BILL ANALYSIS Ó
AJR 9
Page 1
ASSEMBLY THIRD READING
AJR
9 (Chang)
As Amended May 7, 2015
Majority vote
-------------------------------------------------------------------
|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+--------------------+----------------------|
|Judiciary |10-0 |Mark Stone, Wagner, | |
| | |Alejo, Chau, Chiu, | |
| | |Gallagher, Cristina | |
| | |Garcia, Holden, | |
| | |Maienschein, | |
| | |O'Donnell | |
| | | | |
| | | | |
-------------------------------------------------------------------
SUMMARY: Urges the United States (U.S.) Congress (Congress) and
the U.S. President (President) to protect patent rights.
Specifically, this measure makes the following findings:
1)The principle of intellectual property is enshrined in the
United States Constitution, which empowers Congress to "promote
the Progress of Science and useful Arts, by securing for limited
Times to Authors and Inventors the exclusive Right to their
respective Writings and Discoveries."
2)A robust patent system is critical to promote economic growth
and innovation and ensure just compensation for the labor and
AJR 9
Page 2
proliferation of beneficial ideas and innovations;
3)California accounts for 25% of the nation's patents;
4)The state recognizes and respects the importance of patent
protections and patent enforcement rights to driving continued
research, investment, technological innovation, and job creation
across multiple sectors of our economy;
5)Small businesses depend on patents to secure investments, and
firms with fewer than 25 employees hold nearly one-quarter of
United States-held patents in innovative emerging technologies;
6)Enforcement of legitimate patent rights is essential to
promoting an innovation environment that fuels economic growth;
7)There is increasing concern about litigation by patent assertion
entities (PAEs), built on a rent-seeking business model that
exploits the patent legal system for financial gain without
producing or manufacturing anything of value for society;
8)Many PAEs attain ambiguous patents with the sole intent of
filing patent infringement lawsuits. PAEs assert these patents
against businesses of all sizes and in all industries, often
years after the product has become standard and widely used;
9)PAEs rarely earn successful judgments in court, underscoring the
questionable merits of these patent cases. However, given the
high cost and risks associated with patent litigation, most
defendants settle to avoid further financial loss. Many PAEs
will offer royalty settlements below market value to encourage
settlement and avoid trial;
10)PAEs have a detrimental impact on the economy and innovation.
PAE activities cost businesses $29 billion directly, mostly
AJR 9
Page 3
borne by small and medium-sized businesses;
11)The growth of patent litigation is directly tied to aggressive
PAEs in recent years. In 2010, PAEs were responsible for 29% of
patent litigation, and by 2012 PAEs represented 62% of all
patent suits;
12)The California economy is especially vulnerable to lawsuits
directed at information technology patents; and
13)Federal legislation is necessary to prevent and deter patent
litigation.
14)Resolves that the Legislature calls upon Congress and the
President to craft a balanced and workable approach to reduce
incentives for and minimize unnecessary patent litigation while
ensuring that legitimate patent enforcement rights are protected
and maintained.
EXISTING LAW:
1)Provides that Congress is empowered to promote Progress of
Science and useful Arts, by securing for limited times to
authors and inventors the exclusive right to their respective
writings and discoveries. (United States Constitution, Article
I, Section 8, Clause 8.)
2)Provides that a patent grants the patent holder the exclusive
AJR 9
Page 4
right to exclude others from making, using, importing, and
selling the patented innovation for a limited period of time.
(United States Patent Act, 35 United States Code 1 et seq.)
3)Requires that the inventor who first files a patent application
with the U.S. Patent Office for an invention must be named in
the patent application. (Leahy-Smith America Invents Act
(2011).)
FISCAL EFFECT: None
COMMENTS: According to the author:
Intellectual property and its practical application
under the U.S. patent system serve as a catalyst for
modern advancements and ensure just compensation for the
labor and proliferation of beneficial ideas and
innovations. This concept is enshrined in the U.S.
Constitution which empowers Congress to "promote the
Progress of Science and useful Arts, by securing for
limited Times to Authors and Inventors the exclusive
Right to their respective Writings and Discoveries."
There has been a marked increase in PAEs in recent years
that have no purpose other than to file patent lawsuits,
particularly focusing on technology and software. PAEs
have abused this system for financial gain in a way that
is an affront to the spirit and intent of the
protections set up under patent laws. Victims of PAEs
are mostly small to medium-sized businesses that cannot
afford the costs of defending a patent lawsuit, which
are expensive due to the cost expert witnesses that are
necessary in order to lodge an adequate defense. While
technological patents are most often abused, PAEs
AJR 9
Page 5
threaten lawsuits on any number of businesses including
restaurants, hospitals, small offices or podcasts for
using standard technology like Wi-Fi, or copier
machines.
Abusive patent lawsuits have grown in recent years at
jarring rates. In 2009 PAEs accounted for 27% of patent
lawsuits but by 2012 they made up 62% of all patent
lawsuits. Together these lawsuits cost businesses $29
billion per year. The result of these opportunistic
schemes to extract money from employers is less
innovation and slower job growth.
The author's office notes that California accounts for 25% of the
nation's patents, mainly due to the large technology industry in
California. The state recognizes the importance of patent
protections and patent enforcement rights to research, investment,
technological innovation and job creation across multiple sectors
of our economy. According to the California Small Business
Profile, published in 2014, California's small businesses employed
half or 6.3 million of the state's private workforce in 2011.
Almost all firms with employees are small, making 99.2% of all
employers in the state. According to the author, small businesses
depend on patents to secure investments and firms with fewer than
25 employees hold nearly-one-quarter of the patents held in the
United States. These statistics support the need for California
to encourage the enforcement of legitimate patent rights, to
ensure the promotion of an innovative environment that fuels
economic growth. (U.S. Small Business Administration, Office of
Advocacy, California Small Business Profile, (2014).)
To address abusive litigation by PAEs, H.R. 9, The Innovation Act
was introduced on February 5, 2015, seeking to require a party
alleging patent infringement in a civil action to include the
following information in the court pleadings, if the information
is reasonably accessible:
AJR 9
Page 6
1)Each claim of each patent allegedly infringed;
2)For each claim of indirect infringement, the acts of the alleged
indirect infringer that contribute to, or are inducing, a direct
infringement;
3)The principal business of the party alleging infringement;
4)The authority of the party alleging infringement to assert each
patent and the grounds for the court's jurisdiction;
5)Each complaint filed that asserts any of the same patents; and
6)Whether the patent is essential or has potential to become
essential to a standard-setting body, and whether the United
States or a foreign government has imposed any specific
licensing requirements.
While the regulation of patents and trademarks is solely within
the federal government's jurisdiction, California has a vested
interest in ensuring that the aggressive litigation tactics of
PAEs do not negatively affect California businesses or the
California economy. It is within the power of the California
Legislature to weigh in and urge Congress to take action to
protect innovation, research, small businesses, job creation and
the technology sector.
Analysis Prepared by:
Khadijah Hargett / JUD. / (916) 319-2334 FN:
0000369
AJR 9
Page 7