N.J. Lawmakers Push Bill Aiming To Curtail Patent Trolls

A committee of the New Jersey Legislature is urging passage of legislation that would make it easier for companies to fight off lawsuits filed by so-called "patent trolls."

The Assembly Commerce and Economic Development Committee on Oct. 2 unanimously recommended passage of a bipartisan bill, A-2462, that establishes a set of standards a judge would be allowed to use to determine whether a patent infringement case has been filed in bad faith.

A patent troll is defined as a company or person that acquires patents without the intent to actually develop the products. Instead of making money from the product, the company or individual files a large amount of patent infringement lawsuits against companies using the products.

Patent trolls usually agree to settle their claims for less money than would actually be awarded in a legitimate claim.

Defendants often agree to settle the case on the reduced terms as a means of avoiding costly litigation, although most defendants are generally vindicated if they do go to trial.

The professional services company PricewaterhouseCoopers estimates that about 67 percent of all patent infringement cases nationwide are filed by patent trolls.

"Patent trolls offer no economic value and stand counter to the spirit of American ingenuity and threaten the vitality of our innovation-based economy," one of the sponsors, Assemblyman Troy Singleton, D-Burlington, said in a statement. "This bill is designed to protect the innocent and put the onus on bad characters to prove patent infringement."

The bill is also sponsored by Assemblymen Anthony M. Bucco, R-Morris, and Benjie Wimberly, D-Passaic. An identical measure, S-1563, sponsored by Bucco's father, Sen. Anthony R. Bucco, R-Morris, is pending before the Senate Judiciary Committee.

Singleton said there has been a particularly sharp rise in the number of lawsuits filed by patent trolls in the pharmaceutical and biotech industries.

The bill contains a list of factors that a judge could consider as evidence of bad faith, including that a plaintiff, when issuing a demand letter asserting or claiming that another entity has engaged in patent infringement, 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 defendant's products, services and technology infringe the patent or are covered by claims in the patent.

As further evidence of bad faith, a judge also could consider the following:

• Whether the plaintiff responds to descriptive information requested by the defendant in a timely manner.

• The plaintiff demands payment of a license fee or a response within an unreasonably short period of time.

• The plaintiff 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 plaintiff knew, or should have known, that the claim or assertion is meritless.

• The claim of infringement is deceptive.

• The plaintiff or his or her 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 plaintiff attempted to enforce the claim of patent infringement in litigation and a judge or jury found the claim to be without merit.

A plaintiff would be allowed to demonstrate a claim has been filed in good faith if he or she can demonstrate that the demand letter contains detailed information, has attempted to engage in legitimate negotiations with the defendant and has made a substantial investment in the use of the patent.

Additional evidence of good faith could be demonstrated by the plaintiff showing that he or she was the actual or joint inventor of the patented product or is the original assignee, and has initiated other successful infringement claims involving the particular patent.

A judge suspecting that a claim is being pursued in bad faith would be allowed to require the plaintiff to post a bond of up to $250,000.

If a claim is successful, the judge could order exemplary damages of $50,000 or three times the total damages, costs and fees, whichever is greater.

The New Jersey Civil Justice Institute, a tort reform lobbying group, opposes the legislation, the institute's chief counsel, Alida Kass, told the committee.

"It's tough to oppose something designed to curtail frivolous litigation," Kass said. However, she said solutions to patent troll litigation would be better developed at the federal level.

John Holub, the president of the New Jersey Retail Merchants Association, another lobbying group, urged the committee to vote in favor of the bill.

Holub said his members are "big targets" of patent trolls.

"With any kind of claim, lawyers get involved and costs increase," he said, adding that it takes at least 18 months and $2 million to successfully fight a frivolous patent infringement claim.

While he agreed with Kass that the federal government should take the lead, he said states should take action since the odds of getting anything through Congress currently are "slim and none."

Former Assembly Speaker Sheila Oliver, D-Essex, asked whether New Jersey could be considered a patent troll because of its pending federal lawsuit against a Florida restaurant franchise, the Jersey Boardwalk Pizza Co. The state is alleging patent infringement over the franchise's symbol, which closely resembles the service mark used by the Garden State Parkway.

Holub said the Parkway's service mark is easily recognizable, and added that he believed the state has a legitimate infringement claim.

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