Anti-Patent Troll Legislation Moves Forward in North Carolina

Just over a week into the new session of the North Carolina General Assembly, legislation aimed at the abusive assertion of patent infringement claims by “patent trolls” may be gaining traction, with a bill apparently headed to the House of Representatives for a floor vote later this week.

The term “patent troll” is usually used to refer to an entity which does not conduct research, develop technology or products related to its patents, or perform any technology transfer function. Instead, patent trolls acquire patents solely for the purpose of obtaining licensing fees from alleged infringers, often asserting vague infringement claims against large numbers of potential targets with little or no support. According to a June 2013 White House study entitled Patent Assertion and U.S. Innovation, suits by patent trolls tripled in 2011 and 2012, rising to 62 percent of all patent infringement suits filed in the United States. One assessment cited by the White House reported that patent trolls collected over $29 billion from defendants and licensees in 2011, with less than 25% of those funds being used to finance further research and innovation. 

While an anti-patent troll bill has been passed by the U.S. House of Representatives, efforts to curb abusive practices by patent trolls seem to have stalled in the U.S. Senate. Here in North Carolina, however, both the Senate and House of Representatives are at work on legislation designed to protect North Carolina businesses against bad-faith assertions of patent infringement claims. House Bill 1032, entitled the Abusive Patent Assertions Act, was introduced on May 15, 2014. It would amend the North Carolina Unfair and Deceptive Trade Practices Act by making it unlawful for a person to make a bad-faith assertion of patent infringement. Under H.B. 1032, a person’s assertion of patent infringement could be found to have been made in bad faith when, for example, the assertion of infringement is meritless and the person asserting it knows or should know that it is meritless. The failure to conduct an analysis comparing the patent in question to an accused product or service before asserting that it infringes also could support a finding of bad faith. 

H.B. 1032 would authorize a recipient of a bad-faith assertion of patent infringement to bring suit in North Carolina state court against the person making the bad-faith infringement claim to recover damages, reasonable attorneys’ fees, and exemplary damages of $50,000 or three times the total of its damages and fees, whichever is greater. The proposed legislation also would authorize courts to require a person making an assertion of patent infringement that is found reasonably likely to have been made in bad faith to post a bond, up to $500,000, in the amount of the recipient’s anticipated fees and costs to defend against the infringement claim and any other damages that the recipient may be able to recover. 

H.B. 1032 was approved by the House Commerce Committee on May 21, 2014, and by the House Judiciary Committee on May 27, 2014. The measure could come up for a floor vote in the House later this week. A substantially similar measure is expected to be considered by the Senate Judiciary Committee next week. 

We will continue to follow this issue and will provide updates as developments occur. For more details on this issue and H.B. 1032, CLICK HERE.