Judiciary Committee

JOINT FAVORABLE REPORT

Bill No.:

SB-258

Title:

AN ACT CONCERNING BAD FAITH CLAIMS OR ASSERTIONS OF PATENT INFRINGEMENT.

Vote Date:

3/10/2014

Vote Action:

Joint Favorable

PH Date:

3/3/2014

File No.:

SPONSORS OF BILL:

Judiciary Committee

REASONS FOR BILL:

“Patent Trolling” as it is commonly known as, is becoming an increasingly expanding deceptive and fraudulent practice here in CT. From the very small business to large corporations no one is exempt from this practice. An employment service company in Old Lyme is one such company that was threatened with a lawsuit unless they paid more than $75,000 in fees. While large corporations may have the resources to combat patent trolling, the small to medium business owner does not. They are deceived and coerced into paying these fraudulent claims and rather than going to court, which can be costly and devastating to the business, this may eventually may lead to closure of the business, or the owners settle the claim. .

RESPONSE FROM ADMINISTRATION/AGENCY:

None Submitted

NATURE AND SOURCES OF SUPPORT:

Senator Donald Williams, Jr. 22nd District: Patent assertion entities, sometimes referred to as “patent trolls”, are entities that purchase patents with the sole intention of asserting them for profit. Across the country, 90% of all companies sued by patent entities in 2011 were small to medium size businesses.

CT Food Association, Stan Sorkin, President: Representing over 30,000 associates in CT. Many of the companies targeted by patent trolls in recent years can't afford to take on the cost associated with defending themselves in court. Thus they have to settle for a “licensing fee”.

National Federation of Independent Business, Andy Markowski, State Director:

This bill is a common sense approach to help protect small businesses from

frivolous lawsuits related to bad faith patent assertion claims, by allowing for judicial relief, the awarding of attorney's fees for prevailing plaintiffs among other damages, and independent action by the Attorney General for enforcement. Legislators should keep in mind that even one frivolous lawsuit can easily wipe out an entire small business.

CBIA, Eric George: The targets of these “patent trolls” often are small companies, sometimes family-owned, with little to no experience in dealing with intellectual property rights issues. These small companies can be intimidated by these “patent trolls” and acquiesce to their demands for fear of litigation.

CT Bankers Association, Tom Mongellow, Fritz Conway: SB 258 would create a new standard of due diligence and good faith in ascertaining patent infringement in the state. This would discourage frivolous and costly allegations of infringement and send a clear message to all patent trolls that CT does not encourage baseless actions.

Savings Institute Bank & Trust Co. Rheo Brouillard, Hampton, CT President and CEO:

On January 4th, 2013 Savings Institute, like 30+ other community banks in CT received a letter attempting to extort money from the Bank. The letter said the bank was subject a suit for patent infringement. The letter further offered to “sub license” the rights to continue to allow the Bank to use its ATMs. They even tried to extort money from a bank that did not have any ATMs. I subsequently learned that this practice is happening in other states with some banks paying the licensing fee instead of going to court to fight. The problem is so widespread that as many as 23 other states are considering similar legislation.

SB 258 would provide some protection to CT companies and send a strong message to other “Trolls” that attempting to extort money in CT may not be worth the effort.

CT Restaurant Association, The Connecticut hospitality industry employs an estimated 145,000 people, making up 9% of our states' workforce. According to a 2013 report issued by the White House, lawsuits brought by patent trolls has tripled in the last two years, from 29 percent to 62 percent of all infringement suits.

NATURE AND SOURCES OF OPPOSITION:

PhRMA: PhRMA requests an amendment to SB 258. Phrma believes that SB 258 admirably seeking to prohibit “patent trolls” from abusing the patent system, but as written, prevents demand letters sent in good faith to marketplace competitors that are required to defend patents per federal laws.

A suggested amendment, which has passed in other states, includes safe harbor language:

It shall not be an unfair or deceptive trade practice for any person who owns or has the right to license or enforce a patent to notify another of that ownership or right of license or enforcement, to notify another that the patent is available for license or sale, to notify another of the infringement of that patent pursuant to the provisions of Title 35 of the United States Code, or to seek compensation on account of a past or present infringement, or for a license, when it is reasonable to believe that the person from whom compensation is sought may owe such compensation.

Reported by: Rich Benham

March 11, 2014