Last week, the Virginia General Assembly joined the state legislatures of Oregon and Vermont by approving legislation designed to protect entities doing business in Virginia from bad faith assertions of patent infringement.  While Virginia lawmakers tout the bill as targeting non-practicing entities (characterized by some as “patent trolls”), the text of the bill appears to be much broader, prohibiting any “person” from making “in bad faith, an assertion of patent infringement.”  The bill also includes a non-exclusive list of activities that “constitute indicia” of bad faith and later provides that the status of the patent owner as a practicing entity or higher education entity is an “indicia” that their demand letter was not in bad faith.

The legislation identifies eight acts that “constitute indicia” of a bad faith assertion of patent infringement:

  • The demand letter does not contain the number of the patent that is asserted, alleged, or claimed to have been infringed, or the name and address of the patent’s owner or owners and assignee or assignees, if any;
  • The person sends a demand letter without first making a reasonable effort under the circumstances to conduct an analysis comparing the claims in the patent to the target’s products, services, and technology, or to identify specific areas in which the products, services, or technology are covered by the claims in the patent;
  • The demand letter does not identify specific areas in which the products, services, and technology are covered by the claims in the patent;
  • The person offers to license the patent for an amount that is not based on a reasonable estimation of the value of a license to the patent;
  • The person making an assertion of patent infringement acts in subjective bad faith, or a reasonable actor in the person’s position would know or reasonably should know that such assertion is baseless;
  • The assertion of patent infringement is deceptive, or the person threatens legal action that cannot legally be taken or that is not intended to be taken;
  • The person or its subsidiaries or affiliates have previously filed or threatened to file one or more lawsuits based on the same or similar assertion of patent infringement, the person attempted to enforce the assertion of patent infringement in litigation, and a court found the assertion to be objectively baseless or imposed sanctions for the assertion; or
  • The patent alleged to be infringed was not in force at the time the allegedly infringing conduct occurred, or the patent claims alleged to be infringed have previously been held to be invalid.

Conversely, the bill provides four non-exlusive instances that “constitute indicia that a person’s assertion of patent infringement was not made in bad faith”:

  • The person engages in a reasonable effort under the circumstances to establish that the target has infringed the patent and to negotiate an appropriate remedy;
  • The person makes a substantial investment in the use of the patent or in the development, production, or sale of a product or item covered by the patent;
  • The person has demonstrated good faith in previous efforts to enforce the patent or a substantially similar patent or successfully enforced the patent, or a substantially similar patent, through litigation; or
  • The person is an institution of higher education or a technology transfer office organization owned by or affiliated with an institution of higher education.

If signed into law by the Governor, the legislation would empower the Virginia Attorney General to bring an action for injunctive relief and civil penalties against “persons” that engage in bad faith assertions of patent infringement against people or entities “residing in, conducting substantial business in, or having [their] principal place of business in” Virginia.

The Nebraska Attorney General has attempted to enforce its general consumer protection and unfair trade practices laws against alleged bad faith assertions of patent infringement.  However, a federal district court recently enjoined the AG from doing so.

At the Federal level, the U.S. House of Representatives passed legislation last year generally directed to perceived patent litigation abuse by certain patent assertion entities.  This bill is being debated by the Senate.  The Federal Trade Commission (FTC) is also considering whether to open an investigation of non-practicing entities, and was recently sued by MPHJ, a patent monetization entity, for threatening an enforcement action against MPHJ premised on MPHJ’s extensive letter campaign to accumulate license fees on its scanner patents.

We will continue to track developments in legistlation and government enforcement actions directed towards non-practicing entities as they unfold.