On Wednesday, January 16, 2019, Massachusetts State Senator Eric Lesser introduced Bill S.D. 1007 (S.D. 1007) which provides for legal actions and recovery from entities that allege infringement in bad faith against Massachusetts companies or individuals. Entitled "An Act to Protect Innovation and Entrepreneurship in the Commonwealth," S.D. 1007 takes aim at reducing the activities of "patent trolls," i.e., patent-asserting entities that primarily derive revenue from sending demand letters or filing patent infringement lawsuits to compel patent royalties.
Determining Bad Faith According to S.D. 1007
S.D. 1007, in part, forbids a person from making bad faith assertions of patent infringement to Massachusetts companies or individuals.1 Further, S.D. 1007 provides that a recipient of such a bad faith assertion or the Massachusetts attorney general may bring an action in state court to seek recovery of legal fees, equitable relief, and damages, including exemplary and treble damages.2
While S.D. 1007 does not explicitly define bad faith, its text lists a number of factors which can lend credence of bad faith such as:
- sending demand letters that lack information such as the patent number, patent owner's name and address, or factual allegations concerning specific elements covered by the patent;
- failing to conduct an analysis comparing patent claims to the target's products, to identify specific areas in which the products are covered by the claims in the patent, or to provide such information when requested;
- demanding a license fee or response within an unreasonably short period of time;
- offering license fees that are not based on a reasonable estimate of the value of the license;
- making meritless or deceptive infringement assertions;
- making infringement assertions that were previously found to be meritless or lack basic patent information; and
- making infringement assertions of a patent that was held invalid or unenforceable in a final judgment or administrative action.3
The above list is not exhaustive as the bill allows courts to consider any other factors that could be determinative of an assertion of infringement of bad faith.
In addition to the factors that could be used to establish bad faith, S.D. 1007 further provides mitigating "good faith" factors, which include relaying relevant patent information such as the patent number and patent owner's name and address in a demand letter, spelling out specific elements of infringing products that are covered by the patent, engaging in good faith effort to establish infringement and negotiate appropriate remedies, making a substantial investment in the use of the patent, and alleging patent infringement as an inventor, original assignee, or institution of higher education.4
Finally, S.D. 1007 exempts or carves out certain parties from the bad faith inquiry, including entities making significant investment in research and development in connection with the patented invention, licensees of the patent that are wholly owned subsidiaries of the party making significant investment, and institutions of higher education or non-profit research institutes.5
S.D. 1007 and the Larger Trend of Addressing Bad Faith Patent Infringement Assertions
The proposed S.D. 1007 is the latest in a line of state legislative efforts in protecting emerging companies, industries, and innovations from the effects of patent troll activities. A common theme among these laws is that they usually provide 1) a list of bad faith factors, 2) an action to be brought in state court by either the state attorney general and/or the recipient of the infringement assertions, and 3) remedies such as attorney fees, damages, fines, and the like.6
For S.D. 1007, this is Senator Lesser's second attempt at proposing a bill against bad faith patent infringement assertions. Last August, a previous version of the bill, S. 2432, was able to pass the Massachusetts Senate but was vetoed by Governor Charlie Baker due to concerns how the bill might impact legitimate patent holders on asserting patent infringement claims.7 According to Senator Lesser, "compromise language" was introduced in the updated bill to ease the fears of patent owners that the proposed law may prevent patent owners from defending legitimate patents.8
With the legislative history and updates to S.D. 1007 as well as the larger trend of states passing anti-patent troll bills, there is a fair chance of S.D. 1007 proceeding through the Massachusetts legislature and gaining approval from Governor Baker. If passed, S.D. 1007 could change the overall pre-litigation strategy and narrative by allowing a recipient of a bad faith demand letter to strike offensively and seek remedies rather than passively waiting for the asserting party to follow through with their threat of a patent infringement suit. Additionally, parties interested in communicating patent infringement assertions would be encouraged to very carefully access the merits of their assertions due to the risk of being subject to a bad faith assertion lawsuit and potential damages.
Given these intended effects, S.D. 1007 as well as similar state laws, raise a number of subsequent questions. As states develop their own body of law and standards against bad faith assertions, patent owners may need to carefully consider how to navigate the various state standards. Under the framework of S.D. 1007 and these state laws, asserting patent rights against potential infringers in different states could become exceedingly costly. Secondly, S.D. 1007's provisions do not apply when a patent owner avoids sending a pre-litigation demand letter and simply files an infringement lawsuit. Rather than sending demand letters, a patent troll could change tactics by employing a "sue first, talk later" strategy in order to circumvent S.D. 1007 and other state "bad faith" bills and laws. It therefore remains to be seen whether S.D. 1007 and these other state initiatives can reduce anti-patent troll activity or if their surrounding issues can be resolved.
For more information about the Act to Protect Innovation and Entrepreneurship in the Commonwealth or navigating the complexities on bad faith patent infringement assertions, please contact Louis Lieto, Farah Gerdes, Mark Fitzgerald, Mark Solakian, Vern Norviel, Doug Carsten, Ryan Smith, or another member of the life sciences or patent litigation practice at Wilson Sonsini Goodrich & Rosati.
Clark Lin and Han Gao contributed to the preparation of this WSGR Alert.
