Below is the HillCo client report from the April 24 House Technology Committee hearing.
The committee met to take up the following interim charge:
Study whether abuses in the patent system interfere with the goal of expanded opportunity and innovation for Texas businesses and whether actions by the state can address any such abuses.
Chairman Gary Elkins
- Can actions by the state address abuse?
- Believes this is a federal issue
Ann Peters, Legislative Council
- Patent trolling is when people make groundless claims and are non-practicing entities
- Individuals who buy patents just for the purpose of bring patent infringement suits
- Mainly a federal issue
- Not clear on how far states can go
- Elkins – define non-practicing entity?
- A legal entity not doing business under the patent that they own
- Elkins – what can states do?
- Not clear, but they could possibly use the state Deceptive Use Act
- The legislature could amend the Deceptive Trade Practice Act
- Button – Is Texas seeing a high abuse rate?
- There are a number of suits in federal court in Marshall, Texas
- All if the litigation is done in federal court
- Van Taylor – seeing a larger number of patent trolls going after small business
- Vermont has gone after trolls under their current law, but has recently passed an anti-troll bill
- Allows to counter sue in state court if there is a bad faith claim made
- Reynolds – we do not want to create fear in submitting good faith claims
- Patent law is a very specialized area – has this become more concerning than other type of litigation?
- The number of these suits has skyrocketed
- Patent law is a very specialized area – has this become more concerning than other type of litigation?
- Van Taylor – Vermont law requires registration for the Patent Assertion Entities, have they been sued yet?
- Elkins – aren’t people bringing these allegations lawyers registered with the State Bar? Why don’t they just file a complaint with the Bar?
David Maddox, AG Office
- Workers’ Comp brought a case to the AG’s attention that could increase costs
- Almost every insurance company has been sued
- Someone bought a patent and filed claims, but will be handled in federal court
- Reynolds – Has the AG’s office received complaints?
- 6 in the past 5 years
- Van Taylor – the Deceptive Trade Practice Act has both a private and state action
Public Testimony
John Murphy, PhRMA
- Patents are important to innovation
- Need ability to protect patents to allow for industry growth
- Enormous amount of activity on the federal level
- Congress is looking into patent trolls to lessen the weight of abuse
- Cornyn bill pending
- Vermont is in a lawsuit with a large patent troll entity in Texas
- Plea for the committee to consider the legitimate concern of entities that practice under their patent
- Van Taylor – How long have they been looking at this at the federal level, a long time?
- Awhile, but the urgency is there and there has been a lot more compromise and concerted effort
- Van Taylor – An example of a bad experience regarding a troll and PhRMA?
- Not really effecting the pharmaceuticals market
- Van Taylor – So you are basically here to tell us not to screw it up?
- Reynolds – Is uniformity on the federal level a better solution?
- Yes, gives more comfort
- Elkins – the more we think about it, the more the legislature can mess it up – do not want unintended consequences
Justin Freemond, Rackspace Hosting
- Many patents are from the 90’s to protect the IT development boom
- Trolls pick them up, hide their identity through shell companies, file lawsuits on companies who might be infringing
- Burden is on the defendant to prove their innocence
- Have personally seen a 500% increase in patent settlement costs ($3-5M) in the past 3 years
- Extortionist claims just to get money in a settlement
- Some patents are extremely nebulous
- Decided 2 years ago to no longer settle and it has been over a year since they have received a claim
- Shell companies have no assets so there is nothing to go after
- Gonzalez – as the end user, would I be targeted too?
- Largely have stayed away from that, but there is that possibility
- Urged the committee to take action
- Elkins – No idea how to begin to fix this on the state level
- Restriction on bad faith letters?
Nelson Roach, Texas Trial Lawyers
- The question of where you draw the line between state and federal regulation is an evolving one
- How and where you can assert the letter was submitted in bad faith?
- The US has the strongest intellectual property laws in the world
- Van Taylor – understanding that the states can make laws over and above federal laws as long as there is no conflict
- It’s a case by case basis
- Elkins – Concerned about trolls going after the end user for something like using a wireless router – sounds like abuse
- Has to be dealt with on the federal level
- Reynolds – can individual states determine bad faith?
- At the end of the day, courts would probably find it a burden on the patent system
Dennis Scarven, Caterpillar
- Prefers that if the legislature was going to create a new state cause of action, that the AG would have the sole ability
- Elkins – Patents expire in 20 years? So a lot of this IT stuff is about to expire
- Want a safe harbor for patent holders that have good faith claims
- Van Taylor – do you receive patent claim letters on a regular basis?
- Does not feel like they are victims to troll abuse
- Van Taylor – have you ever gone to the AG to complain when you get a troll letter?
- No, because most letters they receive are not abusive
Eric Woomer, Mainstream Patent Coalition
- Gave some examples of industries that are effected by patent trolling
- Recently a lot of claims to banks using vendor imaging software
- Elkins asked for copies of these letters where the end user has been effected
- Will provide to the committee
- Van Taylor – Thinks it is important to take preemptive action before a Vermont scenario occurs in Texas