BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 681|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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THIRD READING
Bill No: SB 681
Author: Hill (D)
Amended: 5/5/15
Vote: 21
SENATE JUDICIARY COMMITTEE: 5-1, 4/28/15
AYES: Jackson, Hertzberg, Leno, Monning, Wieckowski
NOES: Anderson
NO VOTE RECORDED: Moorlach
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/28/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen
SUBJECT: Civil law: patents
SOURCE: Author
DIGEST: This bill 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 fraudulently
or falsely makes specified statements, seeks compensation for
specified conduct, or fails to include specified information in
the communication. This bill 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.
ANALYSIS:
SB 681
Page 2
Existing federal law:
1)Reserves to Congress, under 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
exclusive right to their respective writings and discoveries."
(U.S. Const., art. I, Sec. 8.)
2)Provides for the issuance of patents, under the Patent Act, 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 state law:
1)Renders an individual liable, under the Unfair Competition
Law, 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 bill:
1)Renders 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 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.
2)Provides that that it is unlawful for the sender of the
written communication described above to make, in bad faith,
any of the following statements or representations, knowing
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those statements or representations are false:
that the sender has the right to license or enforce the
patent at the time the communications are sent, if the
sender is not a person with that right;
that a civil action asserting a claim of infringement of
the patent has been filed against either the recipient or
against other persons;
that legal action for infringement of the patent will be
taken against the recipient;
that the sender is the exclusive licensee of the patent
asserted in the communications;
that persons other than the recipient purchased a
license for the patent asserted in the communications;
that persons other than the recipient purchased a
license, and the sender does not disclose that the license
is unrelated to the alleged infringement or the patent
asserted in the communications;
that an investigation of the recipient's alleged
infringement has occurred; or
that the sender, or an affiliate of the sender,
previously filed a civil action asserting a claim of
infringement of the patent based on the activity that is
the subject of the written communication when the sender
knew that the activity was held, in a final determination,
not to infringe the patent.
1)Provides that it is unlawful for the sender of the written
communication described above to fraudulently seek
compensation for any of the following:
a patent claim that has been determined to be
unenforceable or invalid against the recipient in a final
determination;
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activity undertaken by the recipient after expiration of
the patent asserted in the communication; or
activity of the recipient that the sender knew was
authorized, with respect to the patent claim that is the
subject of the communication, by a person with the right to
license the patent.
1)Provides that it is unlawful for the sender of the written
communication described above to fraudulently conceal or omit
to include any of the following information from the
communication when that information is readily available to
the sender at the time the communication is sent:
the identity of the person asserting a right to license
the patent to, or enforce the patent against, the
recipient, including the identity of any parent entity and
the ultimate parent entity of the person, unless that
person is a public company and the name of the public
company is identified;
identification of at least one patent issued by the
United States Patent and Trademark Office alleged to have
been infringed;
identification, to the extent reasonable under the
circumstances, of at least one product, service, or other
activity of the recipient that is alleged to infringe the
identified patent;
a description, to the extent reasonable under the
circumstances, of how the product, service, or other
activity of the recipient infringes an identified patent
and patent claim; or
a name and contact information for a person the
recipient may contact about the assertions or claims
relating to the patent contained in the communication.
1)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
two thousand five hundred dollars ($2,500) for each violation,
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as specified.
2)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.
3)States that its provisions shall not be construed to impair or
impede any other rights, causes of action, claims, or defenses
available under other law, and that remedies provided in this
bill are cumulative with any other remedies available under
other law.
Background
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 creates a new civil infraction designed to address the
problems caused by non-practicing entities that allege patent
infringement claims in bad faith. As a remedy, this bill
provides that a person who sends a communication in violation of
its provisions may be enjoined and is liable for a civil penalty
of up to $2,500 for each violation, but specifies that such
remedies may be sought solely by the Attorney General or an
attorney acting on behalf of the state.
Comments
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The author writes:
Patents are essential to encouraging innovation, especially in
the information technology and knowledge-based fields that
drive much of California's economy. The protections afforded
by the federal patent system create an incentive to invest in
research and innovation, which creates jobs and raises income.
At the same time, a number of states are seeking to address
bad faith patent activities, such as the mailing of abusive
demand letters. Patent assertion entities (PAEs) generally
are holding or "shell" companies that don't manufacture
anything but hold a number of patents, typically purchased
legally from bankrupt firms. They make their money by sending
threatening letters to companies claiming they have been
violating one or more of their (often vaguely defined)
patents. The letters say that if the companies pay the
license fees to use their patents, they won't be sued. Often,
PAEs target small- to medium-sized businesses that cannot
afford to fight lengthy court battles, so they willingly pay
the amount demanded to settle out of court. PAEs usually
request unreasonable fees in light of the alleged infractions
and often fail to give companies any details about what the
patent in question actually covers or how they allegedly
infringed upon it.
While California's unfair competition law is broad, it does
not appear to have been applied in the context of patent
demand letters. Furthermore, as demand letters are
pre-lawsuit communications that receive heightened protection
under the First Amendment's right to petition the courts and
right to free speech, it is unclear whether the Unfair
Competition Law, which does not contain a scienter
requirement, could withstand constitutional scrutiny when
applied to demand letters. By contrast, SB 681 makes clear
what practices are prohibited and, consistent with the
Constitution, requires "bad faith" on the part of the sender.
SB 681 empowers the Attorney General to seek a civil penalty
from any person or entity that sends bad faith demand letters
to the end users of a product or service. This narrowly
tailored bill prohibits specific misrepresentations (such as a
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false claim that legal action has been taken against the
recipient), omissions (such as failing to identify the number
of the allegedly infringed patent), and abusive practices
(such as seeking compensation based on a patent previously
found invalid) that patent trolls have used against
unsophisticated persons and businesses.
Related/Prior Legislation
AJR 9 (Chang, 2015) makes specified findings regarding patents
and patent litigation, and urges the President and the Congress
of the United States to craft a balanced and workable approach
to reduce incentives for and minimize abusive and frivolous
patent litigation while ensuring that legitimate patent
enforcement rights are protected and maintained. The bill is
pending referral in the Senate Rules Committee.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee:
Potential increases 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
Competition Law.
Potentially 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
SUPPORT: (Verified5/29/15)
None received
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OPPOSITION: (Verified5/29/15)
3M
BIOCOM
Biotechnology Industry Organization
California Life Sciences Association
Caterpillar
Qualcomm, Inc.
Silicon Valley Leadership Group
Tessera Technologies, Inc.
Texas Instruments
Prepared by:Tobias Halvarson / JUD. / (916) 651-4113
5/30/15 18:03:43
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