The Chamber submitted testimony to the Joint Committee on Consumer Protection and Professional Licensure relative to H.229/S.159, An Act to protect innovation and entrepreneurship in the Commonwealth, sponsored by Representative Lori A. Ehrlich and Senator Eric P. Lesser. The Chamber supports legislation targeting bad faith patent demand letters and the entities who initiate these letters, often referred to as patent trolls. The tactic of asserting rights to a patent that is not in use for the sole purpose of generating income for patent trolls is a scourge that must be addressed. Massachusetts lags other states in prohibiting bad faith patent demand letters: 33 other states have laws that prohibit the practice.
The legislation under review by the Committee takes a step toward limiting patent trolls. There is one crucial clarification we urge the Committee to consider, so that good actors are protected from unintended consequences, and a second provision we believe is essential to retain.
First, a potential issue with H.229 is whether the language in section 5 exposes original patent owners to lawsuits if someone in the future acts in bad faith. Specifically, with the phrases “otherwise, directly or indirectly, arranged” and “any person who otherwise caused,” a patent owner may be responsible for whatever happens with the patent even after it is sold or licensed. For example, if a patent owner sells their patent to a company which then sells it to a patent assertion entity, the entity receiving the bad faith demand letter may be able to argue that the original patent owner is responsible. We do not believe this is the intent of the legislation.
Second, we urge the committee to retain the provision exempting operating entities, research institutions, higher education institutions, and other legitimate entities. Language that specifically excludes such entities is important, and without it there could be long-term effects on the willingness of legitimate entities to do the kind of work in Massachusetts that generates patents.
The exclusion language – as opposed to language that makes it a factor a court may consider – effectively presumes that legitimate businesses and institutions and legitimate patent holders are acting in good faith if they assert their patent rights. Without the exclusions, a court may consider those factors in a lawsuit, but it does not prevent a lawsuit from being initiated. As a result, legitimate entities would be exposed to lawsuits by anyone who wants to claim a business is acting in bad faith when it asserts its patent rights. The legislation does not allow for a distinction between legitimate patent owners and the patent trolls until litigation is underway.
Such patent assertion entities, i.e. the trolls, would not meet the exclusion requirement because they are not operating companies, investing in research, or actively using the patents; instead, their business model is merely to accumulate patents and send demand letters.
The Chamber adamantly supports prohibiting bad faith demand letters and urges the Legislature to review section 5 and avoid unintended consequences.