Will NJ Be Latest State to Combat Patent Trolls With Legislation?

New Jersey is the latest state to contemplate legislation to combat patent trolls, more neutrally referred to as non-practicing entities (NPEs). Critics use the term “patent trolls” because these firms often collect patent rights solely to extract licensing fees.

As previously discussed on the Scarinci Hollenbeck Business Law Blog, so-called patent trolls are at the center of a nationwide debate about how to deter the abuse of patent infringement litigation. NPEs come under scrutiny because they do not directly use the patents they own to produce goods, but rather license them to other companies that do. In some cases, patent trolls pressure smaller businesses to settle suits through the use of aggressive litigation tactics, such as sending threatening demand letters that exaggerate the strength of their claims.

The proposed bi-partisan legislation (Assembly Bill 2462) prohibits a person from making a bad faith assertion of patent infringement. The bill list several 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. Other evidence of bad faith may include:

• The demand letter demands payment of a license fee or response within an unreasonably short period of time.
• The person offers to license the patent for an amount that is not based on a reasonable estimate of the value of the license.
• The claim or assertion of patent infringement is meritless, and the person knew, or should have known, that the claim or assertion is meritless.
• The claim or assertion of patent infringement is deceptive.

In addition, the measure 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.

States across the country have adopted similar measures and federal legislation to curtail patent litigation abuse is currently pending before Congress. Support for patent reform has grown in recent years, particularly in light of numerous studies highlighting the impact of NPEs.

In 2012, a Lex Machina study made headlines when it revealed that so-called patent trolls filed the majority of all federal patent infringement lawsuits in the United States in 2012. More specifically, the number of lawsuits increased from 24 percent of cases filed in 2007 to 56 percent in 2012. Researchers at Boston University similarly found that these lawsuits cost tech companies more than $29.2 billion in 2011, compared to $6.7 billion in 2005.

If you have questions about this post or would like to discuss patent issues impacting your company, please contact me, Fred Zemel or call 201-806-3364.