It's a familiar scenario: ABC Corporation receives a letter from a patent troll claiming that ABC Corporation is infringing a patent through a routine office activity.  The letter claims that the damages for infringement could be enormous, but the troll will settle the case without litigation if ABC Corporation pays $1,000 per employee.  Today, the Tennessee General Assembly sent a strong message that these types of letters will not be tolerated in Tennessee if sent in bad faith.

House Bill 2117/Senate Bill 1967 attempts to curtail abuse of the patent system by patent assertion entities (PAEs), pejoratively known as “patent trolls,” which are typically non-practicing entities that acquire patents not to manufacture products or supply services based upon the acquired patents but to enforce the patents against alleged infringers in an attempt to collect licensing fees.  The bill, effective upon Governor Haslam’s signature, which is expected within ten days, creates a cause of action for recipients of demand letters that assert patent infringement in bad faith.

The bill prohibits communications that:

  1. Threaten litigation if the recipient does not pay a license fee and the sender has demonstrated a consistent pattern of making similar threats without subsequently filing litigation;
  2. Falsely state that litigation has been filed; or
  3. Contain assertions without a reasonable basis in fact or law because:
    1. The person asserting the patent does not have the right to enforce the patent;
    2. The patent is invalid;
    3. The patent is expired; or
    4. The communication fails to include the identity of the patent owner, the patent number, or factual allegations concerning the specifics of the alleged infringement.

Under the bill, intended recipients of communications that meet any of these requirements may file suit in any Tennessee circuit or chancery court.  Those who prevail shall be awarded litigation costs and fees, including attorneys’ fees, and may be awarded actual damages as well as punitive damages equal to three times the amount of actual damages.  In addition, the office of the attorney general is empowered to enforce the bill through its investigative and prosecutorial authority. 

By passing this bill, Tennessee joins several other states in their efforts to decrease the financial burden imposed on businesses by patent assertion entities.  Kentucky, Oregon, Vermont, Virginia, Maine, Utah and Wisconsin are among the other states that have passed similar legislation or currently have such legislation pending.

On the federal legislative front, the U.S. Congress is also working to address abusive patent litigation.  As we discussed in an earlier Alert, at least six patent reform bills are being considered by the current Congress.  The House passed the Innovation Act in December 2013 and the Senate Judiciary Committee will consider the Patent Transparency and Improvements Act, sponsored by Sen. Patrick Leahy, when Congress resumes at the end of April.  Similar to the Tennessee legislation, both Acts require greater transparency in patent infringement demand letters and include loser-pays provisions allowing courts to award reasonable fees and expenses of frivolous patent litigation to the prevailing party.