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Second Substitute H.B. 117

This document includes Senate 2nd Reading Floor Amendments incorporated into the bill on Tue, Mar 11, 2014 at 6:01 PM by lpoole. -->

Senator John L. Valentine proposes the following substitute bill:


             1     
PATENT INFRINGEMENT AMENDMENTS

             2     
2014 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Mike K. McKell

             5     
Senate Sponsor: John L. Valentine

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill creates a cause of action for the distribution of bad faith demand letters
             10      asserting patent infringement.
             11      Highlighted Provisions:
             12          This bill:
             13          .    defines terms;
             14          .    prohibits the distribution of bad faith demand letters asserting patent infringement;
             15          .    allows a person who has been the recipient of a demand letter asserting patent
             16      infringement to file an action;
             17          .    allows the court to require the filing of a bond to cover costs of the action;
             18          .    provides remedies; and
             19          .    sets limits on punitive damages.
             20      Money Appropriated in this Bill:
             21          None
             22      Other Special Clauses:
             23      None
             24      Utah Code Sections Affected:
             25      ENACTS:


             26           78B-6-1901 , Utah Code Annotated 1953
             27           78B-6-1902 , Utah Code Annotated 1953
             28           78B-6-1903 , Utah Code Annotated 1953
             29           78B-6-1904 , Utah Code Annotated 1953
             30           78B-6-1905 , Utah Code Annotated 1953
             31     
             32      Be it enacted by the Legislature of the state of Utah:
             33          Section 1. Section 78B-6-1901 is enacted to read:
             34     
Part 19. Distribution of Bad Faith Patent Infringement Letters Act

             35          78B-6-1901. Title -- Purpose.
             36          (1) This part is known as the "Distribution of Bad Faith Patent Infringement Letters
             37      Act."
             38          (2) The Legislature acknowledges that it is preempted from passing any law that
             39      conflicts with federal patent law. However, this part seeks to protect Utah businesses from the
             40      use of demand letters containing abusive and bad faith assertions of patent infringement, and
             41      build Utah's economy, while at the same time respecting federal law and not interfering with
             42      legitimate patent enforcement efforts.
             43          Section 2. Section 78B-6-1902 is enacted to read:
             44          78B-6-1902. Definitions.
             45          As used in this part:
             46          (1) (a) "Demand letter" means a letter, email, or other written communication directed
             47      to a target and asserting or claiming that the target has engaged in patent infringement.
             48          (b) "Demand letter" does not include a complaint filed in a United States District Court
             49      asserting patent infringement or discovery responses or other papers filed in an action.
             50          (2) "Target" means a person or entity residing in, incorporated in, or organized under
             51      the laws of this state that has received a demand letter and S. includes .S the customers,
             51a      distributors and
             52      agents of the person or entity.
             53          (3) "Sponsor" means the party or parties responsible for distribution of a demand letter.
             54          Section 3. Section 78B-6-1903 is enacted to read:
             55          78B-6-1903. Prohibition against distribution of demand letters containing bad
             56      faith assertions of patent infringement.


             57          (1) A sponsor may not distribute a demand letter to a target that includes a bad faith
             58      assertion of patent infringement.
             59          (2) S. [ A demand letter includes a bad faith assertion of patent infringement when ] A
             59a      court may consider the following factors as evidence in determining whether a sponsor has or
             59b      has not distributed a demand letter containing a bad faith assertion of patent infringement,
             59c      but no one factor may be considered conclusive as to whether a demand letter contains a bad
             59d      faith assertion of patent infringement .S :
             60          (a) the demand letter does not contain all of the following information:
             61          (i) the patent numbers of the patent or patents being asserted;
             62          (ii) the name and address of the current patent owner or owners and any other person or
             63      entity having the right to enforce or license the patent;
             64          (iii) the name and address of all persons and entities holding a controlling interest in
             65      the persons and entities identified in Subsection (2)(a)(ii) of this section;
             66          (iv) the identification of at least one claim of each asserted patent that is allegedly
             67      infringed; S. [ and ] .S
             68          (v) for each claim identified in Subsection (2)(a)(iv), a description of one or more
             69      allegedly infringing products, including the make, model number, and other specific identifying
             70      indicia of allegedly infringing products, services or methods made, used, offered for sale, sold,
             71      imported or performed by the target, provided in sufficient detail to allow the target to assess
             72      the merits of the assertion of patent infringement; and
             73           S. [ (iv) ] (vi) .S identification of each judicial or administrative proceeding pending as of
             73a      the date
             74      of the demand letter where the validity of the asserted patent or patents is under challenge; or
             75          (b) the demand letter contains any of the following:
             76          (i) an assertion of patent infringement based on a patent or a claim of a patent that has
             77      been previously held invalid or unenforceable in a final judicial or administrative decision from
             78      which no appeal is possible;
             79          (ii) an assertion that a complaint has been filed alleging that the target has infringed the
             80      patent when no complaint has, in fact, been filed;
             81          (iii) an assertion of infringement based on acts occurring after the asserted patent or
             82      claim at issue has expired or been held invalid or unenforceable;
             83          (iv) an assertion of infringement of a patent that the sponsor does not own or have the
             84      right to enforce or license; or
             85          (v) an assertion that the amount of compensation demanded will increase if the target


             86      retains counsel to defend against the assertions in the demand letter or if the target does not pay
             87      the sponsor within a period of 60 days or less S. ;
             87a          (vi) a false or misleading statement; or
             87b          (vii) the demand letter demands payment of a license fee or response within an
             87c      unreasonably short period of time depending on the number and complexity of the
             87d      claims .S .


             88          (3) A court may consider the following factors as evidence to mitigate a conclusion
             89      that a sponsor has distributed a demand letter containing a bad faith assertion of patent
             90      infringement:
             91          (a) the demand letter contains the information described in Subsection (2)(a);
             92          (b) the demand letter lacks the information described in Subsection (2)(a) and when the
             93      target requests the information, the sponsor provides the information within a reasonable
             94      period of time;
             95          (c) the sponsor engages in a good faith effort to establish that the target has infringed
             96      the patent and to negotiate an appropriate remedy;
             97          (d) the sponsor has made a substantial investment in the practice of the patent or in the
             98      production or sale of a product or item covered by the patent; and
             99          (e) the sponsor is:
             100          (i) the inventor or joint inventor of the patent or the original assignee of the inventor or
             101      joint inventor S. , or an entity owned by or affiliated with the original assignee .S ; or
             102          (ii) an institution of higher education or a technology transfer organization owned by or
             103      affiliated with an institution of higher education.
             104          Section 4. Section 78B-6-1904 is enacted to read:
             105          78B-6-1904. Action -- Enforcement -- Remedies -- Damages.
             106          (1) A target who has received a demand letter asserting patent infringement in bad
             107      faith, or a person aggrieved by a violation of this part, may bring an action in district court.
             108      The court may award the following remedies to a target who prevails in an action brought
             109      pursuant to this part:
             110          (a) equitable relief;
             111          (b) actual damages;
             112          (c) costs and fees, including reasonable attorney fees; and
             113          (d) punitive damages in an amount to be established by the court, of not more than the
             114      greater of $50,000 or three times the total of damages, costs, and fees.
             115          (2) The Attorney General may conduct civil investigations and bring civil actions
             116      pursuant to this part. In an action brought by the Attorney General under this part, the court
             117      may award or impose any relief it considers prudent, including S. [ , but not limited ] .S to the
             118      following:


             119          (a) equitable relief;
             120          (b) statutory damages of not less than $750 per demand letter distributed in bad faith;
             121      and
             122          (c) costs and fees, including reasonable attorney fees, to the Attorney General.
             123          (3) This part may not be construed to limit other rights and remedies available to the
             124      state or to any person under any other law.
             125          (4) A demand letter or assertion of a patent infringement that includes a claim for relief
             126      arising under 35 U.S.C. Sec. 271(e)(2) is not subject to the provisions of this part.
             127          (5) The attorney general shall report annually to the Executive Appropriations
             128      Committee regarding the number of investigations and actions brought under this part. The
             129      report shall include:
             130          (a) the number of investigations commenced;
             131          (b) the number of actions brought under the provisions of this part;
             132          (c) the current status of actions brought under Subsection (5)(b); and
             133          (d) final resolution of actions brought under S. [ the ] this .S part, including any recovery
             133a      under
             134      Subsection (2).
             135          Section 5. Section 78B-6-1905 is enacted to read:
             136          78B-6-1905. Bond.
             137          (1) Upon motion by a target and a finding by the court that a target has established a
             138      reasonable likelihood that a sponsor has made a bad faith assertion of patent infringement in a
             139      demand letter in violation of this part, the court shall require the sponsor to post a bond in an
             140      amount equal to a good faith estimate of the target's costs to litigate the claim under this part
             141      and amounts reasonably likely to be recovered under Subsection 78B-6-1904 (1)(b) and (c),
             142      conditioned upon payment of any amounts finally determined to be due to the target.
             143          (2) A hearing on the appropriateness and amount of a bond under this section shall be
             144      held if either party requests it.
             145          (3) A bond ordered pursuant to this section may not exceed $250,000. The court may
             146      waive the bond requirement if it finds the sponsor has available assets equal to the amount of
             147      the proposed bond or for other good cause shown.


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