States Move Ahead on Patents Amid Setbacks on Capitol Hill

Efforts to rework federal patent law to prevent questionable patent ownership claims were dealt another setback Wednesday when the Senate Judiciary Committee cancelled a legislative markup scheduled for Thursday.

State lawmakers, meanwhile, have been moving more quickly.

Louisiana Gov. Bobby Jindal says he plans to sign recently passed legislation aimed at reining in so-called patent trolls, which buy up patents and seek to profit from them.

That would make Louisiana the thirteenth state to enact such legislation, twelve of which have acted this year. This map  from the Computer & Communications Industry Association shows some of the states. Alabama’s bill has also been signed into law.  In all, patent bills have been introduced or enacted in 26 states, according to the National Conference of State Legislatures.

Small companies pay to settle claims from patent trolls more than 80% of the time, excluding cases where they are indemnified by the firms that provide the underlying technology, according to RPX Corp. RPXC +2.05%, a provider of patent risk management solutions.

“Small businesses in Illinois and across the country can’t afford to wait for Congressional action,” says Illinois Attorney General Lisa Madigan, who drafted proposed legislation that would make patent demand letters unlawful when the sender lacks a legal or factual basis to make a patent infringement claim.

The costs for small firms can go well beyond legal fees or settlement payouts.  Companies hit with these types of patent claims saw sales drop by on average 40% as they cut back on research and development spending, says Catherine Tucker, an economist at Massachusetts Institute of Technology, who studied claims made against medical imaging companies. Smaller firms were more likely than bigger ones to cave in rather than fighting the claims, she adds.

On Thursday, a House Energy and Commerce Subcommittee will hold a hearing on a proposal to curb “illegitimate” patent demand letters.