January 9, 2015
The Texas House Technology Committee has found it necessary to draft state legislation to address “patent abuses” to prohibit the extortion of businesses, but noted the legislation must also protect legitimate patent holders and encourage innovation.
The committee was tasked in 2014 to consider whether abuses in the patent system interfered with business opportunity and innovation, and whether the state could address such problems.The committee’s December 2014 interim report, released on Jan. 8, said it doesn’t have any formal proposal yet because three legal organizations—Texans for Lawsuit Reform, the Texas Civil Justice League and the Texas Trial Lawyers Association—are still working together to draft the legislation, with input from patent-holding businesses.
The committee’s interim report noted that the potential legislation would target people or companies—often called nonpracticing entities, patent assertion entities or patent trolls—that buy patents solely to file infringement litigation and generate revenue from others who settle for less money than the cost of defending the lawsuits.
The report said it received a number of suggestions for the legislation, including “setting out in statute the requirements for a database or registry of firms sending patent assertion demand letters; requiring specific mandatory language in patent assertion demand letters; expanding the [Texas Deceptive Trade Practices-Consumer Protection Act] to include bad faith patent infringement claims; creating a cause of action enforceable by the state attorney general against bad faith claims; and developing a private cause of action.”
But people asked the committee to be careful to limit any sanctions to parties that “send false and misleading written patent demand letters in bad faith to large populations of end users to extort settlements,” the report said. The committee must not sweep in legitimate businesses that send routine patent communications, it explained. People asked the committee to provide clear guidance about what the letters should and shouldn’t contain, rather than “vague and subjective good faith and bad faith factors.” Also, the bill should have a “safe harbor” provision laying out permissible activities for patent holders, noted the report.
Committee Chairman Rep. Gary Elkins, R-Houston, didn’t return a call seeking comment.
Lisa Kaufman, general counsel for the Texas Civil Justice League, said that drafting the bill would be a complicated task because federal law, which controls the patent system, limits what a state can do.
“The ultimate goal is to end the inappropriate use that patent trolls are having on our Texas businesses,” said Kaufman, a partner in Davis Kaufman in Austin.
Also noting the federal preemption problem, Texans for Lawsuit Reform spokeswoman Sherry Sylvester wrote in an email, “We are considering all proposals to address the problem in Texas that will withstand judicial review and will not interfere with legitimate patent rights.”
Nelson Roach, a past president of the Texas Trial Lawyers Association who is helping draft the bill, said the bar group doesn’t have a strong opinion of what the bill should or should not contain.
“What we would like to see is the legislature not pass something that is unconstitutional on its face. We have offered to be a resource to the legislature on that issue,” said Roach, a partner in Nix, Patterson & Roach in Daingerfield. “I would think that what the legislature has the power to do is more along the lines of a procedural type of statute specifying that if you are going to assert—or claim the right to assert—a patent and make a demand on it, it’s not that there be a substantive reexamination of the validity or invalidity of the patent, but that the demand itself include some disclosures, so someone can accurately assess what is being asserted.”