BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                         AJR 9|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
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                                   THIRD READING 

          Bill No:  AJR 9
          Author:   Chang (R)
          Amended:  5/18/15 in Assembly
          Vote:     21  

           SENATE JUDICIARY COMMITTEE:  6-0, 6/16/15
           AYES:  Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning
           NO VOTE RECORDED:  Wieckowski

           ASSEMBLY FLOOR:  76-0, 5/18/15 - See last page for vote

           SUBJECT:   Patent reform

          SOURCE:    Author

          DIGEST:  This resolution urges the President and the Congress of  
          the United States 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 federal law:

          1)Reserves to Congress, in the United States Constitution, the  
            power "to promote the progress of science and useful arts, by  
            securing for limited times to authors and inventors the  


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                                                                    Page  2

            exclusive right to their respective writings and discoveries."  
             (U.S. Const., art. I, Sec. 8.)

          2)Provides, in the Patent Act, for the issuance of patents to  
            any person who invents or discovers any new and useful  
            process, machine, manufacture, or composition of matter, or  
            any new and useful improvement thereof.  (35 U.S.C. Sec. 101.)

          Existing law:

          1)Renders, in the Unfair Competition Law, an individual liable  
            for any unlawful, unfair or fraudulent business act or  
            practice and any unfair, deceptive, untrue or misleading  
            advertising.  (Bus. Prof. Code Sec. 17200.)

          2)Provides that one who willfully deceives another with intent  
            to induce him to alter his position to his injury or risk, is  
            liable for any damage which he thereby suffers.  (Civ. Code  
            Sec. 1709.)

          This resolution:

          1)Makes the following findings and declarations:

                 the principle of intellectual property is enshrined in  
               the United States Constitution, specifically under clause 8  
               of Section 8 of Article I of 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;"
                 a robust patent system is critical to promote economic  
               growth and innovation and ensure just compensation for the  
               labor and proliferation of beneficial ideas and  
                 California accounts for 25 percent of the nation's  
                 the state recognizes and respects the importance of  
               patent protections and patent enforcement rights to driving  


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               continued research, investment, technological innovation,  
               and job creation across multiple sectors of our economy;
                 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; and
                 enforcement of legitimate patent rights is essential to  
               promoting an innovation environment that fuels economic  

          1)Makes the following additional findings and declarations:

                 there is increasing concern about litigation by  
               predatory Patent Assertion Entities (PAEs), which are 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;
                 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;
                 PAEs rarely earn successful judgments in court,  
               underscoring the questionable merits of these particular  
               patent cases.  However, given the high cost and risks  
               associated with patent litigation, most defendants choose  
               to settle in order to avoid further financial loss.   
               Indeed, many PAEs will offer royalty settlements below  
               market value in order to encourage settlement and avoid  
                 predatory PAEs have a detrimental impact on the economy  
               and innovation.  PAE activities cost businesses $29 billion  
               directly, mostly borne by small- and medium-sized  
                 the growth of patent litigation is directly tied to  
               aggressive PAEs in recent years.  In 2010, PAEs were  
               responsible for 29 percent of patent litigation, and by  
               2012 PAEs represented 62 percent of all patent suits;
                 the California economy is especially vulnerable to  
               lawsuits directed at information technology patents; and
                 federal legislation is necessary to prevent and deter  
               abusive patent litigation.

          1)Urges the President and the Congress of the United States to  


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            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  


          In recent years, much attention has been focused on the business  
          model practiced by certain firms that make money not by  
          producing goods, but by licensing patent use or asserting patent  
          claims against other companies that produce goods using patented  
          technologies and methods.  The activities of these so-called  
          "patent trolls," "non-practicing entities," or "patent assertion  
          entities" are thought by some to be harming innovation and  
          causing the market as a whole to reduce venture investing and  
          research and development spending.  Whether or not these  
          entities actually harm the market is a hotly debated topic, as  
          is the nature of what - if anything - should be done about it.   
          Indeed, even the definition of who constitutes a non-practicing  
          entity is contentious, with some commentators pointing out that  
          the concept may include universities that license use of their  

          This resolution makes specified findings about the detrimental  
          impact predatory patent assertion entities are having on the  
          economy and innovation, and would urge the federal government to  
          enact federal legislation to prevent and deter abusive patent  
          litigation while ensuring that legitimate patent enforcement  
          rights are protected and maintained.


          The author writes:

            In recent years there have been efforts to abuse the US patent  
            system for financial gain in a way that is an affront to the  
            spirit and intent of the protections set up under patent laws.  
             The US has seen a marked increase in Patent Assertion  


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            Entities (PAEs) which have no other purpose than to file  
            predatory patent lawsuits, with a particular focus on  
            technology and software.  PAEs do not manufacture or create  
            anything.  Their only purpose is to acquire patents and assert  
            them against entrepreneurs.

            Victims of PAEs are mostly small to medium sized businesses  
            that cannot afford the costs of defending a lawsuit.  While  
            technological patents are most often abused, PAEs threaten  
            lawsuits on any number of businesses including restaurants,  
            small offices or podcasts for using standard technology like  
            WiFi or copier machines.

            Abusive patent lawsuits have grown in recent years at jarring  
            rates.  In 2009 PAEs accounted for 27 [percent] of patent  
            lawsuits but by 2012 they made up 62 [percent] 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  

            Current federal law does not provide protections for victims  
            of patent lawsuit abuse and struggles to distinguish between  
            legitimate efforts to protect patents and [PAEs].  Reform is  
            needed on a federal level to address this rapidly growing  
            problem that threatens economic growth and innovation . . .  
            AJR 9 urges the President and the Congress of the United  
            States 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.

          Related/Prior Legislation

          SB 681 (Hill, 2015) makes it unlawful to send a written  
          communication stating that the recipient may have infringed on a  
          United States patent if, in bad faith, the sender makes  
          specified statements, seeks compensation for specified conduct,  
          or fails to include specified information in the communication.   


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          This bill also provides specific remedies for sending such  
          unlawful communications, and specifies that those remedies may  
          only be obtained by the Attorney General or an attorney acting  
          on behalf of the state.  This bill is pending in the Senate  
          Rules Committee.

          FISCAL EFFECT:   Appropriation:                Fiscal  

          SUPPORT:   (Verified6/9/15)

          California Citizens Against Lawsuit Abuse
          California Healthcare Institute
          California Hotel & Lodging Association
          California Restaurant Association
          Electronic Frontier Foundation
          Greater Santa Barbara Lodging & Restaurant Association
          Internet Association

          OPPOSITION:   (Verified6/9/15)

          None received

          ASSEMBLY FLOOR:  76-0, 5/18/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,  
            Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,  
            Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,  
            Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,  
            Irwin, Jones, Jones-Sawyer, Lackey, Levine, Linder, Lopez,  
            Low, Maienschein, Mayes, McCarty, Medina, Mullin, Nazarian,  
            Obernolte, O'Donnell, Olsen, Perea, Quirk, Rendon,  
            Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark  
            Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,  
            Wood, Atkins
          NO VOTE RECORDED:  Kim, Mathis, Melendez, Patterson


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          Prepared by:Tobias Halvarson / JUD. / (916) 651-4113
          6/18/15 16:26:48

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