New Jersey legislators are once again attempting to take steps to make it easier for companies to fight off lawsuits filed by so-called "patent trolls."
The Assembly and Economic Development Committee on Feb. 22 unanimously recommended passage of a bill, A310, which would establish a set of standards a Superior Court judge would be allowed to use to determine whether a patent infringement lawsuit was filed in bad faith.
An identical measure failed to make it through the Legislature in its prior session. The bill must still be passed by the full Assembly and the Senate, and then be signed by Gov. Chris Christie.
A patent troll is defined as a company or person that acquires patents without the intent to actually develop the products. Instead of making money from the product, the company or individual files a large number of patent infringement lawsuits against companies using the products.
Patent trolls usually agree to settle their claims for less money than would actually be awarded for a legitimate claim. Defendants often agree to settle the case on the reduced terms as a means of avoiding costly litigation, although most defendants are generally vindicated if they do go to trial.
The professional services company PricewaterhouseCoopers has estimated that about 67 percent of all patent infringement cases nationwide are filed by patent trolls.
"So-called patent trolls are usually the holders of vague patents, who do not use the protected technology themselves. Instead, they demand payment from alleged infringers in the hope that their targets will settle rather than defend themselves in court," said one of the primary sponsors, Assemblyman Troy Singleton, D-Burlington, in a statement. "This legislation aims to curb this pattern of litigation by having certain requirements in place for the company to verify in terms of a potential infringement of an actual patent."
"The people who file these bogus claims do so not because they have a legitimate patent infringement claim, but because they are betting on their victims settling instead of going through a time-consuming court process," said a co-sponsor, Assemblyman Benji Wimberly, D-Passaic.
During a committee hearing on Feb. 22, John Holub, the president of the New Jersey Retail Manufacturers Association, urged passage of the bill.
Holub said that while at least 90 percent of suits filed by patent trolls are dismissed, it typically costs a business $2 million to fight a suit and that it takes about 18 months for the matter to be resolved.
"It's a significant burden," he said.
The New Jersey Civil Justice Institute opposes the legislation, according to its chief counsel, Alida Kass. She said that since patent law is a federal matter, the issue should be left to Congress.
Holub disagreed, to a point.
"While we clearly would prefer a federal solution, if we're going to wait for Washington to act, we're going to wait a very long time," Holub said.
The bill contains a list of factors that a judge could consider as evidence of bad faith, including that a plaintiff, when issuing a demand letter asserting or claiming that another entity has engaged in patent infringement, does not provide 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 defendant's products, services and technology infringe the patent or are covered by claims in the patent.
As further evidence of bad faith, a judge also could consider the following:
• Whether the plaintiff responds to descriptive information requested by the defendant in a timely manner.
• The plaintiff demands payment of a license fee or a response within an unreasonably short period of time.
• The plaintiff 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 plaintiff knew, or should have known, that the claim or assertion is meritless.
• The claim of infringement is deceptive.
• The plaintiff or his or her 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 plaintiff attempted to enforce the claim of patent infringement in litigation and a judge or jury found the claim to be without merit.
A plaintiff would be allowed to demonstrate a claim has been filed in good faith if he or she can demonstrate that the demand letter contains detailed information, and that he or she has attempted to engage in legitimate negotiations with the defendant and has made a substantial investment in the use of the patent.
Additional evidence of good faith could be demonstrated by the plaintiff showing that he or she was the actual or joint inventor of the patented product or is the original assignee, and has initiated other successful infringement claims involving the particular patent.
A judge suspecting that a claim is being pursued in bad faith would be allowed to require the plaintiff to post a bond of up to $250,000.
If a claim is successful, the judge could order exemplary damages three times the total damages, costs and fees, equal to $50,000.