Congress and state legislatures are moving forward on legislative efforts that will impact owners of intellectual property who must defend themselves against patent lawsuits, as well as those who are seeking to assert their rights against others who infringe on their protected information assets.
On June 4, the Senate Judiciary Committee approved bipartisan legislation (S. 1137) to address abuses in patent infringement cases in district courts. Among other things, the legislation targets the widespread sending of frivolous demand letters and allows cases against customers who are sued for patent infringement to be stayed while the manufacturer litigates the suit. The legislation also seeks to increase transparency in patent ownership, hold bad actors accountable when they hide behind shell companies, and establish a uniform standard for pleading patent infringement suits.
“This legislation will protect entrepreneurs and innovators … across the country from abusive patent assertion practices that have burdened America’s private sector for far too long,” said Senator John Cornyn (R-TX) in an online statement. “These sensible reforms are the best way to protect access to justice for plaintiffs with legitimate claims of infringement, and to deter those who seek to game the system.”
Following Senate action, the House Judiciary Committee on June 11 approved its own bipartisan legislation (H.R. 9) targeting litigation abuses in patent-related cases. The bill, like its Senate counterpart, is primarily intended to make it more difficult for patent owners to engage in “trolling” behavior by using patent law to receive payments independent of the merits of the asserted patents. Both versions seek to alter the economics of patent infringement litigation which, lawmakers say, currently favors patent assertion entities (PAEs), many of whom seek to run up litigation costs in an effort to force a settlement. In addition, both versions contain provisions directing the Judicial Conference of the United States to implement case management changes impacting the discovery process, including defining and creating rules for when additional document discovery should be made available and who should pay for it.
“For years, entrepreneurs across the country have been held hostage by patent trolls and have operated at the mercy of opportunistic swindlers who seek to line their own pockets at the expense of small businesses, middle-class jobs, and billions of dollars extracted from the U.S. economy,” said Rep. Peter DeFazio (D-OR). “Until now, there has been little to no recourse for victims of patent trolling against these expensive, frivolous suits, but with the passage of the Innovation Act, there is finally a light at the end of the tunnel for American businesses.”
Enactment of patent litigation reform legislation is a stated priority of House and Senate leaders, as well as President Obama. However, lawmakers are still working on changing the bills to win passage in their respective chambers.
Impatient with the lack of quick action by Congress, Colorado became the seventh state in 2015 to enact legislation dealing with the practice of patent trolling when the governor signed a bill (H.B. 1063) on June 10 prohibiting bad faith communications concerning alleged patent infringement. The legislation, which takes effect August 5, requires that demand letters include the number of the patent allegedly infringed, the identity of the person asserting a right to license the patent to or enforce the patent, and “factual allegations concerning the specific areas in which the intended recipient or affiliated person's products, services, or technology infringed the patent or are covered by the claims in the patent.” The measure also establishes a cause of action for the Office of the Colorado Attorney General to enforce the law.
Other states to enact anti-patent trolling legislation this year include Indiana, Kansas, Mississippi, Montana, North Dakota, and Washington. In total, 24 states have enacted such legislation since 2013, and Florida and Texas have legislation awaiting their respective governors’ signatures.