, Texas                    TONY CARDENAS, California
MIKE POMPEO, Kansas                  BOBBY L. RUSH, Illinois
ADAM KINZINGER, Illinois             G.K. BUTTERFIELD, North Carolina
GUS M. BILIRAKIS, Florida            PETER WELCH, Vermont
SUSAN W. BROOKS, Indiana             FRANK PALLONE, Jr., New Jersey (ex 
MARKWAYNE MULLIN, Oklahoma               officio)
FRED UPTON, Michigan (ex officio)

                                  (ii)
                                  
                                  
                                  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     1
    Prepared statement...........................................     3
Hon. Janice D. Schakowsky, a Representative in Congress from the 
  State of Illinois, opening statement...........................     4
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     5

                               Witnesses

Laurie Self, Vice President and Counsel, Government Affairs, 
  Qualcomm.......................................................     7
    Prepared statement...........................................     9
Vince Malta, 2015 Law and Policy Liaison, National Association of 
  Realtors.......................................................    16
    Prepared statement...........................................    18
Paul R. Gugliuzza, Associate Professor of Law, Boston University 
  School of Law..................................................    31
    Prepared statement...........................................    33
Vera Ranieri, Staff Attorney, Electronic Frontier Foundation.....    58
    Prepared statement...........................................    60

                           Submitted Material

Letter of February 24, 2015, from Carrie R. Hunt, Senior Vice 
  President of Government Affairs and General Counsel, National 
  Association of Federal Credit Unions, to Mr. Burgess and Ms. 
  Schakowsky, submitted by Mr. Burgess...........................   103
Statement of American Bankers Association, et al., February 25, 
  2015, to Mr. Burgess and Ms. Schakowsky, submitted by Mr. 
  Burgess........................................................   104
Statement of National Retail Federation, et al., February 26, 
  2015, by David French, Senior Vice President, Government 
  Relations, National Retail Federation, submitted by Mr. Burgess   109


          UPDATE: PATENT DEMAND LETTER PRACTICES AND SOLUTIONS

                              ----------                              


                      THURSDAY, FEBRUARY 26, 2015

                  House of Representatives,
Subcommittee on Commerce, Manufacturing, and Trade,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:17 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Michael C. 
Burgess (chairman of the subcommittee) presiding.
    Members present: Representatives Burgess, Lance, Harper, 
Guthrie, Olson, Kinzinger, Bilirakis, Brooks, Mullin, 
Schakowsky, Clarke, Kennedy, Cardenas, and Pallone (ex 
officio).
    Also present: Mr. Massie.
    Staff present: Charlotte Baker, Deputy Communications 
Director; Leighton Brown, Press Assistant; James Decker, Policy 
Coordinator, Commerce, Manufacturing and Trade; Graham Dufault, 
Counsel, Commerce, Manufacturing and Trade; Melissa Froelich, 
Counsel, Commerce, Manufacturing and Trade; Kirby Howard, 
Legislative Clerk; Paul Nagle, Chief Counsel, Commerce, 
Manufacturing and Trade; Olivia Trusty, Professional Staff, 
Commerce, Manufacturing and Trade; Michelle Ash, Democratic 
Chief Counsel, Commerce, Manufacturing and Trade; Lisa Goldman, 
Democratic Counsel, Commerce, Manufacturing and Trade; Tiffany 
Guarascio, Democratic Deputy Staff Director; and Jeff Carroll, 
Democratic Staff Director.
    Mr. Burgess. The Subcommittee on Commerce, Manufacturing, 
and Trade will now come to order.
    The Chair recognizes himself for 5 minutes for the purposes 
of an opening statement. And I certainly want to welcome 
everyone on our panel to the hearing, to provide an update on 
patent demand letters, the practices and possible solutions.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Unfortunately, abusive patent demand letters are not a new 
problem, and they are not new to this subcommittee. Patent 
trolls continue to send demand letters in bulk to induce 
victims to pay unjustified license fees rather than fight back. 
Last year, under Subcommittee Chairman Terry, this subcommittee 
held an oversight hearing, a legislative hearing, and 
eventually produced and marked up draft legislation targeting 
bad-faith demand letters. As this subcommittee learned through 
its process, the act of defining a so-called troll is a 
difficult task. In protecting companies from trolls, 
legislation must also not prevent legitimate patent holders 
from protecting their rights from being infringed upon by other 
actors. But a task that is difficult is not a task that is 
impossible, and I have a sincere belief that in the realm of 
patent demand letters, like so many other areas under the 
jurisdiction of this subcommittee, can effect a bipartisan 
agreement and legislation.
    So here we are in the new year, in a new Congress, and we 
renew the effort to forge ahead to achieve this goal. We again 
take aim to solve a small piece of the patent world that has 
caused some of the greatest consternation. I sincerely believe 
that a targeted solution to this problem is the best one, and I 
hope that our hearing today will restart the conversations on 
how best to stop this activity, yet allow legitimate patent 
holders to proceed.
    The truth is that the destructive business model of the so-
called patent troll has largely skated just beyond the reach of 
law, and as a result, crime pays. And because Federal law has 
been slow to keep up with the evolving world of patent trolls, 
even in a subject area where Federal jurisdiction is clearly 
delineated in the Constitution's Article I enumerated powers of 
Congress, the States now have felt an obligation to begin 
looking at ways to protect their constituent companies. 
Protection of intellectual property rights is a Federal issue. 
Indeed, Article I, Section 8, clause 8 clearly envisions 
Congress as having both the power and the duty to promote the 
Progress of Science and useful Arts, by securing for limited 
Times to authors and inventors the exclusive rights to their 
respective writings and Discoveries. It would appear from the 
stories we have all heard about patent trolls that the 
protection of these rights is not being considered. This 
committee wishes to change that equation.
    I am especially concerned about the effects these fraud 
schemes have on small businesses. When a business receives a 
demand letter, especially one that is intentionally vague or 
misleading, many small business owners simply lack the tools 
necessary to distinguish a bogus assertion from a legitimate 
infringement claim. However, the United States Patent Office 
lists three Web sites; Stand Up To the Demand, ThatPatentTool, 
and Trolling Effects, as resources that companies can use to 
protect themselves. There is work going on beyond this 
subcommittee to address some of this--these issues. For 
example, a number of Web sites have popped up for demand letter 
recipients to verify the legitimacy of infringement claims 
against them. Eighteen States have also enacted legislation, 
and a handful of State attorneys general have brought cases 
under their consumer protection laws.
    As we will discuss today, it may be that State efforts to 
curb patent abuses are on uncertain legal footing due to 
preemption of the First Amendment doctrines that were developed 
by the Federal courts. These doctrines are designed to protect 
the fair assertion of patent rights, and any legislation this 
subcommittee produces must allow legitimate assertions. It is 
my intention that this committee can work with companies who 
own large patent holdings to address this issue. As many 
companies have seen, illegitimate claims could ultimately 
undercut the value of legitimate patents. To help us strike the 
proper balance, we will hear from experts in the field as well 
as representatives from both abusive demand letter victims and 
a large patent holder. We hope this information--this will 
inform the direction of whatever legislation this subcommittee 
ultimately produces. I hope that we may use last year's draft, 
the Targeting Rogue and Opaque Letters Act, as a place to begin 
the discussion. One area where we will need to focus on is how 
the bad faith standard in that legislation would work with the 
required disclosures in the Act. Further, how those required 
disclosures fit with the prohibited bad acts included in the 
draft legislation, and I hope that is an area we can examine 
closely. The subcommittee is eager to work with the panelists 
before us and others to address this problem.
    I thank the witnesses for their testimonies, and I 
certainly look forward to the discussion today.
    [The prepared statement of Mr. Burgess follows:]

             Prepared statement of Hon. Michael C. Burgess

    I want to welcome everyone to our hearing to provide an 
update on patent demand letter practices and solutions. 
Unfortunately, abusive patent demand letters are not a new 
problem, and they are not new to this committee. Patent trolls 
continue to send demand letters in bulk to induce victims to 
pay unjustified license fees rather than fight back.
    Last year, this subcommittee held an oversight hearing, a 
legislative hearing, and eventually produced and marked up 
draft legislation targeting bad-faith demand letters. As this 
committee learned through its process, the act of defining a 
``troll'' is a difficult task. In protecting companies from 
trolls, legislation must also not prevent legitimate patent 
holders from protecting their rights from being infringed by 
other actors. But a task that is difficult is not a task that 
is impossible. I have a sincere belief that the realm of patent 
demand letters, like so many other areas under the jurisdiction 
of this committee, can result in bipartisan agreement and 
legislation.
    Thus, in a new year, in a new Congress, we renew the effort 
to forge ahead to achieve such a goal. We again take aim to 
solve a small piece of the patent world that has caused some of 
the greatest consternation--patent trolls. I sincerely believe 
that a targeted solution to this problem is the best one, and 
hope that our hearing today will restart the conversations on 
how to best to stop patent trolls yet allow legitimate patent 
holders to proceed.
    The truth is that the destructive business model of the 
trolls has largely skated just beyond the reach of law-and as a 
result, it still pays to be a patent troll. And because Federal 
law has been slow to keep up with the evolving world of patent 
trolls--even in a subject area where Federal jurisdiction is 
clearly delineated in the Constitution's Article I enumerated 
powers of Congress--the States have felt an obligation to begin 
looking at ways to protect their constituent companies.
    Protection of intellectual property rights is a Federal 
issue. Indeed, Article I, Section 8, clause 8 clearly envisions 
Congress as having both the power and the duty to ``promote the 
Progress of Science and useful Arts, by securing for limited 
Times to Authors and Inventors the exclusive Right to their 
respective Writings and Discoveries.'' It would appear from the 
stories we have all heard of patent trolls that the protection 
of these rights is being abused. This committee wishes to 
change that equation.
    I am especially concerned about the effects these fraud 
schemes have on small businesses. When a business receives a 
demand letter--especially one that is intentionally vague or 
misleading--many small business owners lack the tools necessary 
to distinguish a bogus assertion from a legitimate infringement 
claim. However, the U.S. Patent and Trade Office lists three 
Web sites--Stand Up To the Demand, ThatPatentTool, and Trolling 
Effects--as resources companies can use to protect themselves.
    There is work going on beyond this subcommittee to address 
some of these issues. For example, a number of Web sites have 
popped up for demand letter recipients to verify the legitimacy 
of infringement claims against them. Eighteen States have also 
enacted legislation and a handful of State attorneys general 
have brought cases under their consumer protection laws. As we 
will discuss today, however, it may be that State efforts to 
curb patent abuses are on uncertain legal footing due to 
preemption and First Amendment doctrines developed in Federal 
courts.
    These doctrines are designed to protect the fair assertion 
of patent rights, and any legislation this subcommittee 
produces must allow legitimate assertions. It is my intent that 
this committee can work with companies who own large patent 
holdings to address this issue. As many companies have seen, 
illegitimate claims could ultimately undercut the value of 
legitimate patents.
    To help us strike the proper balance, we will hear from 
experts in the field as well as representatives from both 
abusive demand letter victims and a large patent holder. We 
hope this will inform the direction of whatever legislation 
this subcommittee ultimately produces. I hope that we may use 
last year's draft, the Targeting Rogue and Opaque Letters--or 
``TROL''--Act, as a place to begin these discussions.
    One area we will need to focus on is how the ``bad faith'' 
standard in that legislation would work with the required 
disclosures in the Act. Further, how those required disclosures 
fit with the prohibited bad acts included in the draft 
legislation is also an area I hope people will look at closely.
    This subcommittee is eager to work with the panelists 
before us and others to address this problem. I thank the 
witnesses for their testimonies and I look forward to our 
discussion today.

    Mr. Burgess. And the Chair now recognizes the subcommittee 
ranking member, Ms. Schakowsky, from Illinois for 5 minutes for 
the purpose of an opening statement.

       OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A 
     REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

    Ms. Schakowsky. Thank you, Mr. Chairman. And much of what I 
will say will echo the things that you have said. The--along 
the lines of the problems of patent trolls. I see the rise of 
these entities as a serious threat to consumers and businesses 
all across the country, and I want to explore whether we can 
strengthen existing protections against them as well.
    Patent assertion entities typically purchase patents and 
then assert that those patents have been infringed, sending 
vague and threatening letters to hundreds or even thousands of 
end users, typically, small businesses or entrepreneurs. Those 
businesses are told that they can pay the patent troll to 
continue using the technology. And considering the cost and 
resources needed to vet and fight a patent infringement claim, 
although the chairman did point out some resources that are 
available, many small businesses do choose to settle the claim 
by paying the troll. Others investigate and fight the claims, 
draining precious resources and stunting the growth of their 
businesses.
    It costs patent trolls virtually nothing to send patent 
demand letters, but they have cost American businesses tens of 
billions of dollars in recent years. At best, patent trolls are 
misleading, and at worst, they are extortionists.
    This is fundamentally a fairness issue. As the subcommittee 
charged with protecting consumers and promoting fair business 
practices, we must work to reduce frivolous patent claims. I am 
glad that the FTC is using its existing authority to order 
injunctions on patent assertion entities that are determined to 
engage in unfair deceptive acts or practices. I believe that if 
we legislate on this issue, we should include new authority for 
the FTC to collect civil penalties for those abuses.
    While we should also make sure that important consumer and 
business protections are guaranteed and enforced at the State 
level, including Illinois, remain in place. Federal legislation 
could also ensure the transparency and baseline standards are 
required for patent demand letters.
    There are many ideas about how to increase transparency, 
including proposals to require information in patent demand 
letters, about the patent-alleged infringement that--the patent 
that is allegedly infringed, and the technology used that 
allegedly infringes on the patent.
    As we consider acting on this issue, we must also recognize 
that many patent infringement claims are reasonable efforts, as 
the chairman mentioned, reasonable efforts to protect 
intellectual property. We also need to be careful to make sure 
that universities, research institutions, and others that 
develop and hold patents, but may not develop products for 
sale, are not unfairly labeled as patent trolls. We should not 
undermine the ability of innovators to develop and defend their 
patents.
    I look forward to hearing the ideas of the panel about how 
we could move forward with legislation, and how it should be 
structured to make sure that patent demand letters are more 
fair and transparent moving forward.
    And I thank you again, Mr. Chairman, for holding this 
hearing. I yield back.
    Mr. Burgess. The gentlelady yields back.
    This is the point where the Chair would normally recognize 
the chair of the full committee, but seeing that--and I do want 
to explain to our witnesses, there is a concurrent subcommittee 
hearing downstairs, and we may well see Members come in and out 
today, and it is not a sign of disrespect, it is a sign of 
there is just a lot of work to be done this morning.
    Mr. Mullin, would you seek time for an opening statement?
    Mr. Mullin. No, thank you.
    Mr. Burgess. Gentleman does not seek time.
    Chair recognizes the ranking member of the full committee, 
Mr. Pallone, for purposes of an opening statement, 5 minutes.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Mr. Chairman.
    The patent system plays a crucial role in promoting 
innovation. It provides an incentive to inventors to make 
costly and time-consuming investments in research and 
development of new inventions. At the same time, the system 
requires that the inventions be disclosed so that others can 
build upon the inventions. Unfortunately, there are a number of 
problems with the patent system, and reforms are needed.
    I have long pushed to reduce the backlog of patent 
applications at the Patent and Trade Office, but we also need 
to work to address the concerns that some applications are 
being approved for inventions that are not truly new or non-
obvious. In addition, the patent litigation system must be 
streamlined.
    While most patent-related issues are under the purview of 
the Judiciary Committee, and I look forward to its action on 
patent system reform, the Energy and Commerce Committee is 
responsible for efforts to curb fraud. And one part of the 
patent litigation area in need of attention is the rise of so-
called patent trolls, and the sometimes fraudulent demand 
letters they send to small businesses. This trolling activity 
is a problem. Patent trolls do not invent, make or sell 
anything. Instead, they buy up large numbers of patents, often 
of suspect validity, and then send demand letters or bring law 
suits using the complexity of the patent system and the high 
cost of litigation as leverage to force licensing fees or 
settlements. It is not fair to the targets of these predatory 
tactics, nor does it serve the interests of true innovators.
    And efforts to combat abusive demand letters have already 
begun. Some State attorneys general have taken legal action to 
protect their citizens from unfair and deceptive demand 
letters. In addition, 18 States have already enacted 
legislation to tackle this abusive activity. Furthermore, the 
FTC brought an administrative complaint against MPH 
Technologies, a well-known patent troll. That case was recently 
settled through a consent order that prohibits MPHJ from making 
deceptive statements in its demand letters.
    Last Congress, this committee held three hearings, and the 
subcommittee marked up a bill which I believe included 
problematic language. Among other things, it created a 
knowledge standard, one not typically needed to prove fraud, 
and it preempted stronger State laws. I am happy that this 
issue is being given a fresh review this Congress in an effort 
to get the language right and work in a bipartisan fashion. If 
we as a Congress choose to legislate in this area, we need to 
make sure that we are furthering the interests of the consumer, 
end users and small businesses, while protecting the vitality 
of the patent system.
    So today's hearing presents an opportunity to hear from 
witnesses about how big is the problem of fraudulent demand 
letters, and whether there is an appropriate legislative fix. 
And I look forward to hearing the witnesses' thoughts on this 
issue, and their ideas for possible solutions.
    I yield back.
    Mr. Burgess. The gentleman yields back.
    This concludes opening statements.
    We want to welcome all of our witnesses, and thank you for 
agreeing to testify before the subcommittee today. Our witness 
panel for today's hearing will include Ms. Laurie Self, the 
Vice President and Counsel of Government Relations, will be 
testifying on behalf of Qualcomm; Mr. Vince Malta, Liaison for 
Law Policy at the National Association of Realtors; Mr. Paul 
Gugliuzza, close enough, Associate Professor at Boston 
University School of Law; and Ms. Vera Ranieri, Staff Attorney 
for the Electronic Frontier Foundation. We welcome you all to 
the committee.
    And, Ms. Self, we will start with you. You are recognized 5 
minutes for the purpose of an opening statement.

    STATEMENTS OF LAURIE SELF, VICE PRESIDENT AND COUNSEL, 
GOVERNMENT AFFAIRS, QUALCOMM; VINCE MALTA, 2015 LAW AND POLICY 
 LIAISON, NATIONAL ASSOCIATION OF REALTORS; PAUL R. GUGLIUZZA, 
 ASSOCIATE PROFESSOR OF LAW, BOSTON UNIVERSITY SCHOOL OF LAW; 
     AND VERA RANIERI, STAFF ATTORNEY, ELECTRONIC FRONTIER 
                           FOUNDATION

                    STATEMENT OF LAURIE SELF

    Ms. Self. Thank you. Chairman Burgess, Ranking Member 
Schakowsky and Members of the subcommittee, thank you for the 
opportunity to appear today to discuss patent demand letters. 
My name is Laurie Self, and I am Vice President and Counsel, 
Government Affairs for Qualcomm. Qualcomm is a member of the 
Innovation Alliance, a coalition of research and development 
focused companies that believe in the critical importance of 
maintaining a strong patent system.
    Qualcomm is a major innovator in the wireless 
communications industry, and the world's leading supplier of 
chipsets that enable 3G and 4G smartphones, tablets and other 
devices. Qualcomm's founders are the quintessential example of 
American inventors in the garage who build one of the world's 
foremost technology companies. Today, the technologies invented 
by our engineers help make nearly everything you do with your 
smartphone--help everything you do with your smartphone, from 
browsing the internet, to sharing videos, to using GPS 
navigation. We are an invention hub for the mobile age, having 
spent more than $34 billion on R and D since the company was 
founded in 1985. Through the broad licensing of our patented 
technologies, Qualcomm has helped foster a thriving mobile 
industry that accounts for more than one million jobs, and $548 
billion of U.S. gross domestic product. Qualcomm itself has 
more than 31,000 employees, the vast majority of whom are 
engineers based in the United States.
    It is worth noting that Qualcomm is not a plaintiff in any 
pending patent litigation, but we are a defendant in several 
patent infringement law suits, some of which were brought by 
so-called patent assertion entities. However, I am not here to 
criticize or defend PAEs, but instead to address what we 
believe should be the proper focus of any patent demand letter 
legislation; namely, targeting abusive demand letter activities 
without unintentionally damaging important patent rights.
    Notice letters play an important role in the patent system 
for both patent holders and accused infringers. Patent law 
encourages, and sometimes requires patent holders to take 
reasonable steps to notify others of possible infringement. 
Meaningful patent protection including the ability to provide 
notice is a key factor for companies like Qualcomm in deciding 
whether to invest in new products and technologies. Qualcomm 
appreciates the committee's interest in curtailing abusive 
demand letter activities. At the same time, we urge the 
committee to be cautious so as to not inadvertently hinder 
legitimate patent enforcement practices. A demand letter law 
that makes patent notification or enforcement too burdensome, 
too costly or too risky may deter appropriate notice activity. 
If valid patent owners are afraid to seek compensation for use 
of their inventions, the whole patent-based system of 
incentivizing innovation is undermined.
    Qualcomm supports the Demand Letter Bill that passed this 
committee in July 2014, the Targeting Rogue and Opaque Letters 
Act. The TROL Act includes several key features that are 
necessary to strike the appropriate balance. First, the bill 
clarifies rather than expands the FTC's existing authority 
under Section 5 to address abusive demand letters.
    Second, the bill is limited to situations in which the 
sender has engaged in a pattern or practice of mailing bad 
faith demand letters to consumers. The pattern or practice 
requirement appropriately targets the mass mailing of deceptive 
demand letters, and it is consistent with the FTC's Section 5 
authority. An explicit bad faith requirement is necessary to 
protect patent holders' constitutional rights. Patent property 
rights are rooted in Article I of the Constitution, and the 
First Amendment provides strong protections for patent demand 
letters. As courts across the country have recognized, pre-law 
suit communications implicate both the freedom of speech and 
the constitutional right to petition the Government. To conform 
with the constitution, legislation must avoid punishing patent 
holders for good faith conduct. By clarifying the FTC's 
enforcement authority under Section 5, the bill is limited to 
communications sent to consumers, including mom and pop 
retailers, which protects those most vulnerable to abusive 
demand letters, while reducing the risk that the FTC will be 
drawn into business-to-business disputes.
    Third, the bill clearly describes the conduct that will be 
considered unfair and deceptive, and does not impose overly 
burdensome disclosure requirements.
    Fourth, the bill preempts State demand letter laws that 
allow State attorneys general to bring enforcement actions 
under the Federal statute.
    With nearly 20 State legislatures having passed such bills 
over the past 2 years, and another dozen considering such a 
bill now, it would be extremely burdensome to subject patent 
owners to a patchwork of different demand letter requirements 
in every State. Preemption is appropriate and necessary in the 
demand letter context because unlike the TROL Act, many of 
these State demand letter laws are overly broad in scope, 
highly burdensome to patent owners, and risk penalizing 
ordinary commercial and pre-litigation communications, which 
are protected under the First Amendment.
    These four features are critical to Qualcomm's support, and 
we urge the committee to retain these requirements and 
limitations in the bill. Qualcomm looks forward to working with 
the committee in its efforts to achieve a balanced and 
narrowed-tailored bill.
    Thank you for allowing me to testify today, and I look 
forward to answering your questions.
    [The prepared statement of Ms. Self follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
    
    
        Mr. Burgess. Gentlelady yields back. Thank you for your 
testimony.
    The Chair recognizes Mr. Malta 5 minutes for the purposes 
of an opening statement please.

                    STATEMENT OF VINCE MALTA

    Mr. Malta. Chairman Burgess, Ranking Member Schakowsky, and 
Members of the subcommittee, my name is Vincent Malta. I am the 
broker of record for Malta and Company in San Francisco, 
California. I serve as the 2015 National Association of 
Realtors' Liaison for Law and Policy, and I am here to testify 
on behalf of the one million members of NAR.
    I am also here representing United for Patent Reform 
Coalition, a broad and diverse group of Main Street, high tech 
and manufacturing companies that have united to urge the 
passing of strong, commonsense patent reform.
    In the real estate industry, patent trolls have targeted 
Realtor brokers, agents and multiple listing services for 
implementing simple Web site technologies. Here are 5 examples 
where patent trolls have alleged infringement. First, the Real 
Estate Alliance Ltd. Filed an infringement law suit against a 
broker and other unnamed defendants, charging that zooming in 
to locate points on a map was an infringement. The case was 
eventually dropped after 2 years.
    Second, a company called Civix-Ddi LLC charged that 
providing a searchable data base of property listings infringes 
its patents. Civix have targeted not only multiple listing 
services in the real estate industry, but Microsoft, Expedia, 
Move and other companies. NAR decided to settle this case for 
$7.5 million, fearing that the cost of letting the case go to 
trial would be exponentially more expensive.
    Third, Data Distribution Technologies charged that a number 
of real estate firms were in patent violation by providing 
updates to consumers when properties matched their search 
criteria are coming on the market. This patent is undeniably 
abstract because it describes what any real estate professional 
already does. The real estate companies had to expend time and 
money to challenge the validity of this abstract patent, 
finally settling after 2 years.
    The Austin Board of Realtors received a demand letter 
alleging patent infringement for having a drop-down menu on 
their Web site.
    And finally, NAR members received abusive demand letters 
from the MPHJ Technologies troll that notoriously sent over 
16,000 demand letters to businesses, demanding payment for 
using basic scan-to-mail technology.
    Simply put, these patent trolls make everyday business 
practices potential law suits. Patent trolls typically start by 
sending form demand letters to dozens, hundreds, or even 
thousands of businesses at a time. They claim these businesses 
are infringing on patents, but provide little to no evidence. 
Typically, the sender will list a patent number only, with no 
reference to which claim within the patent is alleged to have 
been infringed. The letters are often intentionally vague, and 
demand a licensing fee or threaten litigation. If the business 
does speak with a lawyer, they are often advised to pay the fee 
rather than risk very costly infringement law suits. This 
essentially is a junk mail approach that is clogging up our 
legal system. NAR members and other small businesses rightfully 
feel extorted by this process.
    In 2013, more than 2,600 companies were sued by patent 
trolls, representing 60 percent of all patent infringement 
cases brought that year. Small and medium-sized companies paid 
on average $1 \1/3\ million dollars to settle patent troll 
cases, and $1.7 million on average in court defense costs for 
patent troll litigation. Economists estimate that in 2011, 
patent trolls cost operating companies $80 billion in direct 
and indirect costs. That is more than the $66 billion State 
budget of Illinois, and in 2013, almost reaches the $96 billion 
State budget in Texas. This is a serious problem for the 
American business community, in particular, small businesses 
who lack the resources to fight these pointless battles. NAR's 
most recent surveys indicate that more than half of all realty 
firms have less than 25 agents.
    In the last Congress, this subcommittee passed legislation 
aimed at addressing demand letter abuse. NAR and the Coalition 
appreciated the subcommittee's work on the Targeting Rogue and 
Opaque Letters Act. As the subcommittee considers legislation 
in this Congress, we ask that you consider a few essential 
guidelines. Fundamentally, patent demand letters must be held 
to a practical standard of transparency. They must specify the 
relevant patent claim at issue, they must detail all businesses 
allegedly infringed, they must include a description of the 
patent troll's investigation of the alleged infringing 
activity, and they must disclose the real parties and interest 
to the dispute. This minimum information will help recipients 
to thoughtfully review whether infringement allegations merit 
an agreement to license.
    In conclusion, NAR and the United for Patent Reform 
Coalition urge Congress to act swiftly to enact meaningful 
demand letter reform for the good of our Nation's small 
business community, and while demand letter reform is crucial, 
as an important first step towards broader patent reform, it 
requires comprehensive and multifaceted reforms.
    Thank you for your consideration of our views.
    [The prepared statement of Mr. Malta follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
    
    
    
    Mr. Burgess. Gentleman yields back. Chair thanks the 
gentleman for his testimony.
    Professor Gugliuzza, you are now recognized for 5 minutes 
for the purposes of an opening statement.

                 STATEMENT OF PAUL R. GUGLIUZZA

    Mr. Gugliuzza. Chairman Burgess, Ranking Member Schakowsky, 
Members of the subcommittee, thank you for inviting me to 
testify. My name is Paul Gugliuzza, and I am an associate 
professor of law at Boston University School of Law.
    My research focuses on patent law and patent litigation. 
Most relevant to this hearing, I have spent the past 2 years 
studying the issue of patent demand letters, focusing in 
particular on efforts by both State governments and the Federal 
Government to address the problem of unfair and deceptive 
conduct in patent enforcement.
    To briefly summarize my conclusions, a small number of 
patent holders, often called bottom feeder patent trolls, have 
been abusing the patent system. These patent holders blanket 
the country with thousands of letters demanding that the 
recipients purchase a license for a few thousand dollars, or 
else face an infringement suit. The letters are usually sent to 
small businesses, nonprofits that do not have the resources to 
defend against claims of patent infringement. And the letters 
often contain false or misleading statements, calculated to 
scare the recipient into purchasing a license without 
investigating the merits of the allegations.
    In response to this troubling behavior, legislatures in 18 
States have adopted statutes that, generally speaking, outlawed 
bad faith assertions of patent infringement. These statutes, 
however, may be unconstitutional. The U.S. Court of Common 
Pleas Appeals for the Federal Circuit, which hears all appeals 
in patent cases nationwide, has held that patent holders are 
immune from civil claims challenging their acts of enforcement 
unless the patent holder knew that its infringement allegations 
were objectively baseless. This rule could provide patent 
holders with nearly absolutely immunity from liability under 
the new statutes. In fact, the rules already immunize two 
notorious trolls; Innovatio IP Ventures and MPHJ Technology 
Investments, from legal challenges to their enforcement 
campaigns under State consumer protection laws.
    Although the Federal circuit has sometimes called this 
immunity rule a matter of the Federal Patent Acts' preemption 
of State law, this rule could also limit the ability of the 
Federal Government to regulate patent enforcement behavior. 
This is because the Federal circuit's decisions are not 
grounded in the Constitution's Supremacy Clause, which is the 
usual source of preemption doctrine, but in the First Amendment 
right to petition the Government. Unlike the Supremacy Clause, 
the First Amendment limits the power of the Federal Government, 
not just State governments. Accordingly, patent holders may 
also be able to invoke this immunity to thwart Federal 
initiatives to fight patent trolls, including any legislation 
this committee might consider.
    To be clear, no court has yet addressed the 
constitutionality of the new State statutes. Moreover, as I 
discuss in more detail in my written statement, there is a 
strong argument that the Federal circuit's immunity doctrine is 
wrong as a matter of law, policy and historical practice. So it 
is entirely possible that the Federal circuit can revise its 
immunity doctrine to accommodate greater regulation of patent 
enforcement conduct. Indeed, the Federal circuit keeps close 
watch when Congress is considering amending patent law, and in 
the past decade, the court has repeatedly revised its case law 
to align with proposed legislation.
    This hearing provides a welcome occasion to discuss the 
innovative steps that State governments have taken to combat 
unfair and deceptive patent enforcement. Any bill advanced by 
this committee should, in my view, capitalize on the respective 
strengths of State governments and the Federal Government in 
this area. The strengths of State governments include, first, 
the quantity of law enforcement resources that could be 
provided by dozens of States attorneys general offices 
cooperating to fight abusive patent enforcement. And second, 
the accessibility of State governments to the small businesses, 
nonprofits and local governments most likely to be targeted by 
deceptive campaigns of patent enforcement. By contrast, Federal 
legislation on patent demand letters would provide the benefits 
of legal uniformity and predictability for patent holders about 
whether or not their enforcement actions are legal. In 
addition, as I explained in my written testimony, Federal 
legislation could clarify difficult jurisdictional issues that 
currently arise in cases challenging the lawfulness of patent 
enforcement conduct.
    If this committee determines that Federal legislation is 
warranted, that legislation should, in my view, specifically 
condemn bad faith assertions of patent infringement. Until the 
Federal circuit adopted its objective baselessness requirement, 
courts had applied a bad faith standard for nearly a century, 
striking an appropriate balance between the goals of punishing 
extortionate schemes of patent enforcement, and respecting 
patent holders' rights to make legitimate allegations of 
infringement.
    Thank you again for inviting me to testify, and I would be 
pleased to answer any questions the committee might have for 
me.
    [The prepared statement of Mr. Gugliuzza follows:]
    
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
    
    
    
    
    Mr. Burgess. Gentleman yields back. The Chair thanks the 
gentleman for his testimony.
    Ms. Ranieri, you are recognized for 5 minutes for the 
purposes of an opening statement.

                   STATEMENT OF VERA RANIERI

    Ms. Ranieri. Mr. Chairman, Ranking Member Schakowsky, and 
Members of the subcommittee, thank you for the opportunity to 
be here today.
    For those of you who aren't familiar with my organization, 
the Electronic Frontier Foundation, or EFF, we are a nonprofit 
organization dedicated to protecting consumer interests, 
innovation and free expression in the digital world. As part of 
that work, we regularly advocate for reform of the patent 
system in courts, Congress, and at the Patent and Trademark 
Office. EFF is greatly encouraged by Congress' interest in the 
important issue of deceptive and abuse patent rule demand 
letters, and its impact on consumers and small businesses.
    EFF is one of the few nonprofit legal services 
organizations that small businesses and innovators can turn to 
in order to get help when faced with a patent troll demand 
letter. Unfortunately, we cannot help everyone, and more 
importantly, because of a lack of meaningful, manageable legal 
options, we are too often unable to help push back against 
those who use deceptive patent demand letters in order to 
extract money from their victims.
    The problem of abusive patent rule demand letters is a 
result of a perfect storm of circumstances. Patent owners 
sending these letters use vague and overbroad patents that 
likely never should have issued, in order to confuse and 
obfuscate. Patent owners rely on the eye-popping cost of 
litigation in order to intimidate, and patent owners take 
advantage of their victims' relative lack of experience with 
technology and the legal system to ensure improper claims of 
infringement go unchallenged. For example, in 2011, a company 
known as Eclipse IP sent demand letters to various retailers 
alleging infringement of patents on tracking packages through 
the use of UPS tracking. Eclipse demanded licenses in the 
hundreds of thousands of dollars. Seeing their customers being 
targeted, UPS filed a declaratory judgment of non-infringement 
and invalidity, but before the court could address whether 
Eclipse's claims of infringement had merit, Eclipse filed what 
is known as a covenant not to sue. In doing so, Eclipse ensured 
that its patent rights would not actually be litigated, that 
is, they did everything in their power to stop the court from 
deciding the merits of its claims. Eclipse apparently merely 
wanted to extract settlements from its victims, despite 
assertions in its demand letter that it would engage in 
litigation if its licensing demands were not met. Since 2011, 
Eclipse has sued over 100 companies and presumably sent letters 
to countless others.
    Letters and actions like Eclipse's are all too common. 
Other letters employ tactics such as not mentioning licenses 
that likely exhaust patent rights, or use complex and vague 
nonsense terms from the patent in order to make infringement 
claims that would never have been apparent to someone reading 
the patent. Dealing with even the most frivolous of letters 
takes time and money away from what small businesses should be 
doing, which is growing their business and creating jobs.
    I could tell many more stories, but most demand letters 
never see the light of day. Recipients of letters from patent 
trolls are often afraid of speaking out, and no wonder, by 
speaking out, they worry they would become an even bigger 
target and subject to even larger demands they cannot afford. 
Patent trolls use this fact to hide their practices from 
scrutiny and from lawmakers and the public.
    Deceptive and unfair patent troll demand letters must be 
addressed, but it is important to address them in a way that 
makes sense. Specifically, Congress should not limit the 
ability of State attorneys general to protect their citizens, 
whether that be through State laws addressing abusive demand 
letters, or through their own little FTC acts. State AGs are 
often the closest to the problem, and in the best position to 
address deceptive practices targeted at their citizens. Second, 
Congress should allow for flexibility in the law. Overly rigid 
rules regarding what constitutes bad faith will allow patent 
trolls to comply with the letter of the law but not the spirit. 
As a lawyer, I can assure you that we are enterprising people. 
If there is a loophole to be found, we will find it. 
Flexibility is key to ensuring patent trolls don't find new 
ways to deceive their targets.
    Finally, in order to protect technology end users such as 
retailers and tracking--such as retailers implementing tracking 
technology, or the coffee shop offering Wi-Fi, Congress should 
mandate disclosure requirements. Through these disclosure 
requirements, Congress can better understand the scope of the 
problem, and agencies such as the PTO, the FTC, and nonprofit 
organizations such as EFF, can better target those practices 
and those patents that are being abused.
    Addressing the deceptive patent troll demand letter problem 
is an important piece of broader patent reform. In tandem with 
other measures, we can limit the ability of patent holders to 
use patents that never should have been issued, to extort 
undeserved money from those who just want to pursue their 
livelihoods.
    Thank you, and I look forward to your questions.
    [The prepared statement of Ms. Ranieri follows:]
    
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
    
    
    
    Mr. Burgess. Gentlelady yields back. The Chair thanks the 
gentlelady and all the witnesses for their testimony this 
morning. Very informative, very helpful. Professor, I am now 
reminded why I didn't go to law school. But complex discussion, 
and certainly the issues you bring before us are of importance.
    Chair now moves to the questioning part of the hearing. I 
want to recognize myself 5 minutes for questions.
    Also, just an observation. When this issue came up in 
previous Congress, when Chairman Terry was in charge of the 
subcommittee, I think it actually to the--before the Rules 
Committee, and we had a Member who appeared before the Rules 
Committee and said he was conflicted because some days he was 
asserting he was a patent troll, other days he was not, and 
defending a patent. So it did underscore for me how there could 
be actually people on both sides of the issue.
    But let me just ask this question to start off for the 
entire panel. I would like to get everyone's thoughts on this. 
And, Ms. Self, we will start with you and then move down the 
panel. How does the--has the concept of bad faith been applied 
in patent law, and how should it apply to the demand letter 
context?
    Ms. Self. I think the concept of bad faith is critical in 
the patent demand letter context because it prevents the use of 
antitrust or Section 5 enforcement authority in a manner that 
would violate the patent owner's constitutional rights, and as 
has been said, those rights include First Amendment rights of 
free speech, rights to petition, but also the right to 
communicate about your patent is fundamental to your ability to 
enforce your patent.
    If you think about how patent owners sort of alert the 
world to the fact that they have a patented invention, and this 
has been true from the first, you know, the first days of our 
patent system, you make a public disclosure of the patent 
application as kind of a quid pro quo, if you will, for the 
right to enforce your patent, but your ability to enforce your 
patent is dependent on communication. If you are stifled in 
your ability to communicate about your patent, to make good 
faith communications about your patent, then effectively your 
patent is not enforceable.
    So bad faith is really critical to delineate the kind of 
conduct that would be appropriate for FTC enforcement. And I 
think it is also important to send a signal to State 
enforcement authorities that legitimate patent demand 
correspondence should not be the subject of State enforcement 
activity or Federal enforcement activity.
    So bad faith is really the cornerstone, if you will, in our 
ability to strike that right balance between protecting the 
interests of recipients who may be receiving these deceptive 
communications, but also supporting the vast majority of 
legitimate communications that are really fundamental to our 
innovation economy.
    Mr. Burgess. I might come back to you because you brought 
up the issue of pattern of practice, but I want to go down the 
panel for just a moment.
    Mr. Malta, the concept of bad faith?
    Mr. Malta. Chairman Burgess, I am a Realtor and my members 
sell the American dreams. And entrepreneurs in the coalition 
are hard-working business people that are trying to provide 
services to Americans every day.
    The concept of bad faith is a legal one, and that involves 
an attorney, and that involves time and money, and I can give 
you examples of what our members have gone through just on its 
face. This is not about stifling innovation, this is about 
stopping deceptive practices. So when I hear bad faith it means 
that my members will have to go to an attorney, seek counsel. I 
have many small business members as well as in the coalition. 
So that does not resolve the issue, especially for the small 
business people of America.
    Mr. Burgess. And, Professor, defining bad faith?
    Mr. Gugliuzza. Yes, fortunately, there is a lot of judicial 
case law applying in bad faith standard. At the time the 
Federal circuit was created, which is back in 1982, the lower 
Federal courts for nearly a century had been addressing this 
question of when may a patent holder be liable for its 
enforcement conduct, and they had enjoined patent holders from 
making infringement allegations in bad faith. But the Federal 
circuit has largely ignored that long line of decisions, 
instead demanding that anybody who challenges patent 
enforcement conduct prove that the infringement allegations 
were objectively baseless.
    Historically, you know, the courts treated bad faith as 
sort of a flexible standard that had both subjective and 
objective components. So under the standard, courts--you would 
see courts enjoining or punishment enforcement campaigns, for 
example, where the patent holder threatened a large number of 
accused infringers, or threatened law suits but failed to 
actually ever file them. But at the same time, I think these 
cases where enforcement conduct was punished were usually 
egregious and they often involved claims that were objectively 
weak on the merits. And so I think a good faith standard, 
particularly when it is grounded in that pre-Federal circuit 
case law, would protect patent holders' ability to provide 
legitimate notice of their patent rights, but also offer the 
Government some leeway to punish the most deceptive and 
problematic behavior.
    Mr. Burgess. And, Ms. Ranieri, on the concept of bad faith?
    Ms. Ranieri. The Electronic Frontier Foundation, as a 
digital civil rights and civil liberties organization, is a 
strong believer in the First Amendment. At the same time, I 
would like to echo what Professor Gugliuzza, apologies, said, 
that I believe the Federal circuit has narrowly ruled in a way 
that is inconsistent with precedent and the law, and I believe 
its ruling about what constitutes bad faith is overly narrow.
    There is room within the Constitution to regulate bad faith 
behavior, as well as respecting First Amendment rights. I would 
echo Professor Gugliuzza's statements that the courts are very 
good at determining what bad faith is, and I think we should 
leave it to them and also to agencies who are used to seeing 
bad faith behavior to figure out what exactly the contours of 
that is.
    Mr. Burgess. My time has expired. I thank the panelists for 
their responses.
    Recognize Ms. Schakowsky 5 minutes for questions please.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    So States have, up until now, been leaders in the effort to 
combat abusive patent trolls. Currently 18 States including 
mine, Illinois, have enacted legislation regulating patent 
demand letters, and some State attorneys general have initiated 
legal action against patent trolls under their consumer 
protection authority. Under both the new patent demand letter 
laws and general State consumer protection laws, many State 
attorneys general have certain remedies available to them, 
including equitable relief, civil penalties and attorneys fee.
    The TROL Act that passed out of the subcommittee last 
Congress included a provision that would preempt the State laws 
that regulate patent demand letters.
    So first, Ms. Ranieri, you testified that Federal 
legislation, in fact, should not preempt State laws that 
address issues those States have encountered with patent 
trolls. So why is it important do you think that we not preempt 
State laws?
    Ms. Ranieri. Thank you. That is a good question. One of the 
most important reasons that this Government should not preempt 
State patent troll demand letter laws is that people who 
receive these letters often don't know who to turn to, and the 
first person they often turn to are the State AGs and the State 
agencies. And they are often the first line of defense for 
people to protect themselves. The State AGs have the most 
experience with what their citizens are receiving, and they are 
in the best position to see new developments in the patent 
troll demand letters, and to see the new deceptive practices as 
they arise, and legislate against that type of activity.
    Ms. Schakowsky. So have we seen any instances where there 
has been any problem with the fact that State attorneys general 
have been exercising that authority?
    Ms. Ranieri. None that I am aware of.
    Ms. Schakowsky. OK. Professor, let us establish how your 
name is actually pronounced. Say it again.
    Mr. Gugliuzza. Good, because I was about to apologize to 
the committee because I feel like this issue has sort of taken 
over the entire hearing.
    Ms. Schakowsky. No, I think we should apologize. Go ahead.
    Mr. Gugliuzza. It is Gugliuzza.
    Ms. Schakowsky. OK, Gugliuzza. OK.
    Mr. Gugliuzza. Very good.
    Ms. Schakowsky. The benefit of preemption would be to 
provide a uniform legal standard. In your testimony though you 
raised the question of whether uniformity is, in fact, an 
important enough policy goal that it should outweigh the 
benefits of State laws on demand letters. I am wondering if you 
could expand on the benefits--also expand on the benefits of 
not preempting State laws.
    Mr. Gugliuzza. Sure. You know, one of the benefits, as Ms. 
Ranieri mentioned, obviously, is the enforcement capabilities 
of dozens of States attorneys general offices might bring to 
the table. The other is the accessibility of the State 
governments or some of these small organizations that might be 
targeted. And then third, you know, I think the--in terms of 
forming the substance of a law, I think, you know, what we can 
see from some of these States' statutes are maybe some examples 
that might be informative to Congress if you were to choose to 
decide to legislate federally. So allowing these ideas to 
percolate among the State legislatures allow the States to try 
to figure out, you know, how do we draw the line from the--
between the bad actors and the patent holders who are asserting 
their rights legitimately. I think the State legislation can 
shed a lot of light on those questions.
    Ms. Schakowsky. Thank you.
    Ms. Ranieri, in addition to the issue of preemption, you 
testified that Congress should not prohibit or discourage 
enforcement of the FTC Act by States. Can you expand on why 
State enforcement in this instance is so critical?
    Ms. Ranieri. I think it is for the similar reasons that I 
just mentioned, and also that Professor Gugliuzza also 
mentioned. State AGs have resources that the FTC might not 
have. The FTC might only have the ability to go after the worst 
actors, but that doesn't mean that there are others that are 
abusing the system. And State AGs provide a secondary line of 
defense in order to go after those who are targeting particular 
citizens in those States.
    Ms. Schakowsky. And last to you as well. The last Congress 
TROL Act limited the remedies available to State attorneys 
general to an injunction and compensatory damages on behalf of 
recipients who suffered actual harm. Would the limitation of 
remedies discourage States from enforcing patent demand 
legislation?
    Ms. Ranieri. It may, and I think that is a definite concern 
that this committee should have. Importantly, this sort of 
regulating unfair and deceptive practices is usually considered 
to be an equitable sort of action. Courts are very good at 
fashioning under-equitable remedies; the type of remedy that is 
appropriate given the circumstance. And it may, if absent, more 
punitive consequences to patent hold demand letters, they may 
just shift their activities, seeing no actual consequence to 
their bad activities.
    Ms. Schakowsky. Thank you. Clearly, this will be an issue 
that we will want to discuss further among our members, so I 
thank you.
    And I yield back.
    Mr. Burgess. Chair thanks the gentlelady. The gentlelady 
yields back.
    The Chair would like to recognize the attendance of a 
Member who is not a member of the subcommittee, but Mr. Tom 
Massie from Kentucky, from the Bluegrass State, and a noted and 
world-famous inventor. We welcome your presence here today. 
Thank you.
    The Chair would now recognize Mr. Mullin from Oklahoma for 
5 minutes for questions, please.
    Mr. Mullin. Thank you, Mr. Chairman. And just so I don't 
mess up your last name, Paul came and introduced himself to me 
earlier. He is from the great State of Oklahoma, went to Bishop 
Kelley in Tulsa, Oklahoma, and I guess your parents still live 
in Bixby?
    Mr. Gugliuzza. That is correct.
    Mr. Mullin. And so it is always good to see a friendly face 
in town.
    My first question would be for Mr. Malta. We just heard the 
conversation about our attorney generals, and so I am going to 
kind of stay on that focus. My own State of Oklahoma has laws 
specifically against abuse of patent demand letters. I want to 
make sure that my constituents are also protected from these 
type of letters, and if our committee drafts legislation 
prohibiting these types of letters, should attorney generals be 
able to enforce those laws?
    Mr. Malta. Our members believe that, yes, that they should, 
and that there--that we are more concerned about the outcome as 
to the protections because our members are in all 50 States. So 
if you are arguing preemption, et cetera, that at least there 
be some immediate baseline standard that is created, and that 
if States want to come and they want to make laws that are even 
more restrictive, by all means, go ahead, but we want something 
done in the very near term that affects our members in all 50 
States.
    Mr. Mullin. My next question is for Ms. Self. What if 
Qualcomm was hit from a law suit, let us say, from Oklahoma's 
attorney general then Vermont's attorney general, then say 
Illinois' attorney general, should a company be exposed to 
liability from every State enforcement agency? If not, why not?
    Ms. Self. Thank you for that question. Sorry, thank you for 
that question. And before I respond to that specific question, 
let me just say something about the preemption issue and the 
way the TROL Act was structured last year, at least. It did 
permit State attorneys general to bring enforcement actions 
under the Federal framework that was set out in the statute, 
and it would have, to your question, allowed more than one 
State attorney general to bring an action, assuming that the 
Federal Trade Commission had not already brought an action. And 
we thought that that was a balanced approach to the problem. 
The challenge that we are seeing at the State level with nearly 
20 laws that have passed, and another dozen or so that are 
pending, is that you are seeing a patchwork, if you will, of 
demand letter laws that all include different standards, 
different penalties. Some are very broad in scope. They don't 
clearly delineate the kind of activity that would fall within 
the demand letter. Sixteen out of eighteen would include a 
private cause of action. And, you know, to the point that was 
made about enterprising lawyers, I think it is inevitable that 
you will see a cottage industry evolve around harassing 
inventors under these laws. So the preemption language of the 
bill is really critical to make sure that you have a nationwide 
uniform framework that provides consumers, recipients with the 
guidance they need to understand what is deceptive behavior. 
And again, I think the bill does a good job of delineating what 
is deceptive statements in the context of a demand letter, as 
well as required disclosures, but it also puts the millions of 
small inventors in this country on notice as to what is 
appropriate or inappropriate.
    And so as we think about traditional State enforcement 
under unfair trade practices laws, we have to keep in mind that 
these are communications involving patent rights. These are 
rights that are rooted in the Constitution, they are dependent 
on the ability of the patent owner to exercise their First 
Amendment rights. And so this is really a very different 
dynamic than the normal activities that State enforcement 
authorities focus on.
    So we think the approach of the TROL Act is really the 
right approach, and it protects all interests in a balanced 
way.
    Mr. Mullin. Thank you. And I will try to be quick on this 
last question for Mr. Malta. The Realtors that you represent 
are exactly the type of small businesses that are near and dear 
to my heart. Could you please tell us specifically the type of 
information that needs to be included in a demand letter that 
would allow businesses that receive them to understand what 
they are accused of, and to what extent they need to take legal 
action on?
    Mr. Malta. OK, thank you. Yes, in creating greater 
transparency, 4 items, OK. First one, specify the relevant 
patent claim that is at issue. Very basic. Secondly, detail how 
a business has allegedly infringed the patent. Thirdly, include 
a description of the patent troll's investigation of the 
alleged infringing activity. And fourth, disclose the real 
parties in interest to the dispute, as many of these letters 
come from attorneys and they don't state who the party in 
interest is that is trying to enforce the claim, or enforce 
their patent.
    Mr. Mullin. Thank you.
    I yield back.
    Mr. Burgess. Chair thanks the gentleman. Gentleman yields 
back.
    The Chair now recognizes the gentlelady from--Ms. Clarke 
from New York for 5 minutes for questions please.
    Ms. Clarke. I thank you, Mr. Chairman. And I would like to 
thank our witnesses for their testimony this morning.
    In addition to serving on the Energy and Commerce 
Committee, I also serve on the Small Business Committee in our 
House, and our small business community lists fear of patent 
litigation as one of the biggest issues they face. So I am 
pleased that we are taking up this issue today.
    Frequently, patent trolls target end users of patented 
technology, such as small, local businesses who have simply 
purchased or use off-the-shelf products like a wireless router 
or scanner. These small businesses often lack expertise in 
patent law, and have few resources. When faced with the cost of 
defending even perfectly reasonable behavior, they find it is 
cheaper just to make a payment to settle the case.
    Ms. Ranieri, to what extent do patent trolls target the 
little guy, small businesses, startup, and mom and pop 
establishments, and what are some examples of everyday products 
that patent trolls are now claiming infringe their intellectual 
property?
    Ms. Ranieri. Thank you. The extent of the problem isn't 
known, but I can tell you as a legal services lawyer, I receive 
about one call a week. And to be clear, these are the people 
that have managed to find us. There are so many more people out 
there that don't realize that they should be contacting people 
like--or--and organizations like EFF. So unfortunately, the 
full scope of the problem isn't clear, but to be clear, it is a 
problem.
    The type of activity that we have seen is, for example, one 
of the patent trolls that we are looking at right now has 
accused people of using maps as infringing their intellectual 
property. This patent troll has gotten licenses, it appears, 
from litigations that they filed and settled, which usually, in 
patent litigation that means a settlement has occurred, has 
gotten licenses from everybody down the spectrum from handset 
carriers to the cell phone companies, to the makers of 
applications, and now they are targeting even smaller parties 
in the play--in the space. We believe that these patent rights 
have been fully exhausted, but because of the cost of 
litigation, the cost of figuring out whether those patent 
rights have been exhausted, these trolls can continue to be 
able to assert patent infringement with essentially impunity.
    So the problem is large, and we believe it requires action, 
and we also believe that it needs the disclosure requirements 
so we can understand the true scope of its effect on our 
innovation economy.
    Ms. Clarke. Let me ask you then, what options do small 
businesses or startup companies currently have when they 
receive a vague threatening demand letter, and do patent 
holders, other than trolls, routinely target end users? Could 
there be legitimate reasons to send demand letters to end 
users?
    Ms. Ranieri. The large number of letters that we have seen 
targeted at end users are from patent trolls. I have yet to see 
letters that don't come from patent trolls. They may exist, but 
I have not yet seen one. And, sorry----
    Ms. Clarke. What options.
    Ms. Ranieri. What options. Unfortunately, there aren't many 
right now. The cost of litigation for a small business of under 
$10 million in revenue, the cost of litigation through trial is 
over $1 million. When that means that employees might have to 
be laid off, and research and development can't happen, this is 
the cost to the patent troll--or to the alleged infringer, 
sorry. And unfortunately, as a lawyer, what ends up happening 
is that if someone comes to us, oftentimes we can only advise 
them to settle because it just is not possible, given the 
current available options, to actually fight back and show that 
they aren't violating anyone's rights.
    Ms. Clarke. Can you take a moment and sort of speak to the 
cost of patent litigation, and the feasibility of a small 
business mounting an adequate defense?
    Ms. Ranieri. Sure. So on a whole to our economy, it is 
estimated to cost in the billions of dollars, and those are 
often tangible costs. And intangible costs are things such as 
time----
    Ms. Clarke. Um-hum.
    Ms. Ranieri [continuing]. And stress, taken away--or--and 
taking people away from growing their business. The options 
that are currently available to those receiving demand letters, 
those who are end users who are implementing technology made by 
others, if they have connections with the companies that make 
these products that are accused of infringement, sometimes they 
can get help through the companies. That--I--like in the 
example that I mentioned before, UPS stepped up to protect its 
customers, and that was a great thing for UPS to do. 
Unfortunately, for many of these companies, they don't have the 
connections to do that. They don't have the resources and the 
knowledge to know that that is something that they should try 
to do. And oftentimes, there are no other viable options.
    Even filing an inter partes review at the Patent Office, 
which we commend these new procedures and we encourage them, 
even to get in the door, not even lawyer fees, which, as a 
lawyer, and I am sure many of you are lawyers----
    Ms. Clarke. Um-hum.
    Ms. Ranieri [continuing]. We know are extremely expensive, 
filing an inter partes review is over $20,000. That is the 
salary of a worker, that is money that could go in towards 
building a business. Many businesses just simply do not have 
this money.
    Ms. Clarke. I thank you. And I yield back. Thank you, Mr. 
Chairman.
    Mr. Burgess. The gentlelady yields back. The Chair thanks 
the gentlelady.
    The Chair recognizes the gentleman from Florida, Mr. 
Bilirakis, 5 minutes for questions please.
    Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it so 
very much, and I thank the panel for their testimony.
    Patent demand letters reform is an important part of 
curbing abusive practices that hurt legitimate businesses, as 
you know. However, I am concerned that overly broad definitions 
of patent assertion entities in other provisions that have been 
proposed, such as fee shifting and joinder, will limit our 
Nation's research universities, and their ability to have 
patented research discoveries transferred to start up receiving 
venture funding that can develop and commercialize these early 
discoveries.
    The University of South Florida, just outside of my 
district in Tampa, Florida, is a world leader in university-
based patents, licenses and startup companies, and is a major 
regional economic hub and job creator in our area.
    Again, Ms. Ranieri and Professor Gugliuzza, excuse me if I 
mispronounce, what do you believe is the appropriate balance to 
ensure that the technology transfer process thrives, while 
simultaneously implementing the real reform targeted at bad 
actors with no intention to commercialize innovations?
    Mr. Gugliuzza. Thanks. I think a lot can be done by sort of 
looking at--as I was talking about the history--a long history 
of courts prohibiting bad faith assertions of patent 
infringement. A lot can be looked at by looking at some of the 
examples that courts have condemned in the past. They look 
extraordinarily similar to what we see these bottom-feeding 
patent trolls doing today; sending out massive amounts of 
demand letters, targeting the customers of the firms that 
actually manufacture the allegedly infringing technology, 
making claims that they couldn't--making claims that they could 
not have possibly investigated the merits of.
    So, you know, I think if you look back at those types of 
cases, you actually can see there is a very clear line between, 
you know, what is really abuse--so abusive as to be considered 
in bad faith, and the efforts of, say, an operating entity or 
legitimate efforts by a company to try to license their patents 
or resolve a dispute before it goes to court. Those lines have 
been drawn by courts for over 100 years, and I think they are 
lines the courts can continue to draw.
    Mr. Bilirakis. Thank you.
    Ms. Ranieri. I would agree with Professor Gugliuzza, and I 
understand your question to be how do we allow for legitimate 
letters and still legislate against the bad faith letters. And 
I think what is important to know is that those who are sending 
legitimate letters, they include the patent numbers in their 
letters where possible. They will include why they believe 
someone is infringing, and they will include information so as 
to allow the parties to really understand the scope of the 
claims, and why there is a claim of infringement or why the 
patent is not invalid. This is the activity that patent--bad 
faith patent demand letters don't include. And so I would agree 
with Professor Gugliuzza that there is a long line of cases 
that see this distinction and make the distinction, and I don't 
think legitimate patent holders should be concerned about any 
legislation against bad faith letters.
    Mr. Bilirakis. Thank you. Anyone else on the panel like to 
respond to that question? OK, thank you. I will move on if that 
is OK.
    Ms. Ranieri and Professor Gugliuzza, what factors do you 
believe should be prioritized when determining standards for 
demanding--demand letters that would address the abusive patent 
troll practices, while still preserving the legitimate patent 
holder's ability to negotiate license agreements with potential 
infringers?
    Mr. Gugliuzza. Just very briefly, a couple of factors that 
I think we have talked about so far. One is to the number of 
letters that have been sent out, right? If a patent holder is 
sending one letter to one specific company, well, it seems 
fairly likely that that letter is based on some sort of 
investigation that gives the patent holder a good faith belief 
that that recipient is infringing. When you send out, as MPHJ 
did, 16,000 letters to users of common office scanners, it is 
extremely unlikely that MPHJ has actually investigated the 
allegedly infringing conduct.
    So the number of the letters can be a nice source of 
indication of whether the investigation has happened, and also 
the specificity with which the letters both describe the patent 
claims, and also the allegedly infringing technology.
    Mr. Bilirakis. Thank you.
    Ms. Ranieri. I hesitate to give a complete list of factors, 
and the reason is this. Oftentimes what we see as--when letters 
are shown to us is that it is not one statement in isolation 
that is a problem, it is the totality of the letter that makes 
clear that the patent holder has not done an investigation, is 
trying to extract money. For example, references to the extreme 
cost of litigation, and I have seen letters with actual links 
to tables showing the recipient how much money they can 
receive.
    Litigation does cost a lot of money, that is true, but it 
is the fact that they put these statements in there, along with 
a--other vaguely threatening language that together be--makes 
us recognize a bad faith letter. So I hesitate to say these 
certain things make a bad faith letter, it is oftentimes when 
we see it all together that we can tell that this is not being 
set--sent for legitimate purposes.
    Mr. Bilirakis. Thank you very much.
    I yield back, Mr. Chairman. Appreciate that.
    Mr. Burgess. Chair thanks the gentleman. Gentleman yields 
back.
    The Chair recognizes the gentleman from Massachusetts, Mr. 
Kennedy, 5 minutes for questions please.
    Mr. Kennedy. Thank you, Mr. Chairman. I want to thank the 
witnesses for testifying today and for your attention to an 
important topic.
    Professor Gugliuzza, thanks for bringing the Boston weather 
with you. I wish you would have left it at home, but 
nevertheless, appreciate it.
    I want to flush out a little bit of a conversation we have 
had in the--before as well. My First Amendment law, while being 
a lawyer, is perhaps a little shaky. So there has been, I think 
some testimony that has touched already on the Noerr-Pennington 
doctrine, which touches on immunity of parties who are 
petitioning the Government for certain types of liability. 
Generally speaking, it is my understanding that this doctrine 
began in an antitrust base, but it has been steadily expanded 
over the course of case law throughout the years.
    So, Professor, starring with you, with regard to the Noerr-
Pennington doctrine, I think that there are two open areas 
here, right? One is, does it apply to patent demand letters, 
and does it apply in the consumer protection context? And I was 
hoping you can just start with those--kind of that basic 
framework.
    Mr. Gugliuzza. I have some comments that hopefully are sort 
of somewhat responsive to it. So the Noerr-Pennington doctrine, 
you are correct, that it was initially developed by the Supreme 
Court as an interpretation of the Sherman Act, in light of the 
First Amendment, right? So what happens in these cases was, 
defendants to law suits would turn around and sue the original 
plaintiffs and say, you know, you are a plaintiff, you have 
sued me and, you know, you have your--you have market power, 
your are a monopolist and, therefore, your law suit against me 
is anticompetitive and violates the Sherman Act. And what the 
court said was, well, you know, under the Sherman Act, 
litigation activity is actually not antitrust--illegal under 
the antitrust laws, the reason being twofold. One, the Sherman 
Act was intended to regulate business activity, not litigation 
activity. And two, to make unlawful the conduct of filing a law 
suit would potentially violate the First Amendment right to 
petition the Government. Right?
    The issue--the main issue that I see in applying that line 
of cases to these patent demand letters is that a patent demand 
letter between two private companies is just not a petition to 
the Government, it is a private communication among two private 
parties. So I think that is one main problem with extending, 
you know, main problem of constitutional law with extending 
First Amendment petition clause protection to these letters.
    Mr. Kennedy. And so given that is the case though, but you 
are asking the--it is between two companies, but you are asking 
the Government to enforce a patent--a protection action, right, 
that patent----
    Mr. Gugliuzza. Yes.
    Mr. Kennedy [continuing]. In that context?
    Mr. Gugliuzza. But the law can, you know, there are lots of 
consumer protection laws that are similar, that I think were 
similar to what this committee is considering. The example that 
I like to invoke is the Fair Debt Collection Practices Act.
    Mr. Kennedy. Um-hum.
    Mr. Gugliuzza. Right? When an attorney, acting as an 
attorney, sends a letter that is an act of debt collection, it 
may even be the filing of a law suit, right, those actions 
under the Fair Debt Collection Practices Act aren't subject to 
Noerr-Pennington immunity. Courts have largely--have upheld the 
fair--the constitutionality of the Fair Debt Collection 
Practices Act. So I think, you know, a similar statute that 
condemns patent enforcement activity, much like debt collection 
activity, should be on the same solid constitutional footing.
    Mr. Kennedy. And then, Ms. Ranieri, could you just give a 
little bit--you were talking about the totality of the 
circumstances of the letters and such a moment ago, but in your 
review of the legal literature, do you believe that the general 
content of demand letters is protected speech?
    Ms. Ranieri. So as I mentioned, EFF is a digital civil 
rights and civil liberties organization, and the First 
Amendment is very important to us. At the same time, I don't 
believe that the Noerr-Pennington doctrine extends as far as 
the Federal circuit would have it, and in fact, this recent 
Supreme Court decisions just won last year, the legal 
underpinnings of the Federal circuit's decision applying the 
Noerr-Pennington doctrine to the demand letters was recently 
questioned in another case on a related issue, and I believe 
there is room within the First Amendment, respecting First 
Amendment rights, to allow for regulation of demand letters.
    To be clear, what we think the First Amendment does is it 
makes sure that legitimate patent holders can enforce--can send 
demand letters, but what it doesn't protect is bad faith 
assertions, false statements, that are within the demand 
letter.
    Mr. Kennedy. And you think that the--you think that case 
law or legislation can be developed that is going to be 
sufficiently narrowly tailored that will provide for a 
definition of good faith that the courts would uphold?
    Ms. Ranieri. I think what actually could happen is that 
Congress could leave open the definition of bad faith, and 
courts themselves will narrowly tailor it to make sure that it 
is consistent with the First Amendment.
    Mr. Kennedy. Professor?
    Mr. Gugliuzza. I agree, and I think it is very possible 
that the courts, especially seeing the interest from Congress 
on this particular issue, would be very--would try very hard to 
interpret any legislation consistent with the First Amendment.
    Mr. Kennedy. Thank you both. Thank you all.
    Yield back.
    Mr. Burgess. Chair thanks the gentleman.
    Chair now recognizes the gentleman from Texas, Mr. Olson, 5 
minutes for questions please.
    Mr. Olson. I thank the Chair. And welcome to our witnesses. 
Ms. Self, Mr. Malta, Ms. Ranieri, and certainly no disrespect, 
but can I call you Professor G? Is that OK, because----
    Mr. Gugliuzza. You may.
    Mr. Olson [continuing]. If I try pronouncing it with my 
thick Texas tongue, I am going to be exposing myself to a 
lawsuit for cruel and unusual punishment. All people here 
watching on TV, so Professor G is OK? Great.
    My first question for all the panelists, and starting off 
with you, Professor G, as you know, there are 18 States right 
now that have State laws that fight abusive patent letter 
demands. The lovely State of Texas is one of the 32 that 
doesn't have those such laws, but they are being authored right 
now and this issue is on the table. And so they are in session 
for 140 days every 2 years, so it is a brief window of time 
here. So put your cowboy hat on and come to Texas. How would 
you best like me to advise the people there what should they 
do, what should they not do if Texas steps out and does--some 
laws fighting abuse patent demand letters? Yes.
    Mr. Gugliuzza. So, you know, I think the concerns we have 
been talking about about, you know, the difficulty and sort of 
fragmentation of different States have different legal 
standards for demand letters is certainly a valid one, 
particularly for large, innovative firms. I think one thing 
that your State might consider is looking to the Vermont 
statute as an example. It has been sort of the most influential 
of the statutes. It has been adopted by 13 other States. It 
sets out very simply that it is unlawful to make a bad faith 
assertion of patent infringement, and it sets out some factors 
under which courts may determine whether an assertion is in bad 
faith or is not. And so I think if Texas were to do that, it 
would be joining a fairly large cohort of other States that 
have adopted similar legislation.
    Mr. Olson. OK. Thank you.
    Ms. Self. Can I----
    Mr. Olson. Ms. Self, can you comment? Anything you can 
advise our legislature?
    Ms. Self. Yes, and in fact, just so you know, we have 
actually been in conversation with the State legislatures in 
Texas to talk about this very issue.
    Mr. Olson. Expected. You guys are great. That was expected.
    Ms. Self. Let me just say that--so we do think, again, sort 
of following the model of the TROL Act, that there is, you 
know, a version of State legislation that would appropriately 
balance the interests of potential recipients of these letters 
and the very large number of small patent holders that could 
potentially get, you know, unintentionally get caught up in 
legislation of this type. I think the challenge with the--with 
some of these State demand letter bills that we have seen, as I 
said previously, over breadth in terms of capturing activity 
that could just be normal commercial communications, and I 
should say that I, with all due respect, disagree with the 
Professor's analysis of Noerr-Pennington. I think there is a 
lot of scholarship and case law that affirms that the First 
Amendment does extend to pre-litigation communications, 
particularly when you are talking about the enforcement of a 
property right. But again, the private cause of action that is 
included in the Vermont statute, and several other statutes, is 
really troubling. And so one of the pieces of advice that we 
have extended to folks in Texas is do not include a private 
cause of action. You are going to create far more problems than 
you can--are trying to solve by subjecting small inventors to 
harassment. And again, as with the structure of the TROL Act, 
to clearly delineate activity that is objectively deceptive; 
trying to enforce a patent that has expired, claiming you are 
the owner of a patent when you are not, and limiting 
affirmative disclosures to the kind of information that small 
inventors can reasonably disclose, because it is important to 
keep in mind that the vast majority of inventors in this 
country are also small businesses----
    Mr. Olson. Yes.
    Ms. Self [continuing]. And they may not have all of the 
information that they need to know whether, in fact, 
infringement is occurring, or the nature of that infringement, 
particularly when you are talking about negotiations or 
discussions with much larger product manufacturers.
    So finding a balance that protects both the interests of 
small patent owners as well as small business owners, small end 
users, I should say, is really--should really be the goal in 
any State. And again, just to reiterate my previous context--
contents--or comments, rather, sorry, we believe that the 
structure of the TROL Act is that right balance, and again, it 
would permit State attorneys general, in Texas and other 
States, to enforce against deceptive activity under that 
framework.
    Mr. Olson. Thank you. And, Mr. Malta, no intention to put 
you between two different people on different sides of the 
issue, but you are right there, my friend. How about your 
comments? What can I take back home?
    Mr. Malta. Comments are, get it done.
    Mr. Olson. Well, that is easy----
    Mr. Malta. And if you get it done in the State of Texas, 
then perhaps that will provide the patchwork that will force 
the Federal Government to finally step in and say we need to 
make sense of this so that people can work under a set of 
rules, and we can get back to business in some of these areas. 
So----
    Mr. Olson. OK. And, Ms. Ranieri, your comments on Texas? 
Get 'er done, is that--do you echo those comments?
    Ms. Ranieri. I would agree, and I would also like to add 
that, although we are in the patent context, and Ms. Self 
raised the issue of it might be difficult for patent owners to 
be able to comply with a patchwork of laws. To be clear, States 
have long had different laws when it comes to consumer 
protection, and companies have had no problems with complying 
with all those laws. And we don't think that the patent context 
needs to change--or--that, and companies still can comply with 
all the laws. We think if some--if a patent owner wants to 
purposefully avail himself of sending a letter to a State, they 
can comply with the laws, and look up the laws and make sure 
that their letter is appropriate.
    Mr. Olson. I am out of time. Thank you.
    Yield back.
    Mr. Burgess. Gentleman yields back. Chair thanks the 
gentleman.
    Chair recognizes the gentleman from California, Mr. 
Cardenas, for 5 minutes for purposes of questions please.
    Mr. Cardenas. Thank you very much, Mr. Chairman. And I 
appreciate this opportunity to discuss this important issue 
that really is hampering our economic ability throughout the 
country. One of the things that the United States has been 
recognized for, and we should be very proud of, is we are the 
innovative capital of the world, but when we have people who 
take opportunity to try to thwart that, that is something that, 
to me, strikes at the core of our ability to continue to be an 
economic driver, not only for ourselves as a country but for 
the world.
    Last year, I introduced a bipartisan bill to address patent 
troll abuse at the International Trade Commission. Patent 
trolls have been impacting businesses in every forum, and we 
should do everything that we can to curb their ability to 
exploit businesses of every size, small and large. Patent 
trolls' abuse of the complicated patent system can harm our 
economy, and hamper innovation by imposing huge litigation 
costs on productive companies.
    I would like to get a sense of the significance of the 
problem that we--that faces us here today. Ms. Ranieri, in your 
testimony, you quoted Seventh Circuit Judge Posner's statement, 
and I am paraphrasing, patent trolls are not trying to protect 
the market for products they want to produce, but instead, lay 
traps for producers. How does patent toll activity negatively 
affect the economy and innovation as far as you are concerned?
    Ms. Ranieri. So let me give an example. What we see in the 
Bay Area is a lot of people who are developing new 
technologies, and, for example, apps on a smartphone. These 
innovators, they want to bring a new product to the market, 
they are very excited. They come out and they bring the--bring 
it to market and hopefully it becomes successful. What then 
happens is later, they will receive a demand letter or a filing 
of a litigation claiming that they infringe on patent rights. 
These innovators have not seen these patents before. These are 
not cases of copying others' ideas, this is a
    case--these are cases of innovators who independently 
created works and brought them to market, and tried to grow 
their business, and once they become successful, become targets 
of patent trolls. And this is the cost to our economy. It is 
people who are independently creating, independently 
innovating, that then get targeted by those who have created 
nothing, and instead, wait for someone else to do the hard work 
of developing products, testing, marketing, things like that. 
And not only is the financial cost significant, the settlement 
demands are extreme, but also it takes away time and energy 
from actually growing the business. Instead, it directs it 
towards stress, gathering documents, and although this might be 
good for the lawyers, it is not good for the companies.
    Mr. Cardenas. So, for example, what you just described, I 
would imagine could, in fact, wreak havoc on a small inventor, 
a small company, maybe with 5 employees, or 10 or 20 employees, 
that that particular product is the reason for their existence 
as a company. Could that kind of activity actually bring such a 
company like that to bankruptcy or to actually fold? And when I 
say fold, that means that that 5 or 10 or 20 employees in that 
scenario now will have to go look for work elsewhere. Do--have 
you ever seen that happen?
    Ms. Ranieri. We have. Actually, there was a case very 
recently. Someone contacted us and they were being sued by a 
patent troll, and the patent was on placing photos from sports 
events online, and allowing someone to search those sports 
events for their bid number in order to order a picture. And 
there is actually a patent on that. And it was a small, four-
person business, and he was extremely scared that he was going 
to have to lay off employees in order to fight back. He chose 
to fight back, but in doing so, he spent a significant amount 
of resources, and eventually this patent was actually 
invalidated, but the amount of money and time and stress that 
that took was significant.
    Mr. Cardenas. Upwards of how much did he spend? I mean, was 
it only $5,000, $10,000, $50,000 perhaps?
    Ms. Ranieri. So I can't--I don't know his particular case, 
but having been in private practice, the amount--what I saw 
happen in his case, I would estimate anywhere from $200,000 to 
$250,000.
    Mr. Cardenas. Exactly. That is a small business. Very few 
small businesses can part with those kinds of resources and 
stay in business, and that is at the core of what the problem 
is. The problem here is, in my opinion, we have individuals and 
law firms that are just preying on people without even any 
regard or concern for the cause and the consequence of what 
happens. And to lose in such a case, or what have you, it 
appears, in my opinion, that an organization that would bring 
that upon a small business would probably still flourish and go 
on, probably have many irons in the fire, such as the one you 
just described, but you have a small business, one after 
another, after another, who just disappear because of this 
practice that should not be allowed.
    Thank you very much, Mr. Chairman. I yield back.
    Mr. Burgess. Gentleman yield back. Chair thanks the 
gentleman very much for his questions.
    Chair recognizes the gentleman from Illinois, Mr. 
Kinzinger, 5 minutes for your questions please.
    Mr. Kinzinger. Thank you, Mr. Chairman. And again, to our 
witnesses, thank you for being here today and spending some 
time with us.
    Ms. Self, companies like Qualcomm have large patent 
portfolios because they have invested a large amount of money 
in new patents and the creation of new products. And 
presumably, many of Qualcomm's patents can be similar to 
patents held by other companies. When Qualcomm believes a 
similar company with a large patent portfolio may be infringing 
on its patents, how does Qualcomm open communications with that 
company?
    Ms. Self. Well, let me just say at the outset that, you 
know, Qualcomm, we are--we have been existence for 30 years. 
Today, we are a large mature company, as you said, with one of 
the world's largest wireless communications portfolios, but 
we--our roots were as a startup, you know, seven engineers, 
seven academics, who had what they believed was a highly 
effective solution to what was then viewed as an intractable 
problem in wireless communications. And solving that problem 
has allowed this mobile ecosystem to grow, and we would not 
have an app development community or industry without the hard 
work that engineers at Qualcomm and other inventive companies 
undertook.
    So today, our--basically, our portfolio is very well known. 
Most--if you have a smart device, a 3G, 4G device, you use 
Qualcomm technology, and you--and if you are, you know, a 
legitimate player, you come to Qualcomm and seek a license, but 
that dynamic is entirely different for small inventors in this 
country. And I just wanted to take issue with the 
characterization of inventors as creating nothing, and all the 
hard work being done by product manufacturers. Inventors in 
this county are, I think responsible for the vast majority of 
economic growth and success that we have seen over the last 200 
years, and so characterizing inventors as doing nothing simply 
because they don't----
    Mr. Kinzinger. Right, I----
    Ms. Self [continuing]. Manufacture a product really does 
disservice.
    Mr. Kinzinger. I get that, and I will let you, on somebody 
else's time, can expand on that, but my question is if you have 
a company with a large patent portfolio----
    Ms. Self. Um-hum.
    Mr. Kinzinger [continuing]. That you believe is impinging 
potentially on what you guys have, how do you open 
communications with that company?
    Ms. Self. You know, you--I mean, candidly, I am not part of 
our licensing team, but I--as a lawyer, I am assuming that you 
send a letter, you pick up the phone, you send an email 
communication, you initiate a conversation about the fact that 
you believe that the other company's products may be infringing 
or reading upon some aspect of your portfolio. So again----
    Mr. Kinzinger. But----
    Ms. Self [continuing]. It is the communication.
    Mr. Kinzinger. And, Professor, I am curious as to how 
private causes of actions have worked in the States. Have they 
been effective?
    Mr. Gugliuzza. So, no. As far as I know, there actually is 
not yet--the statutes are so new, there actually has not yet 
been a private cause of action actually asserted under any of 
the statutes. The claims that we have seen so far challenging 
these mass enforcement campaigns actually come under sort of 
preexisting general consumer protection and deceptive trade 
practices laws.
    Mr. Kinzinger. OK, all right. Another--are there other 
theories rooted in tort law that would allow businesses or 
individuals to reclaim money that they lost to a patent troll?
    Mr. Gugliuzza. Absolutely. You know, for--even--so as I 
mentioned the example of general consumer protection deceptive 
trade practices laws, there are theories of tort law available, 
tortious interference with business relationships, if a patent 
troll is targeting your customers, you might be able to assert 
that claim. You can assert claims of unfair competition under 
State common law. Under Federal law, for example, when 
Innovatio sent letters to 8,000 users of wireless internet 
routers, the manufacturer of those routers, Sysco, Netgear, 
Motorola, actually sued Innovatio under the Federal RICO 
Statute----
    Mr. Kinzinger. OK.
    Mr. Gugliuzza. Racketeer--Corrupt Organization----
    Mr. Kinzinger. And----
    Mr. Gugliuzza [continuing]. Statute. Sorry.
    Mr. Kinzinger. And I have one more question for you. In 
your testimony, you mentioned Illinois and a couple of other 
States have taken a slightly different tactic on dealing with 
patent trolls; namely, they focus on specific acts or omissions 
that violate the statute, rather than prohibiting false or bad 
faith assertion. As I am sure you are aware, the business 
community in Illinois appears to be more comfortable with this 
approach. What lessons should Congress learn from this approach 
as we try to balance going after patent trolls with protecting 
legitimate communications between businesses?
    Mr. Gugliuzza. Sure. You know, certainty is important, and 
I think that sort of purveys a lot of the discussion both in 
terms of should the Federal Government regulate this or should 
the State government regulate this, and also the question of 
what should the standard we are judging this under be. And one 
that provides certainty is important so that, you know, 
legitimate assertions of infringement are not punished, but 
deceptive assertions that intentionally target small 
businesses, as these mass enforcement campaigns do, are 
punished.
    Mr. Kinzinger. OK. Mr. Chairman, I will yield back. Thank 
you.
    Mr. Burgess. Chair thanks the gentleman.
    Chair recognizes the gentlelady from Indiana, Mrs. Brooks, 
5 minutes for your questions please.
    Mrs. Brooks. Thank you, Mr. Chair.
    Profession Gugliuzza, I am worried about the widespread 
practice of sending abusive demand letters. As we have heard, 
it is a drain on employers and a drain on jobs. And apparently, 
according to a University of California Hastings College of Law 
study, 70 percent of venture capitalists had portfolio 
companies that received patent demand letters. It is a--it does 
seem suspicious to see so many startups hit with patent claims, 
and it is troubling to think, and as we have heard, that 
startups in particular may have a good bit of their funding and 
money going into fighting patent claims right off the bat.
    Do you have any sense, or have you seen anything that talks 
about how much money and how many jobs are being impacted in 
our economy to fight off these types of abusive demand letters?
    Mr. Gugliuzza. So quantifying the effect of these demand 
letters is incredibly difficult because the persons who are 
targeted with them or the persons who purchase licenses because 
of them, are not very willing to identify themselves or 
disclose what they have done. The reason being that it just 
makes them a target for the next round of demand letters.
    Mrs. Brooks. And, Mr. Malta, do you have any sense from 
those you are representing how many job losses there have been 
among your members?
    Mr. Malta. So the job loss is direct and indirect. Direct 
when a company is put out of business, OK, and that is more 
quantifiable, but it is also indirect. We could provide an 
example such as J.C. Penney who now has a policy of no longer 
employing or hiring a startup company, in getting them the 
latest technology, out of fear of being sued because lawyers go 
where the money is. And so they will go with the startups and 
then, of course, they will go for the deep pockets in some of 
the major corporations. So that is affecting small businesses 
in a great way, when they are not being hired by larger 
businesses out of fear that they will be sued by patent trolls 
in relation to their work.
    Mrs. Brooks. Do we have any information as to how many 
companies have been put out of business? Has there been--and 
while I recognize that that could be difficult, Ms. Ranieri, 
anyone know if we have an estimates of how many companies have 
been put out of business, whether it is startup or larger?
    Ms. Ranieri. To be frank, it--we can't figure that out 
right now. Patent trolls take advantage of the fact that this 
occurs in the shadows, and that is why we at EFF think it is 
really important to have--to implement disclosure requirements 
so we can understand the true scope of the problem, and the 
effect that it is having on our economy.
    Mrs. Brooks. Thank you. And finally, Ms. Self, certainly, I 
am concerned about protection of property rights, ensuring that 
innovators have the confidence that their patent rights are 
going to be secure, and you have made a great point in your 
testimony that IP-intensive industries account for more than 
\1/3\ of U.S. GDP, and directly or indirectly support over 40 
million jobs in this country. If we do move forward, and I 
appreciate your point on the TROL Act from last Congress, but 
if we approve the legislation, what is the most important 
thing, the most important thing you think we need to focus on 
to get it right in order to protect legitimate patent holders' 
ability to communicate with potential infringers or licensees?
    Ms. Self. Thank you for that question. I, you know, it hard 
to point to just one piece of this bill that is, you know, the 
most important factor. It--the framework of the bill, I think, 
the four factors that I mentioned in my oral statement, the 
fact that it is limited to bad faith communications, the fact 
that it clearly delineates categories of deceptive activity as 
well as required disclosures, but in a way that is balanced and 
respectful of the rights of patent owners. The preemption 
issue, again, I think the combination of preemption with the 
authority of State attorneys general to enforce the law under 
the Federal framework. Those components, I think, are really 
critical. And I think, again, it is that framework that 
provides the balance and, you know, not just one particular 
component. So I think all of those components work together to 
provide an effective solution to what we, I think, all agree is 
a problem, but without creating unintended problems for patent 
owners because, you know, the other part of this calculus, if 
you will, is that if you make it so onerous for patent owners 
to enforce their rights, then they will become the target of 
abuse by infringers, by opportunistic lawyers who use State 
laws to harass them. So that is another important focus to keep 
in mind as we try to chart forward with the right path.
    Mrs. Brooks. Thank you. Thank you for the thoughtful 
response, and for all of your work and all of the input all of 
you are providing us. Thank you.
    I yield back.
    Mr. Burgess. Gentlelady yields back.
    Chair now recognizes the gentleman from Kentucky, Mr. 
Guthrie, 5 minutes for questions please.
    Mr. Guthrie. Thank you, Mr. Chairman. Thank the panel for 
being here.
    Sorry, I was in another hearing of this same committee, in 
another subcommittee, so I apologize that I may ask questions 
and you all sort of repeat a little bit of what Mrs. Brooks 
just asked, but I think a lot of us here are just trying to get 
our heads around this. I think when you talk about the sports--
I can--my son played little league, because I know there are 
guys in my area go online, you can buy pictures, and I can see 
where that-- I mean, $250,000, and those stories are out there, 
they are real. And that is clear, we need to stop that. Then I 
have my friend, Thomas Massie here, who represents the northern 
part of Kentucky, District 4, 3 or--I am 2, so 4 maybe, 4, in 
Kentucky, he was an inventor. And so when we hear the story 
like you, Ms. Ranieri, and it is like, well, this is simple, we 
need to fix this, so that is obviously--obviously needs to be 
fixed. And then you hear people say, well, if people have 
patents, if they are not using them, that is a good way--like 
the manufacturer. Well, then Thomas explains in a long 
dissertation at breakfast one day about how a lot of people who 
are legitimate patent holders, who will legitimately invent, 
hold these patents because they don't have the means or the 
ability, they are trying to move forward. And so if you do this 
and this kind of--that kind of reaction to stop patent trolls 
is going to--could stop the small entrepreneurial inventor, and 
so you have unintended consequences.
    So I am--I guess what I am asking, is there any of this 
expert panel--where can we delineate between--what--you know, 
was the old Justice Potter, I know it when I see it. I can't 
really describe it, but I know it when I see it. And how do you 
delineate between what is clearly somebody out there patent 
trolling, versus, you know, somebody like Thomas who works in 
his garage and comes up with--essentially what you did, come up 
with several patents that, you know, takes him a while to find 
the resources to move forward. And so the question is the 
people just out searching, and then you have trolling, and then 
you have the people who are legitimate small folks. And that is 
what we are trying to find with the balance, because we want to 
fix the problem, but we don't want to have unintended 
consequences. So I will kind of open it up to the panel.
    Mr. Malta. Thank you. With an issue like this, there is a 
starting point, and you are here at the starting point, and 
that is to stop deceptive practices.
    Mr. Guthrie. Um-hum.
    Mr. Malta. And the way--and we are not stopping innovation. 
And so you are right, it is that balance, but let us stop 
deception. And that is why we are suggesting and recommending 
that these letters have basic information in it. And basically 
stated earlier, state the claim, who is the part at interest, 
et cetera.
    Mr. Guthrie. Um-hum.
    Mr. Malta. And that would be the start to a much greater 
reform that will probably evolve over time, that will deal with 
the balancing that needs to be done to preserve innovation.
    Mr. Gugliuzza. Yes, let me--you know, the enforcement 
efforts I think this committee should focus on are particularly 
egregious, right? They, for example, are targeting large 
numbers of end users of relatively commonplace technology, 
right? MPHJ sends 16,000 letters out alleging infringement of 
use of a common office scanner. Innovatio sends out 8,000 
letters alleging infringement because of the use of common 
wireless internet routers. That is--so these are, you know, 
egregious, they are sending out large numbers of letters 
focusing on end users, and also the claim--the patents 
themselves are sort of--you might say they are objectively 
weak. So an example of this is a troll up in the Pacific 
Northwest called Savannah IP. It sent letters to home builders 
throughout the Pacific Northwest alleging infringement of a 
patent on a ``moisture removal system'' to dry lumber during 
construction. So if you were using a fan to dry your lumber 
during construction, you may be infringing Savannah IP's 
patent.
    Mr. Guthrie. Well----
    Mr. Gugliuzza. There were real questions about whether that 
patent is valid, and those sorts of assertions are the ones----
    Mr. Guthrie. No, I agree with you 100 percent. So you walk 
out of that and you are going, boy, this is easy to get behind. 
Let us get onboard, let us move forward, I like the 
legislation. And then you a have the talk with Thomas and say, 
well, these are some of the consequences that could come from 
that, and you walk out going--I mean we are really trying to 
figure out exactly what the right thing to do is, because we 
all want to solve the problem. I think even people who you are 
probably hearing oppose the current bill will say I--I have 
heard Thomas say it, I recognize there is a problem that needs 
to be solved.
    Mr. Gugliuzza. Yes.
    Mr. Guthrie. And so what we are trying to figure out, where 
is that--I mean what--every situation you just described where 
somebody is patenting a fan, we all agree needs to be fixed.
    Mr. Gugliuzza. Yes.
    Mr. Guthrie. I think most all of us----
    Mr. Gugliuzza. I would----
    Mr. Guthrie [continuing]. Would agree.
    Mr. Gugliuzza. I would just encourage you to trust the 
courts. They know--they can tell the difference between the 
good actors and the bad actors. And----
    Mr. Guthrie. Well, the problem is a lot of people go 
through court--the problem is the expense of going to court.
    Mr. Gugliuzza. Yes.
    Mr. Guthrie. So I mean that is what we are trying to solve. 
That is one of the problems we are trying to solve is----
    Mr. Gugliuzza. Well----
    Mr. Guthrie [continuing]. That people are just paying--they 
are sending out 8,000 letters, if 1,000 people paid and not go 
to court, so just using that as a solution, that is actually 
part of the problem we are trying to solve.
    Mr. Gugliuzza. So if you have enforcement by State 
attorneys general or the Federal Government, that can help 
rectify the sort of resource imbalance that you are talking 
about, I think.
    Mr. Guthrie. Yes, but just relying on the courts is what we 
are trying to solve, the problem, the expense of that.
    Ms. Self. Can I----
    Mr. Guthrie. I think I am out of time. So I don't know if 
the chairman wants to----
    Mr. Burgess. Chair will allow both Ms. Self and Ms. Ranieri 
to respond.
    Ms. Self. Yes. I just wanted to echo part of the comments 
that the Professor made. First of all, the bad faith 
requirement, I think, is an important, you know, dividing line 
between legitimate communications and communications that are 
appropriate for FTC enforcement authority. And again, the goal, 
at least from our perspective, the goal here is not to expand 
FTC authority, it is to clarify it. But the pattern or practice 
component, I think does help, again, further delineate 
because--I have seen--we have seen at the State level 
proposals, for example, that any demand--any patent owner that 
sends 10 demand letters is, you know, automatically subject to 
enforcement. That is really not an appropriate approach. 
Pattern or practice denotes widespread communications that meet 
a standard of deception, and I agree that that standard will 
evolve through the courts. I think the TROL Act helps--is a 
starting point because it clearly identifies some areas where, 
you know, you do have clear objectively, you know, verifiable 
deception as well as some, you know, some minimal baseline 
affirmative disclosure requirements. But also the FTC authority 
has traditionally been limited to consumers, and that means 
small businesses, nonprofits, as well as individual recipients. 
I think that is another dividing line that helps with the 
problem that, I think, you have rightly laid out for us.
    If large companies are receiving demand letters, that is a 
very different dynamic than small mom and pops, and it should 
be treated differently under the law. So I think all of these 
various, what I would consider to be safeguards, if you will, 
that are set forward in the TROL Act, I think, help solve the 
problem that you have articulated.
    Mr. Burgess. Ms. Ranieri?
    Ms. Ranieri. I just wanted to add that EFF is--our 
constituency are the small innovator and inventors, and 
unfortunately, as Mr. Malta said, this is a starting point, the 
deceptive letter practices, but our position is until we get 
better patents issuing out of the patent office, and until we 
stop the flow of patents that should never be issued, we cannot 
solve this problem. And that is why broader reform is needed. 
Once patents become more--sorry, once patents that issue out of 
the patent office can actually be looked at and seen as actual 
inventions, this will make it much easier and clearer to solve 
all of these problems.
    Mr. Guthrie. I think that is the argument Thomas Massie 
made, but he made it in 30 minutes, you have made it in 1, so I 
appreciate that very much.
    Mr. Burgess. Gentleman's time has expired.
    Chair would ask of the ranking member, do you have a 
follow-up question?
    Ms. Schakowsky. I do not.
    Mr. Burgess. Ranking member has no follow-up question.
    The only thing I was going to ask in follow-up, and 
Professor and Ms. Ranieri, you all talked about flexibility, 
but then, Ms. Ranieri, you had given us an admonition 
earlieron't give us loopholes or we will drive a truck through 
them. So how do we achieve that balance between flexibility and 
loopholes?
    Ms. Ranieri. That is a good question, and I think that is 
where the courts and the attorneys general, and the FTC and 
other agencies like the FTC come into play. They can recognize 
these activities. And as I mentioned, at its base, these laws 
are meant to target unfair and deceptive trade practices, and 
these are activities that States have a lot of competency with, 
in that they see them a lot in different industries, and they 
can apply the knowledge that they have learned in those 
industries to this context.
    Patents are involved, yes, so that changes it slightly, but 
at the base, the types of deceptive and unfair practices often 
span many different industries.
    Mr. Gugliuzza. Yes, I agree. I think, you know, the--
allowing the courts flexibility rather than sort of 
hamstringing them with a complicated statutory definition of 
bad faith, or a long list of factors of bad faith, is very 
important in allowing courts in a case-by-case basis to try to 
close those loopholes.
    Mr. Burgess. Chair thanks all of our witnesses. And seeing 
no further Members wishing to ask questions, again, thank the 
witnesses for their participation.
    Before we conclude, I would like to include the following 
documents to be submitted for the record by unanimous consent: 
A letter on behalf of the National Association of Federal 
Credit Unions, a letter on behalf of the Direct Marketing 
Association, a joint letter on behalf of the American Bankers 
Association, the American Insurance Association, the 
Clearinghouse Payments Company, Credit Unions National 
Association, Financial Services Roundtable, Independent 
Community Bankers of America, National Association of Federal 
Credit Unions, and the National Association of Mutual Insurance 
Companies. Pursuant to committee rules, I remind members that 
they have 10 business days to submit additional questions for 
the record. I ask that witnesses submit their responses within 
10 business days upon receipt of the questions.
    Voice. We also have a letter from the National Retail 
Federation.
    Mr. Burgess. My understanding is a late arrival, a letter 
from the National Retail Federation, which we will make part of 
the record. And----
    Ms. Schakowsky. Without objection.
    Mr. Burgess. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Burgess. And then without objection, the subcommittee 
is adjourned. And I thank the witnesses.
    Ms. Schakowsky. Thank you.
    [Whereupon, at 11:56 a.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]