7 October 2015
During the last two years, federal and state governments have been considering legislation to reign in abusive practices of sending fraudulent patent demand letters for the purpose of extracting royalty payments or settlements. To date, twenty-seven states have enacted such bills and more bills are under consideration. While some of the bills are similar, overall the bills vary widely and more than one state’s law may apply to the same allegedly fraudulent activity. Also, some of the laws may apply more broadly than to abusive demand letter practices and potentially impact legitimate offers to license. Businesses that receive demand letters or threats of litigation face the complex task of navigating through a growing patchwork of laws governing patent assertions. For persons or entities sending patent assertion letters, these laws may present a trap for the unwary, creating liability for legitimate enforcement efforts.
While there is proposed federal legislation also addressing concerns about abusive practices of sending fraudulent patent demand letters, these bills are still pending and only a couple of the bills address having national uniform standards governing such abusive practices. Thus, it is important to be aware of the landscape of state laws that are in force.
As of September 2015, twenty-seven states have passed bills on demand letters and at least thirteen other states are considering or have considered similar legislation in this or a prior congressional session (see table).
In general, the laws address making a “bad faith assertion of patent infringement”. However, their application varies widely, in terms of the tests they apply, who may enforce the bills, and the remedies available. Only a few state statutes directly address the issue of jurisdiction. Louisiana’s jurisdictional provision is broad in that it subjects any person out-of-state who engages in any conduct that could be characterized as “asserting patent infringement” to the state’s jurisdiction, even when that person did not send any demand letter.
Most state demand letter statutes employ balancing tests that require courts to analyze a number of factors to determine whether a patent assertion has been made in bad faith. The Vermont statute lists a series of factors that courts “may consider” as evidence that a person has made a bad faith or good faith assertion of patent infringement. Many statutes additionally provide that courts may consider “[a]ny other factor the court finds relevant,” giving courts wide latitude in determining what constitutes a bad faith patent assertion.
A small number of states employ bright line rules that govern what needs to be included in a demand letter and some of those requirements are detailed. For example, Wisconsinrequires that “a patent notification” contain a copy of the patent; names and addresses of the people having rights to enforce the patent; an identification of the asserted claims; an identification of the accused products; a detailed analysis of the infringement theory; and an identification of any court or administrative proceeding concerning the patent.
The majority of the state demand letter laws limit the scope to only written communications, such as a letter or an email, as in Maine. Other state bills, such as in New Hampshire, include the language “or other communication,” meaning that verbal communications could be actionable.
The majority of enacted state laws define the “target” of a patent notification liberally to include both the recipient and the recipient’s vendor or customer, such as in Wisconsin, and the customer does not need to be located in the state. Other states create liability only for customers or end users who received a demand letter, such as in Oklahoma.
Most state demand letter statutes create a private cause of action for persons aggrieved by a violation (not necessarily limited to the recipient of an assertion), as well as allow them to file a complaint with the attorney general, who then identifies patterns of abuse by the sender and may pursue legal action under the state name. Wisconsin caps the available damages at $50,000 for each patent notification.
Available remedies for the recipients of demand letters may include a temporary or permanent injunction, damages, punitive damages, costs and reasonable attorney fees, and civil penalties. Alabama’s statute provides a misdemeanor criminal penalty for a continuous and willful violation. Some states, like Texas, provide for restitution to a victim for legal and professional expenses related to a violation.
Most state demand letter laws require the sender of the assertion to post a bond in the amount sufficient to cover the estimated recovery or the target’s estimated cost of litigation if the target establishes a reasonable likelihood that the person asserted a patent with bad faith, such as in Vermont which caps the bond at $250,000.
As more laws are enacted, entities must be vigilant with respect to whom and where they send demand letters or make assertions and what information needs to be included in such communications to avoid potential liability. Patent assertion recipients may have new tools to challenge senders and may consider whether communications are actionable or whether they should report them to an appropriate state attorney general. Thus, navigating the patchwork of state laws presents new opportunities and challenges for patent right’s holders and recipients of patent assertion communications.
Reprinted with permission from the October 7, 2015 edition of InsideCounsel © 2015 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.