Oregon enacts statute to make improper patent license demands a violation of its unlawful trade practices law

In March 2013, Senate Bill 1540 was signed into law by the governor of Oregon.  The law makes patent trolling a violation of the Oregon’s Unlawful Trade Practices Act, and  allows an individual or business targeted by a patent troll to sue and recover attorneys’ fees.

The statute makes it a violation of the Unlawful Trade Practices Act to send a letter demanding that someone license a patent without identifying the patent or explaining why the recipient infringes. It is also a violation to demand payment of a patent licensing fee within an "unreasonably short" period of time.  The statute also allows state Department of Justice attorneys and the attorney general to investigate whether the accusing entity has acted in bad faith.

California holds informational meeting for legislators on patent trolls, and attorney general investigates troll

In October 2013, California legislators attended an informational meeting to discuss the effect that patent trolls are having on California businesses held at Google. And at that meeting, a representative of California state Attorney General Kamala Harris explained that California’s existing state laws, including the Cartwright Act, the state's unfair competition law, and other business tort laws can help businesses fight back against “overly aggressive patent assertion entities.” In addition, he indicated that the attorney’s general’s has investigated and confidentially confronted one unnamed troll in an effort to make it stop sending demand letters to California businesses.

Minnesota reaches settlement agreement with patent troll

In August 2013, after initiating an investigation, Minnesota Attorney General Lori Swanson becomes the first state Attorney General to reach a settlement agreement with a patent troll.  The agreement require the troll, MPHJ (the “scanner troll”) to give the attorney general's office 60 days' notice and obtain its consent before it sends any letters targeting Minnesota businesses.

Wisconsin passes law restricting patent-licensing demand letters

In March 2014, the Wisconsin State Assembly and Senate passed a bill making it a crime to send patent-licensing demand letters that contain false or misleading information. The law requires, among other things, an analysis setting forth in detail how the recipient of the letter allegedly infringes.  It also authorizes the state attorney general to investigate misleading demand letters, and imposes penalties of up to $50,000. 

Missouri passes law restricting bad faith assertion of patent infringement

In November, 2013, Attorney General Chris Koster announced that he is actively engaged in investigating the impact of trolls on Missouri businesses.

In July 2014, Missouri Governor Jay Nixon signed a statute that creates a seven factor test that a court can consider to determine if a person has made a bad faith assertion of patent infringement in a demand letter.  It also establishes a private cause of action for parties subject to bad faith demand letter, and authorizes the state attorney general to investigate and prosecute bad faith patent assertions under the Missouri antitrust laws.

Nebraska Attorney General investigates patent troll, and introduces legislation to make baseless claims of patent infringement

In July 2013, Attorney General Jon Bruning initiated an investigation into the business and patent enforcement activities of Farney Daniels, based on the state’s belief that letters sent by Farney Daniels to Nebraska businesses violated the state’s unfair competition law.   The investigation was based on both the state Consumer Protection Act and the Uniform Deceptive Trade Practices Act.  As part of the investigation, the Attorney General issued a cease and desist order against Farney Daniels.  Farney Daniels responded by adding members of the Nebraska Attorney General’s Office as parties to a patent lawsuit brought on behalf of Activision TV in federal court.  On September 30, the federal judge presiding in that case held that the cease and desist order violated the constitutional rights of Activision TV and enjoined its enforcement.  The Attorney General appealed that decision to the US Court of Appeals for the Eight Circuit, but voluntarily withdrew his appeal in November 2013.

In January 2014, Bruning proposed a bill in the Nebraska state legislature that would make it a crime to allege patent infringement in bad faith.

The Nebraska Patent Abuse Prevention Act, which was introduced by state Senator Heath Mello at Bruning's request, would make it a violation of Nebraska's existing state consumer protection law to send letters making baseless allegations of patent infringement.

The bill sets out numerous criteria for courts to consider as evidence that a patent infringement allegation was made in bad faith. The factors include sending a demand letter that does not identify the patent owner or patent number and does not provide factual allegations about how the recipient infringes.  In addition, demanding a license fee "within an unreasonably short period of time" or offering to license the patent for an amount that is "not based on a reasonable estimate of the value of the license," would count as bad faith under the bill, as would making an infringement allegation the patentee knew or should have known was meritless.

Oklahoma Governor signs legislation protecting against bad-faith patent infringement claims

In May, 2014, the Governor of Oklahoma signed HB 2837, legislation protecting businesses from abusive and bad-faith assertions of patent infringement. The measure prohibits bad faith patent infringement claims, and lists the factors a court may consider as evidence of a valid claim. 

Texas passes law prohibiting demand letters that alleging a claim of patent infringement in bad faith

Texas SB 1457, which became Sections 17.951 to 17.955 of the Texas Business and Commerce Code, effective on September 1, 2015, defines bad faith claims of patent infringement as communications that falsely state that the sender has filed a lawsuit in connection with the claim, or make a claim that is objectively baseless, and are likely to materially mislead a recipient because of the communications.

In addition, the Texas statute provides that a claim is objectively baseless when the sender, or the person represented by the sender, lacks current patent licensing or enforcement rights, the patent at issue has been held invalid or unenforceable, or when all of the allegedly infringing activity occurred after the patent at issue expired.   In addition, a demand letter is materially misleading when it lacks material information regarding who is asserting the claim, the patent allegedly infringed and the product, service or technology that is allegedly infringing the patent.

The statute also allows for a state cause of action, by the Texas Attorney General, to bring an action on behalf of the state seeking a civil penalty for bad faith patent assertions, including injunctions and up to US $50,000 for each violation, as well as reimbursement for the cost of investigation and prosecution.  Although the statute provides no private cause of action, the Attorney General can seek restitution for a victim's legal and professional expenses related to the bad faith infringement claim.

Kentucky introduces bill to make bad faith assertion of patent infringement an unfair trade practice

In February 2014, Kentucky state senator Whitney Westerfield has introduced bill that would criminalize making bad faith patent infringement allegations or making baseless demands for licensing fees.  The bill would also render groundless infringement accusations a violation of the Kentucky Consumer Protection Act, and would enable purported infringers to sue the non-practicing entities, or patent trolls, that have approached them and to recover tripled damages, court costs and attorney fees.  “Making or threatening to make a bad-faith assertion of patent infringement shall be deemed an unfair, false, misleading, or deceptive act or practice in the conduct of trade or commerce,” the unofficial copy of the bill stated.

Ohio General Assembly introduces bill to prohibit bad faith assertions of patent infringement

The Ohio General Assembly introduced a H.B. 573,  which would prohibit a person from making “a bad faith assertion of patent infringement.” The bill provides that a patent infringement claim has been asserted in bad faith based on consideration of several factors, including whether a demand letter is vague or detailed, whether information regarding the patent is provided to the recipient of the demand letter upon request, whether the demand letter imposes an unreasonably short period of time for the recipient to pay the amount demanded, and whether the demand exceeds a reasonable estimate of the value of a license on the patent.  In addition, if there is a reasonable likelihood that a patent infringement claim has been asserted in bad faith, a court can require an alleged patent troll to post a bond to cover the targeted alleged infringer’s expected cost to litigate the case. If the recipient of the bad faith assertion ultimately prevails, the recipient can ask the court for, among other remedies, injunctive relief, compensatory damages, costs, attorneys’ fees, and punitive damages.

New York Attorney General investigates and settles investigation of patent troll

New York Attorney General Eric Schneiderman initiated and eventually settled an investigation of alleged patent troll MPHJ Technology, which resolved hundreds of law suits MPHJ had threatened to file against the state's small and mid-sized businesses.

Massachusetts Attorney General begins research whether existing consumer protection Law protects against patent trolls

In November, 2013, Massachusetts Attorney General Martha Coakley announced that her office was exploring ways to end baseless patent trolling. The initiative includes investigating Massachusetts’ existing consumer protection statute, Chapter 93A, which deals with consumer rights and business rights, to bring legal actions against unfair or deceptive business practices by a business against a consumer, or against another business, as well as reviewing the statutes enacted by states such as Vermont and Nebraska, and the lawsuits the attorneys general those states have brought.

Vermont passes amendment to state consumer protection statute to address patent trolls, and Attorney General files lawsuit against patent troll

Also in May 2013, Vermont Attorney General William Sorrell filed a lawsuit suit under the state consumer protection law against an alleged patent troll, Vermont v. MPHJ Technology, Inc. The first effort by an attorney general to use state consumer protection law to stop a patent troll, the complaint alleges that MPHJ sent letters containing false and misleading statements about, among other things, the asserted value of the license it was offering and the response the sender had received from the business community. Vermont also alleges that the letters’ threats of imminent litigation were false. The case was filed in state court, but the defendant removed it to federal court. The defendant has also moved to dismiss for lack of personal jurisdiction.

Maine introduces legislation to allow state lawsuit for bad faith patent infringement claim, and to allow state Attorney General to bring action for bad faith patent assertion

Legislation introduced in January 2014 would allow a company or person to file a lawsuit in superior court against someone who has made a bad faith assertion of patent infringement against them.  It would also allow the state Attorney General to bring an action for a bad faith assertion in violation of the state’s Unfair Trade Practices Act.

New Jersey advances bill to prohibit bad faith assertions of patent infringement

In February  2016, the New Jersey General Assembly’s Commerce and Economic Development Committee advanced a bill A310 unanimously out of committee that would prohibit bad-faith assertions of patent infringement.  Among the factors a court could consider evidence of bad faith would be the lack of detailed information in a demand letter (such as a patent number, information about the patent holder, or a  description of how the patent is being infringed,  In addition, demanding payment of a license fee within an unreasonably short amount of time, or offering a license at an unreasonable price could also be considered evidence of bad faith.  A court could require a bond of up to $250,000 for bad faith assertion of patent infringement, and could award exemplary damages of $50,000 or three times the total of damages, costs and fees.  And the New Jersey attorney general’s office could also conduct its own investigations of claims under the proposed statute, and bring civil actions and obtain injunctions under the state's Consumer Fraud Act.

Pennsylvania introduces bill to limit frivolous patent lawsuits

Pennsylvania Senate Bill No. 1222, introduced in February 2014, would limit and discourage frivolous patent infringement lawsuits. It would allow a target of a demand letter, someone threatened with patent infringement, or a defendant in a patent infringement lawsuit to bring an action in state court (the court of common pleas) for bad faith.

Virginia approves legislation to prohibit bad faith patent claims

In January 2014, the Virginia House and Senate approved legislation to prohibit patent trolls or anyone from making in bad faith an assertion, claim, or allegation that a resident of the Commonwealth is infringing a patent.

The statute, Virginia Code §59.1 - 215.3, allows the Attorney General issue a civil investigative demand to enforce compliance with the patent trolling statute.  It does not create a private cause of action.

In January, 2016, the Virginia Attorney General’s office announced the formation of a Patent Troll Unit, which would be empowered to investigate cases of patent trolling and seek financial penalties and injunctions against those who assert patent infringement claims in "bad faith," even if those persons or businesses are based outside of Virginia.

North Carolina

In April 2014 the North Carolina General Assembly began examining a proposed “Patent Abuse Bill,” which would create civil and criminal causes of action for bad faith assertions of patent infringement.

National Association of Attorneys General submits letter from 42 states supporting federal legislation to curb patent trolls

On February 24, 2013, the Attorneys General from 42 states signed a letter supporting federal patent reform legislation, including measures to curb patent trolls.  Those states were Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Florida, Guam, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and Wyoming.

The states who did not participate were California, Delaware, Georgia, Montana, North Dakota, Ohio, Oklahoma, South Dakota, and West Virginia.

Alabama

Act No. 2014-218, S. Bill No. 121. Signed into law: April 2, 2014. Effective date: July 1, 2014.

This act prohibits a person from asserting a claim of patent infringement in bad faith and authorizes the attorney general to investigate claims, issue subpoenas and file civil enforcement actions. The act further authorizes targets of patent infringement assertions in bad faith to file suit in circuit court for damages and provides for exemplary damages.

Georgia

House Bill No. 809. Signed into law: April 15, 2014. Effective date: July 1, 2014.

The new law makes it a violation for a person to make a bad-faith assertion of patent infringement. The measure lists a number of bad-faith factors, such as: (1) the demand letter’s not identifying the patent number, name and address of the patent owner, or factual allegations concerning the specific areas in which the target infringes; (2) prior to sending the demand letter, the person fails to conduct an analysis comparing the claims in the patent to the target’s products, services and technology; (3) the demand letter requires payment of a license fee or response within an unreasonably short period of time; and others. The new law also authorizes the attorney general to issue civil investigative demands and creates a private cause of action.

Idaho

Senate Bill No. 1354. Signed into law: March 26, 2014. Effective date: July 1, 2014.

The new law adds to existing law and makes it unlawful to bring bad-faith assertions of patent infringement against others. It provides provisions relating to personal jurisdiction and grants certain authority to the attorney general and district courts to create a private cause of action. The law also provides for remedies and damages, and establishes provisions relating to bonds.

Illinois

Senate Bill No. 3405. Signed into law: Aug. 26, 2014. Effective date: Jan. 1, 2015.

The new law prohibits anyone from sending unfair or deceptive patent demand letters and defines what constitutes deceptive or unfair. It provides provisions making it unlawful to make assertions of patent infringement without first having a reasonable basis in law or fact.

Kansas

House Bill No. 2663. Bill introduced: Feb. 12, 2014. Referred to the House Judiciary Committee for review: Feb. 13, 2014. Died in committee: June 12, 2014.

This bill would authorize a person against whom a bad-faith assertion of patent infringement has been made to bring a civil action in court for equitable relief, damages, court costs, fees and punitive damages. It provided for the attorney general to bring an action against the person who has made a bad-faith assertion of patent.

Maine

Legislative Document 1660. Senate Bill No. 654. Signed into law: April 14, 2014. Effective date: Aug. 1, 2014.

This law authorizes a person or entity that has been sued for patent infringement or threatened with such suit to bring its own lawsuit in state court against the person or entity asserting the patent infringement claims. The law provides a list of factors for the court to consider when determining whether the patent infringement claims were made in bad faith. It provides for equitable relief, damages, court costs, fees and punitive damages. It also authorizes the attorney general to bring an action and it provides that a bad-faith assertion of patent infringement is a violation of the Maine Unfair Trade Practices Act.

Maryland

Senate Bill No. 585. Signed into law: May 5, 2014. Effective date: June 1, 2014.

This new law prohibits a person from making certain assertions of patent infringement in bad faith and authorizes a court to consider certain factors as evidence of whether a person has made an assertion of patent infringement in bad faith. It also provides that the attorney general and the Division of Consumer Protection of the Office of the Attorney General have the authority to bring civil and criminal actions against a person or entity that makes a bad-faith assertion of patent infringement. The law further authorizes certain individuals to bring a civil action in court to recover for injuries or a loss sustained as a result of a violation of this law and authorizes a court to award certain damages and remedies.

Michigan

House Bill No. 5701. Introduced in the House: July 16, 2014. Referred to House Committee on Michigan Competitiveness.

The bill prohibits bad-faith assertion of patent infringement claims and provides for remedies. It provides for a person or entity that is the target of a bad-faith assertion of patent infringement to bring an action in state court against the person or entity that is asserting the patent infringement claims. The bill also authorizes the attorney general to bring civil actions against the asserting person or entity.

Missouri

Senate Bill No. 706. Signed into law: July 8, 2014. Effective date: Aug. 28, 2014.

The new law makes it a violation for a person to make a bad-faith assertion of patent infringement. The measure lists a number of bad-faith factors such as: (1) the demand letter’s not identifying the patent number, name and address of the patent owner, or factual allegations concerning the specific areas in which the target infringes; (2) the person offers to license the patent for an amount that is not based on a reasonable estimate of the value of the license; (3) the demand letter requires payment of a license fee or response within an unreasonably short period of time; and many others. The law authorizes the attorney general to investigate, restrain and prosecute civil actions under the Missouri antitrust law. The law also creates a private cause of action.

New Hampshire

Senate Bill No. 303. Signed into law: July 11, 2014. Effective date: July 11, 2014.

This new legislation prohibits a person from making bad-faith assertions of patent infringement. The law provides factors that a court may consider as evidence that a person has made a bad-faith assertion of patent infringement, establishes a private right of action for violations of the law and provides for enforcement by the attorney general.

New Jersey

Assembly Bill No. 2462. Bill introduced: Feb. 10, 2014. Reported out of assembly committee with amendments: Oct. 2, 2014.

This bill prohibits a person from making a bad-faith assertion of patent infringement. The bill identifies a list of factors that a court may consider as evidence of bad faith. The bill authorizes the attorney general to make rules, conduct civil investigations, bring civil actions and obtain injunctions as provided under the consumer fraud act. The bill also creates a private cause of action.

North Carolina

House Bill No. 1032. Signed into law: Aug. 6, 2014. Effective date: Aug. 6, 2014.

The bill provides that it is unlawful to make a bad-faith patent infringement assertion. A target or person who has been threatened or received a bad-faith assertion of patent infringement may bring a cause of action in state court. The attorney general also has the authority to bring an action against the person or entity making the bad-faith assertion.

Ohio

House Bill No. 573. Bill introduced: May 27, 2014.

Ohio’s bill prohibits a person from making a bad-faith assertion of patent infringement. The bill provides factors that a court may consider as evidence that a person has made a bad-faith patent infringement assertion, provides for a private cause of action for a target or person aggrieved by a party violating the law and authorizes the attorney general to institute a civil action against a person who has made a bad-faith patent infringement assertion.

Oklahoma

House Bill No. 2837. Signed into law: May 16, 2014. Effective date: Nov. 1, 2014.

The new law prohibits the sending of written or electronic communication that would threaten the intended recipient with patent infringement litigation unless compensation or a resolution is provided to the complaining party, if the communication for the patent infringement claim is made in bad faith. The measure allows the attorney general to investigate and bring civil actions against any person who violates the act, and allows the court to award to a plaintiff damages, reasonable attorney fees and punitive damages. The law also provides for a private cause of action.

Rhode Island

Senate Bill No. 2822. Introduced: March 25, 2014. Passed the Senate: June 18, 2014. Referred to the House Judiciary Committee: June 29, 2014.

The bill provides that it is unlawful for a person to make a bad-faith assertion of patent infringement. The bill lists a number of bad-faith factors. This bill authorizes the attorney general to bring civil actions against the person making a bad-faith patent infringement assertion. The bill also creates a private cause of action.

South Dakota

Senate Bill No. 143. Signed into law: March 31, 2014. Effective date: July 1, 2014.

The law makes it a violation for a person to make a bad-faith assertion of patent infringement. The measure lists a number of bad-faith factors such as: (1) the demand letter’s not identifying the patent number, name and address of the patent owner, or factual allegations concerning the specific areas in which the target infringes; (2) prior to sending the demand letter, the person fails to conduct an analysis comparing the claims in the patent to the target’s products, services and technology; (3) the demand letter requires payment of a license fee or response within an unreasonably short period of time; and others. This law authorizes the attorney general to bring civil actions, and enter into assurances of discontinuance. The bill also creates a private cause of action.

Vermont

House Bill No. 299 (ACT 0044). Signed into law: May 15, 2013. Effective date: July 1, 2013.

Vermont was the first state to pass legislation regarding bad-faith patent assertion claims. The law amended consumer protection provisions to add protection against bad-faith assertions of patent infringement. The law lays out a list of factors a court may consider as evidence of bad faith. It 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. It provides the attorney general with the same enforcement powers as under the Consumer Protection Act, and that a private party can seek equitable relief, costs and fees, and actual and punitive damages.

Virginia

Senate Bill No. 150. Signed into law: May 23, 2014.

The new law prohibits any person from making in bad faith an assertion of patent infringement. The attorney general or an attorney for the commonwealth is empowered to accept assurances of voluntary compliance and seek injunctive relief. The attorney general is authorized to issue civil investigative demands. The measure does not create a private cause of action. The measure does not apply to a demand letter or assertion of patent infringement that includes a claim for relief arising under 35 U.S.C. § 271(e)(2) or 42 U.S.C. § 262.

Summary

States are sending a clear message that the current patent demand letter business model is insufficient to protect companies from unscrupulous patent holders. The passage and introduction of many of these laws against bad-faith assertions of patent infringement, however, may require reviewing and construing the patent claim terms at issue. This in turn raises the question whether these new laws are constitutional or if they are preempted by federal patent law. It will also be interesting to see whether these laws will reduce bad-faith patent infringement assertions without hurting good-faith efforts by patent holders who want to enforce their patent rights.

—By J. Michael Martinez de Andino and Matthew Nigriny, Hunton & Williams LLP

Michael Martinez de Andino is a partner and Matthew Nigriny is an associate in Hunton & Williams' Richmond, Virginia, office.

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