Approach to Demand Letters

A bill which spells out what could and could not be considered as evidence for a bad faith assertion in demand letters was passed by the Kentucky Senate last Thursday. This seeks to prevent patent trolls from sending out demand letters on patent infringements without doing a comprehensive analysis and yet attempt to benefit from the unreasonable demand. It prompts the patentee to "engage in a good faith effort to establish that the target has infringed the patent and to negotiate an appropriate remedy". While it does not mean that it is absolutely necessary, it will better substantiate the claim, along with several other points. Another important point is that if the patent-holder is a non-practicing entity, it could also be used as evidence.

This attempt to lower the odds for patent trolls in lawsuits would definitely help to protect the defendants, at least currently in Kentucky. As the defendants have to litigate the case when they do not meet their demands by the plaintiffs and thus get sued, it could end up costing a lot of money and time. If it is shown to be invalid, the time and money wasted would be for nought. With this new bill, the plaintiff would have to pay for any damages and distress it caused to the defendants with the demand letter and subsequent lawsuit. Hopefully, the bill will soon be replicated in other states, especially Texas, Delaware and California which sees the most patent lawsuits.

Copying directly from Foss Patents, which summarises the bill:

These factors may be considered as evidence of a bad-faith assertion:

• A demand letter fails to state the patent number, the name and address of the patent owner(s)/assignee(s), or specific factual allegations relating to the infringement claim.
• A patent holder fails to conduct a reasonably specific infringement analysis prior to sending a demand letter.
• Information reasonably requested by the taret of a royalty demand is not provided within a reasonable period of time.
• The roaylty demand is not based on a reasonable valuation.
• The claim is meritless and the patent holder knew or should have known this.
• The claim or assertion is "deceptive" (not defined).
• Previous behavior and litigation can affect subsequent actions (for example, earlier demand letters that failed to satisfy the criteria laid out in the bill).
• The patent holder is a non-practicing entity.
• Any other factor the court finds relevant.

And these factors can support a patent holder's claim that an assertion was not made in bad faith:

• The demand letter contains the information the bill requires.
• If the original demand letter did not contain it, the patent holder may still be able to cure the defect by providing the information, on request, within reasonable period of time.
• The patentee "engages in a good-faith effort to establish that the target has infringed the patent and to negotiate an appropriate remedy".
• Substantial investment in use of patent or in production or sale of product or item covered by it.
• The anti-NPE assumption is counterbalanced by assumptions in favor of patent holders or original assignees who enforce a patent themselves, and institutions of higher education and any technology transfer entities they own.
• Previous behavior can be helpful to a patentee if he previously demonstrated good-faith business practices in enforcement of the same patent or a substantially similar one, or successfully enforced the patent or a substantially similar patent through litigation.
• Any other factor the court finds relevant.

Sources:
http://www.fosspatents.com/2014/02/kentucky-senate-committee-approves.html
http://www.lrc.ky.gov/record/14RS/SB116.htm