House gives initial approval to bill targeting patent trolls
Photo | Courtesy of Jason Goodman via Unsplash
A bill that gained initial approval in the House seeks to protect businesses from so-called patent trolls.
Massachusetts businesses could gain financial insulation from so-called patent trolls under a measure that previously reached the governor's desk and is gaining traction again in the House this session.
The House on Thursday gave initial approval to a Rep. Daniel Hunt bill (H 401) that clamps down on "bad faith" assertions of patent infringement. Entrepreneurs, innovators and businesses who are the targets of "bad faith" tactics can go to court for relief and damages.
The Massachusetts Bankers Association supports the legislation, saying it establishes protections against the "abusive acts" of non-practicing entities (NPEs), also known as patent trolls. The association represents more than 120 commercial, savings and cooperative banks and federal savings institution members.
"NPEs are typically law firms or investment vehicles that purchase patents from inventors, defunct companies and during bankruptcy proceedings," Mass Bankers said in written testimony to the Joint Committee on Consumer Protection and Professional Licensure, which received no in-person input on the bill at an April 14 hearing.
"These firms then send demand letters to various businesses alleging infringement of the patent," Mass Bankers continued. "Many times, the patents are extremely technical and the technology in question is embedded in a piece of hardware or software the company purchased from a third-party vendor. The demand letters generally state that if the named company pays a licensing fee to the NPE, they will not be sued."
The committee has not received any additional written testimony on the bill, according to a legislative aide. The measure has previously drawn concern from Associated Industries of Massachusetts, the Massachusetts Business Roundtable and the Massachusetts Biotechnology Council, according to The Boston Globe.
MassBio didn't say whether the trade group opposes the latest reiteration of the bill, but shared a statement from Head of Governmental Affairs Ed Coppinger, a former representative who previously sponsored the legislation.
"MassBio is supportive of patent reforms that do not weaken the very patent protections that have created the top environment for life sciences innovation in the world," Coppinger said in a statement to the News Service Monday.
A MassBio spokesman added, "MassBio has supported patent reforms in previous legislative sessions with the inclusion of certain protections ensuring that the 'bench to bedside' pipeline that drives the Commonwealth’s life sciences sector remains protected from unintended consequences of the reforms."
Under Hunt's proposal, courts must weigh whether demand letters alleging patent violations failed to contain critical information such as the patent number, name and address of the patent owners, and "factual allegations concerning the specific areas in which the target's products, services or technology infringe the patent or are covered by the claims in the patent."
Courts should also consider whether the demand letter requested payment of a license fee or a response "within an unreasonably short period of time," the claim of patent infringement was "meritless" or "deceptive," the patent has been deemed "invalid or unenforceable," or if the party or subsidiaries sending the letter have previously filed or threatened lawsuits over similar claims, among other criteria.
Businesses who take NPEs to Superior Court and win could end up securing "exemplary damages in an amount equal to $50,000 or 3 times the total of damages, costs, and fees, whichever is greater," according to the bill.
Legislative Democrats approved the policy in a 2018 economic development bill but the section was knocked out with a veto from former Gov. Charlie Baker. Baker had warned "the policy creates a new cause of action against patent owners in a manner that is not narrowly tailored and is likely to have unintended consequences for Massachusetts residents, companies and educational institutions."
"While I agree that states have a role to play in deterring bad faith assertions of patent infringement outside of the context of federal patent litigation, I believe that the Legislature should revisit this topic in a future session and draft a more focused solution to this problem," Baker wrote.
More than 30 states have laws addressing patent trolls, Mass Bankers said. Vermont passed the country's first anti-trolling law in 2013, according to Forbes.
In its written testimony, Mass Bankers lamented that patent litigation is "extremely expensive and time consuming," and noted that businesses often pay a "modest fee" to try to deflect NPEs' efforts.
In an example from a few years ago, Mass Bankers said nearly half of its members and "hundreds of other banks throughout New England and the nation" had received demand letters "from an NPE asserting that technology embedded in bank ATMs infringed on several patents."
"Most of the banks receiving the letters were community banks without the financial resources or technical expertise to fight these claims and unfortunately many institutions ended up paying a fee to the NPE to avoid costly litigation," Mass Bankers said.
Last session, the House gave the bill initial approval on Feb. 15, 2024, but took no subsequent action. The legislation moved further two sessions ago but died in the Senate Ways and Means Committee.
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