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U.S. lawmakers hear plea for protection against 'patent trolls'

U.S. Sen. Claire McCaskill (D-Mo) speaks about pending legislation regarding sexual assaults in the military at a Senate Armed Services Committee on Capitol Hill in Washington, June 4, 2013. REUTERS/Larry Downing

WASHINGTON (Reuters) - Congress should take action to crack down on "patent trolls" - companies in the business of buying and asserting patents - which often demand royalties from stores and restaurants for alleged infringement of high-tech patents, experts told U.S. lawmakers on Thursday.

The major complaint against patent trolls' "demand letters" is that they fail to establish that infringement exists, and do not disclose what patent is infringed or who owns the patent, witnesses told lawmakers at a Senate Commerce Committee hearing.

That lack of information in turn hampers attempts to rebuff a meritless licensing demand.

Witnesses found support from Sen. Claire McCaskill, who called patent trolls - known formally as patent assertion entities (PAEs) - "bottom feeders."

"Demand letters should at a very minimum include basic common sense disclosures," the Missouri Democrat said.

Nebraska's attorney general, Jon Bruning, said his office had been looking at a company which had sent inappropriate demand letters alleging infringement, including one sent to a nursing home patient who had never worked for the organization accused of infringement.

"We just need to have openness in this process," he said. "This isn't about patents. This is about fraud."

One company, BrandsMart USA, which has 11 electronics stores in the southeast, said it had spent $500,000 fighting patent trolls over the past decade.

In one case, BrandsMart told one of the six trolls which had approached it that the company did not use the technology in question.

"They still demanded a settlement, but reduced the amount. We ended up paying this particular PAE ... five figures, and our legal fees were five figures as well," said Lary Sinewitz, executive vice president at BrandsMart USA.

Jon Potter of the industry trade group Application Developers Alliance called demand letters "garden variety fraud." He and others asked for legislation that would require demand letters to include basic data on the infringed patent, which would help the companies involved fight the allegations.

But Congress should be cautious in crafting a bill to address the issue of abusive demand letters because of the danger of hurting people whose patents are truly infringed, said Adam Mossoff, who teaches at George Mason University School of Law.

"There are existing legal tools to address bad actors and their bad patents," he said.

The hearing was the latest in a series of actions in Washington to study the issue of patent abuse.

In June the White House urged Congress to take steps to curb abusive patent lawsuits. Other proposals are circulating on Capitol Hill, as well as a proposed study of PAEs by the Federal Trade Commission.

Several bills addressing the issue of patent trolls are before Congress but do not touch on the subject of demand letters.

Representative Bob Goodlatte, chairman of the House Judiciary Committee, has a bill that would require companies to provide specific details on what patent is infringed and how it is used when they file a lawsuit.

It also would require judges hearing patent cases to award fees to the winner in an infringement lawsuit, unless the judge decides that the loser's position was "substantially justified" or some other circumstances exist.

The legislation would allow high tech companies to jump into lawsuits filed against their customers. This means that a company that makes Wi-Fi equipment could defend a bakery accused of infringing Wi-Fi patents by simply installing a router.

Internet companies largely support this new round of patent reform. The effort is backed by Cisco Systems Inc (CSCO), Apple Inc (AAPL), Google Inc (GOOG) and other technology powerhouses.

(Reporting by Diane Bartz; Editing by John Wallace)