BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 681 (Hill) - Civil law: patents ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: May 5, 2015 |Policy Vote: JUD. 5 - 1 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 18, 2015 |Consultant: Jolie Onodera | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 681 would make it unlawful to send a written communication that states or represents that the recipient may have infringed on a United States patent if the sender, in bad faith, makes specified statements, seeks compensation for specified conduct, or fails to include specified information in the communication. This bill would specify that its provisions are only enforceable by the Attorney General, but does not impair or impede any other claims or defenses available under other law. Fiscal Impact: Potential increase in workload resulting in costs potentially in excess of $150,000 (Special Fund*) to the Attorney General's office to the extent new cases arise that cannot viably be litigated under the provisions of the Unfair SB 681 (Hill) Page 1 of ? Competition Law. Potential increase in General Fund revenues to the extent civil penalties of up to $2,500 per violation are imposed and collected. *Unfair Competition Law Fund Background: Existing federal law, the Patent Act, provides 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. § 101.) Existing state law pursuant to the Unfair Competition Law, renders an individual liable for any unlawful, unfair, or fraudulent business act or practice and any unfair, deceptive, untrue or misleading advertising. (Business and Professions Code § 17200.) According to the Senate Judiciary Committee analysis of this bill: "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 monetization 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 patents. This bill would create a new civil infraction designed to address the problems caused by non-practicing entities that allege patent infringement claims in bad faith." SB 681 (Hill) Page 2 of ? Proposed Law: This bill would render it unlawful for a person, in connection with the assertion of a United States patent, to engage in a pattern or practice of sending written communications that are sent in bad faith that state or represent that the recipient is or may be infringing, or has or may have infringed, the patent and is liable or owes compensation to another, if specified conditions are met. This bill: Provides that a person who sends a communication in violation of its provisions may be enjoined in a court of competent jurisdiction and is liable for a civil penalty not to exceed $2,500 for each violation, as specified. Provides that the penalty collected in an action by the Attorney General or an attorney acting on behalf of the state shall be paid to the General Fund. Provides that the Attorney General or an attorney acting on behalf of the state shall have the sole authority to enforce its provisions, and that it shall not be construed to create a private right of action. Provides that the bill's provisions shall not be construed to impair or impede any other rights, causes of action, claims, or defenses available under other law. Provides that the remedies provided in this bill are cumulative with any other remedies available under other law. Related Legislation: AJR 9 (Chang) 2015 would make specified findings regarding patents and patent litigation, and would urge the President and the Congress of the United States to craft a balanced and workable approach to reduce incentives for an minimize abusive and frivolous patent litigation while ensuring that legitimate patent enforcement rights are protected and maintained. This bill is pending in the Assembly Judiciary Committee. Staff Comments: The Department of Justice has reported that the provisions of this measure would result in an unquantifiable but potentially significant fiscal impact to the extent additional SB 681 (Hill) Page 3 of ? claims are brought to or initiated by the Attorney General under the specified provisions of this bill. While the bill clarifies that its provisions do not bar claims under California's Unfair Competition Law (UCL), due to the complex legal framework and available legal defenses, to the extent claims are not viable under the UCL, additional claims under the provisions of this bill could result. -- END --