Assembly Panel Advances Singleton & Wimberly Bill to Protect Honest Enterprises from False Patent Infringement Claims

Legislation sponsored by Assemblymen Troy Singleton and Benjie Wimberly to help prevent individuals from making false patent infringement claims was approved by an Assembly panel on Thursday.

“Innovation has always been a fundamental pillar of our country’s economic growth. Patent trolls offer no economic value and stand counter to the spirit of American ingenuity and threaten the vitality of our innovation-based economy,” said Singleton (D-Burlington). “This bill is designed to protect the innocent and put the onus on bad characters to prove patent infringement.”

Singleton noted the rise in false patent claims more recently, particularly in the pharmaceutical and biotech industries where what’s become known as “patent trolls” will pursue a lucrative business model by offering a settlement well below the high costs associated with a patent lawsuit, forcing many companies to settle to avoid the risks.

The bill (A-2462) prohibits a person from making a bad faith assertion of patent infringement. Specifically, the bill identifies a list of factors that a court may consider as evidence of bad faith, including, that the person, when issuing a demand letter asserting or claiming that another entity has engaged in patent infringement, does not provide the following information: the patent number; the name and address of the patent owner or owners and assignee or assignees, if any; and factual allegations concerning the specific areas in which the entity’s products, services, and technology infringe the patent or are covered by the claims in the patent.

“False patent infringement claims can damage someone’s finances as well as their reputation,” said Wimberly (D-Bergen/Passaic). “This will hopefully help curb frivolous claims and protect legitimate enterprises.”

Additional factors specified in the bill for a court to consider as evidence of bad faith are:

1) Prior to sending the demand letter, the person fails to conduct an analysis comparing the claims in the patent to the entity’s products, services, and technology, or such an analysis was done but does not identify specific areas in which the products, services, and technology are covered by the claims in the patent.

2) The demand letter lacks the information described above, the target requests the information, and the person fails to provide the information within a reasonable period of time.

3) The demand letter demands payment of a license fee or response within an unreasonably short period of time.

4) The person offers to license the patent for an amount that is not based on a reasonable estimate of the value of the license.

5) The claim or assertion of patent infringement is meritless, and the person knew, or should have known, that the claim or assertion is meritless.

6) The claim or assertion of patent infringement is deceptive.

7) The person or its subsidiaries or affiliates have previously filed or threatened to file one or more lawsuits based on the same or similar claim of patent infringement and those threats or lawsuits lacked the information described above, or the person attempted to enforce the claim of patent infringement in litigation and a court found the claim to be meritless.

This bill also identifies factors that a court may consider as evidence that a person has not made a bad faith assertion of patent infringement. These include:

1) The aforementioned demand letter contains the information described above.

2) Where the demand letter lacks the information described above and the entity requests the information, the person provides the information within a reasonable period of time.

3) The person engages in a good faith effort to establish that the entity has infringed the patent and to negotiate an appropriate remedy.

4) The person makes a substantial investment in the use of the patent or in the production or sale of a product or item covered by the patent.

5) The person is the inventor or joint inventor of the patent or, in the case of a patent filed by and awarded to an assignee of the original inventor or joint inventor, is the original assignee, or an institution of higher education or a technology transfer organization owned or affiliated with an institution of higher education.

6) The person has demonstrated good faith business practices in previous efforts to enforce the patent, or a substantially similar patent, or successfully enforced the patent, or a substantially similar patent, through litigation.

Furthermore, the bill authorizes a court, upon a showing of a reasonable likelihood that a person has made a bad faith assertion of patent infringement, to require that a bond be posted, which bond shall not exceed $250,000. In addition, a court may award a successful plaintiff exemplary damages in an amount equal to $50,000 or three times the total of damages, costs, and fees, whichever is greater.

The bill also stipulates that the Attorney General shall have the same authority under its provisions to make rules, conduct civil investigations, bring civil actions, and obtain injunctions as provided under the consumer fraud act and A court may award or impose any relief available under the act.

The bill was approved by the Assembly Commerce and Economic Development Committee.