Jessica M. Karmasek Oct. 3, 2014, 12:15pm

TRENTON, N.J. (Legal Newsline) - A New Jersey Assembly panel approved Thursday legislation aimed at preventing individuals or companies from making false patent infringement claims in the state.

The bill, Assembly Bill 2462, is sponsored by Assemblymen Troy Singleton and Benjie Wimberly, both Democrats. Singleton, a labor union executive, and Wimberly, a high school football coach, introduced the bill earlier this week.

It passed out of the Assembly’s Commerce Economic and Development Committee on a 10-0 vote.

“Innovation has always been a fundamental pillar of our country’s economic growth. Patent trolls offer no economic value and stand counter to the spirit of American ingenuity and threaten the vitality of our innovation-based economy,” Singleton said.

“This bill is designed to protect the innocent and put the onus on bad characters to prove patent infringement.”

Generally speaking, a non-practicing entity, patent assertion entity or patent monetization entity purchases groups of patents without an intent to market or develop a product.

In some cases, but not all, the entity then targets other businesses with lawsuits alleging infringement of the patents it bought. Often, these are referred to as “patent trolls.”

Singleton pointed to a recent rise in false patent claims, particularly in the pharmaceutical and biotech industries, as a reason for the legislation.

Specifically, A.B. 2462 identifies a list of factors that a court may consider as evidence of bad faith, including that the person or company, when issuing a “demand letter” -- sent in an attempt to enforce or assert rights in connection with a patent or a pending patent -- does not provide the patent number; the name and address of the patent owner or owners and assignee or assignees, if any; and factual allegations concerning the specific areas in which the entity’s products, services and technology infringe the patent or are covered by the claims in the patent.

“False patent infringement claims can damage someone’s finances as well as their reputation," Wimberly said.

“This will hopefully help curb frivolous claims and protect legitimate enterprises.”

Other factors specified in A.B. 2462 for a court to consider as evidence of bad faith are:

- Prior to sending the demand letter, the person fails to conduct an analysis comparing the claims in the patent to the entity's products, services and technology, or such an analysis was done but does not identify specific areas in which the products, services and technology are covered by the claims in the patent;

- The demand letter lacks the information described above, the target requests the information, and the person fails to provide the information within a reasonable period of time;

- The letter demands payment of a license fee or response within an unreasonably short period of time;

- The person offers to license the patent for an amount that is not based on a reasonable estimate of the value of the license;

- The claim or assertion of patent infringement is meritless, and the person knew, or should have known, that the claim or assertion is meritless;

- The claim or assertion of patent infringement is deceptive; and

- The person or its subsidiaries or affiliates have previously filed or threatened to file one or more lawsuits based on the same or similar claim of patent infringement and those threats or lawsuits lacked the information described above, or the person attempted to enforce the claim of patent infringement in litigation and a court found the claim to be meritless.

Among the evidence that a person has not made a bad faith assertion: a person makes a “substantial” investment in the use of the patent or in the production or sale of a product or item covered by the patent, and that the person is the inventor or joint inventor of the patent, or is the original assignee or an institution of higher education or a technology transfer organization affiliated with a higher education institution.

A.B. 2462 also stipulates that the attorney general has the same authority to make rules, conduct civil investigations, bring civil actions and obtain injunctions as provided under the state’s Consumer Fraud Act.

The New Jersey Civil Justice Institute said although it is a proponent of an “equitable and predictable” civil justice system, it opposes the patent reform bill.

NJCJI said it shared the alarm over patent trolls making meritless demands and threatening frivolous litigation, but said it couldn’t back a state-level fix to the patent law system.

Alida Kass, the institute’s chief counsel, voiced the group’s opposition to the commerce committee Thursday.

“The ‘patent troll’ phenomenon is largely a symptom of fundamental issues in the litigation system that have been amplified by specific issues in the patent system,” she told lawmakers.

“To the extent there are patent-specific issues exacerbating that general problem, the proposed legislation would not fix those problems. Because patents are exclusively a federally created and enforced property right, it is not possible to address the underlying problems at the state level.”

Creating a new cause of action in state court might actually create more problems, Kass said.

“The bill does not effectively define who is being targeted by this legislation and as a result it would have potentially wide-ranging and unpredictable application,” she said.

“The lack of clarity and predictability in the legislation is especially dangerous when combined with the other penalties and enforcement mechanisms in the bill. The one-way fee-shifting and treble damages has the potential to distort the process by which property rights in patents are enforced -- not just with respect to ‘trolls’ but to patent holders generally. The bonding requirement in the legislation would also impose a particular burden on small companies and individuals who lack the resources to post a bond in order to defend their property interest.”

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