BILL ANALYSIS                                                                                                                                                                                                    

                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 681 (Hill) - Civil law:  patents
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          |Version: May 5, 2015            |Policy Vote: JUD. 5 - 1         |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: May 18, 2015      |Consultant: Jolie Onodera       |
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          This bill meets the criteria for referral to the Suspense File.

          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. 

           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  

          *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.   
          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  

          According to the Senate Judiciary Committee analysis of this  

          "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  

          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  

          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.  

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