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Jan. 23 — The Washington state attorney general has introduced into the Legislature a bill creating the Patent Troll Prevention Act that would empower his office to bring actions against “bad faith” assertions of patent infringement under the state's consumer fraud statute.
The bill, SB 5059, and identical companion legislation, HB 1092, define factors a court may consider in determining whether an assertion of infringement is made in bad faith including:
• A failure of the demand letter to list patent numbers, owners' names and addresses, or how the target's actions infringe;
• The demand requests payment of a licensing fee in “an unreasonably short period of time.”
• The person making the assertion “knew, or should have known, that the assertion is without merit.”
“Our goal is to target the bad actors,” Washington Attorney General Bob Ferguson told Bloomberg BNA in a telephone interview Jan. 21. “Of course, it's important that folks have the ability to protect their legitimate patents. But what we are seeing is thousands and thousands of demand letters that specifically target small businesses on what are really ridiculous assertions of patents. And that has become a real problem.”
At a Jan. 20 hearing before the Senate Committee on Law and Justice, the president of the Washington State Association of Broadcasters told lawmakers that local radio stations throughout the state have been the target of a company claiming to have a patent on the process of putting music on a hard drive. “These are small stations and they really can't afford to mount a legal defense,” Mark Allen said.
The bill has the support of Intellectual Ventures of Bellevue, Wash., which has a portfolio of over 40,000 patents and is among the top filers of new patents in the country. In a Jan. 19 letter to four state senators and Ferguson, Intellectual Ventures President and COO Adriane Brown wrote: “Specious demand letters targeting America's small businesses are not a naturally occurring feature of a well-functioning marketplace for invention. Rather, they are an aberration perpetrated by a small number of patent holders seeking to arbitrage the system for their own short term economic gain.”
“To ensure the long term health of the patent system, demand letter abuse must be stopped and innocent small businesses must be protected,” Brown said. “SB 5059, and its companion bill HB 1092, is a positive step toward ending abusive demand letters.”
Intellectual Ventures Chief Policy Counsel Russ Merbeth told Bloomberg BNA in a Jan. 21 telephone interview that the problem reflects fraud rather than a dysfunction of the patent system. “We believe there may well be a problem with small organizations that buy up a patent or two then go send out demand letters to tens of thousands of people asking for a license or settlement that may in fact not be warranted.”
“If that sort of behavior is occurring, it strikes us that it's probably more a fraud issue than it is an issue with the patent system,” Merbeth said. “And so a bill like this we think is targeted to a problem that may well exist that can be remedied or should be remedied either legislatively or by an attorney general under their existing authority to deal with fraud.”
“It may well be that the attorney general has plenty of authority to deal with this sort of thing,” he said. “So is legislation necessary for them to manage this kind of behavior? I don't know. Is it harmful? No. It appears in fact to be targeted at misbehavior. And I think it is narrowly enough drawn and the definitions are largely right so that it doesn't have the downsides of unintended consequences that some other legislation might have. So while I don't know that it is absolutely necessary, I think that it's a good idea.”
The Intellectual Ventures letter suggests amending the proposed bill to exempt universities and their tech transfer offices from the statute's provisions.
“We work with a lot of universities around the country and around the world,” Merbeth said. “And universities have wound up in some cases being lumped in more inadvertently than not with the patent troll behavior people that are complaining about.”
“What it really comes down to is that it is very difficult with legislation like this to draw the lines perfectly,” Merbeth said. “And it would be a shame if universities were to inadvertently get caught up in this if they seek to enforce their patents.”
Currently, 18 states have passed legislation targeting abusive patent assertion practices.
Neighboring Oregon passed a bill in February 2014 empowering prosecuting attorneys and the attorney general to bring civil actions against perpetrators of abusive patent assertions under the state's consumer protection statute.
Oregon followed in the footsteps of Vermont which enacted a bill May 22, 2013, aimed at reining in patent trolls. Like Vermont, Oregon legislators amended their state's consumer protection bill, the Unlawful Trade Practices Act, to include a list of criteria defining a “bad faith” demand.
To contact the reporter on this story: Paul Shukovsky in Seattle at firstname.lastname@example.org
To contact the editor responsible for this story: Tom P. Taylor at email@example.com
To view the Washington state bills, go to http://app.leg.wa.gov/dlr/billsummary/default.aspx?Bill=5059&year=2015.
The Intellectual Ventures letter is at http://pub.bna.com/ptcj/IVWashLetter011915.pdf.
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