The House Commerce, Manufacturing and Trade Subcommittee Wednesday voted 10-7 along party lines to approve the Targeting Rogue and Opaque Letters (TROL) Act, which would define what constitutes a false and deceptive patent assertion entity (PAE) letter subject to FTC enforcement under its Sec. 5 authority.
Both parties are looking to crack down on abuse of the patent process by companies doing mass mailings seeking settlement payments to avoid litigation, but they can’t agree on how best to do that.
The bill establishes that "it is an unfair or deceptive act or practice under the FTC Act to engage in a pattern or practice of sending demand letters...in bad faith." It also establishes an "affirmative defense" of letters if statements, representations or omissions were not made in bad faith "if the sender can demonstrate that such statements, representations, or omissions were mistakes, including by evidence that the sender does not send letters in violation of this Act in the usual course of business."
The bill preempts all state laws, rules and regs pertaining specifically to demand letters, but would leave laws of general applicability, like consumer protection laws.
The FTC would get to seek civil penalties for unfair or false demand letters, but would not get new rulemaking authority.
State attorneys general could also enforce the law—as well as the general consumer laws—and seek civil penalties, but not if the FTC had a pending action in the same case.
Democrats are opposed to the bill for several reasons. They argue that the "pattern or practice" and "bad faith" caveats and "affirmative defense" carveout provide loopholes for bad actors. They argue preemption weakens enforcement and would invalidate 20 state laws, some of which are stronger than the federal standard being proposed.
Republicans argue that the bill balances punishing bad actors with not punishing good actors for "bona fide" mistakes.
Like cybersecurity legislation, both sides agree there is a problem that needs addressing through legislation, but as with cybersecurity, preemption is a major dividing line.
Republicans say preempting local laws provides a consistent national framework rather than a patchwork of different approaches. Dems argue that some of the laws being preempted are stronger, so the effect is to weaken them, and to weaken enforcement by both the FTC and local state attorneys general.
At Wednesday's markup, there was some give by bill backer and Subcommittee chairman Michael Burgess (R-Texas).
The committee voted to approve Burgess' amendment to narrow the affirmative defense along the lines suggested by Public Knowledge at a hearing last week.
Rep. Jan Schakowsky (D-Ill.) ranking member of the subcommittee, said that was an improvement, and supported the amendment, but still had issues with the base bill and could not support it. She offered an amendment that she said fixed the bill's fatal flaws, but it was voted down on a party line vote 10-7, as was an amendment from Rep. Joseph Kennedy II (D-Mass.), which would have eliminated the "pattern or practice" and "bad faith" caveats and "affirmative defense" carveout.
Burgess also signaled his willingness to compromise further introducing, then withdrawing because he said the language was not done, an amendment that he said lowered the bar for the bad faith standard, by finding that a letter was presumptively in bad faith if the recipients of a letter had asked for certain information that was not supplied in a reasonable time frame.
Schakowsky said that was a move in the right direction, too, but clearly not far enough. Rep. Frank Pallone (D-N.J.), ranking member of the parent Energy & Commerce Committee, said he could support legislation that stopped abuses of the system, abuses that often hit small businesses the hardest, but this was not it.
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