Tennessee Legislature Adds New Cause of Action to Fight Individuals who Illegitimately Threaten Patent Litigation

Tennessee recently established new statutory protections for individuals and companies that are illegitimately threatened with patent infringement claims.  This has been a growing problem across America including in Tennessee.  The 2014 Tennessee Legislature passed Public Chapter No. 879 which created a new series of statutes found in T.C.A. § 29-40-101 – § 29-40-104 (effective on May 18, 2014) in order to try to combat this problem.  The stated purpose of these new statutes is to prevent small and medium sized companies from alleged patent infringement claims from third parties that are unsubstantiated and meritless.  Patent litigation can be extremely expensive and the Tennessee Legislature was concerned about the abuse of patent litigation in Tennessee.  As a result, this new statute provides a new cause of action with enhanced damages to use against those who improperly threaten unsubstantiated patent litigation.  This cause of action allows for the recovery of attorney’s fees, costs, actual damages and punitive damages in an amount equal to three times the actual damages. 

New Key Statutory Language (T.C.A. § 29-40-102(a)):

The main provision in the new statute is found in T.C.A. § 29-40-102(a).  This part of the statute identifies the key acts that violate the statute.  It is hard to find this statutory language online currently so I will post this entire section for your convenience (although you can see it officially in the link to Public Chapter No. 879).  This portion of the statute provides as follows:

(a) It is a violation of this chapter for a person, in connection with the assertion of a United States patent, to send, or cause any person to send, any written or electronic communication that states that the intended recipient or any affiliated person is infringing or has infringed a patent and bears liability or owes compensation to another person, if:

(1) The communication threatens litigation if compensation is not paid or the infringement issue is not otherwise resolved and there is a consistent pattern of such threats having been issued and no litigation having been filed;

(2) The communication falsely states that litigation has been filed against the intended recipient or any affiliated person; or

(3) The assertions contained in the communication lack a reasonable basis in fact or law because:

(A) The person asserting the patent is not a person, or does not represent a person, with the current right to license the patent to, or to enforce the patent against, the intended recipient or any affiliated person;

(B) The communication seeks compensation for a patent that has been held to be invalid or unenforceable in a final, unappealable or unappealed judicial or administrative decision;

(C) The communication seeks compensation on account of activities undertaken after the patent has expired; or

(D) The content of the communication fails to include such information necessary to inform an intended recipient or any affiliated person about the patent assertion by failing to include any one of the following:

(i) The identity of the person asserting a right to license the patent to or enforce the patent against the intended recipient or any affiliated person;

(ii) The patent number issued by the United States Patent and Trademark Office alleged to have been infringed; or

(iii) The factual allegations concerning the specific areas in which the intended recipient or affiliated person's products, services, or technology infringed the patent or are covered by the claims in the patent.

This new statutes has three main categories of actions that violate this statute and therefore open up the offenders to enhanced damages.  I will address each category in turn:

#1 - Pattern of False Threats of Patent Litigation (T.C.A. § 29-40-102(a)(1)):

T.C.A. § 29-40-102(a)(1) basically prevents communications threatening patent litigation when there is a “consistent pattern” of threats made to other entities but no litigation has actually been filed.  In other words, you cannot threaten litigation over and over without ever actually filing litigation.  The main issue I see with this provision is there is no definition of what constitutes a “consistent pattern”.  This will cause there to be litigation on this issue to allow the Tennessee appellate courts to define a “consistent pattern”.  This leaves us in uncertain limbo on how this will be defined.  I would propose that a “consistent pattern” would need to be greater than at least four occasions of threats with no actual litigation.  Although, what is numerous threats are made but all of those situations resulted in legitimate settlements without litigation?  That makes no sense.  Should someone be penalized for making legitimate threats of litigation that are backed up by facts that result in substantive settlements?  I think not.  This is a substantial hole in this statute.

#2 - False Communications that Litigation has Been Filed (T.C.A. § 29-40-102(a)(2):

Under T.C.A. § 29-40-102(a)(2) it is a violation of this statute if someone claims that litigation has been filed when it has not in fact been filed.  This includes litigation against the recipient of the communication or even an affiliated entity of the recipient.  As a result, if any representation is made about litigation that is being pursued in any forum, it better be accurate or it is a violation of this statute. 

#3 - Certain Assertions in Letter Are Not Factual (T.C.A. § 29-40-102(a)(3)):

T.C.A. § 29-40-102(a)(3) states that it is a violation if certain communications made in the threat letter do not have “a reasonable basis in fact or law”.  However, there is a specific list of assertions that qualify for a violation of this act if they false including the following:

1) The person claiming a right to the patent does not actually have a right to the patent;

2) A request for compensation is made for a patent that has been found to be invalid or unenforceable;

3) A request for compensation is made for activities that took place after the expiration of the patent;

4) Necessary information is not included in the communication like (a) the identity of the person asserting a right to the patent, (b) the patent number and (c) factual allegations about the alleged infringement.

As a result, whenever a patent infringement letter is sent in Tennessee, it must be accurate, especially about this specific list of information.  Additionally, you must provide certain specific information necessary for the alleged infringer to be able to evaluate the claims of infringement.  Otherwise, it is a violation of this statute.

Damages Under T.C.A. § 29-40-101 to 104:

This new statute provides for enhanced damages in order to try to prevent people from illegitimately using patent litigation threats to quash business in Tennessee.  These damages are outlined in T.C.A. § 29-40-104 and provide as follows:

An intended recipient alleging a violation of this chapter may bring an action in any circuit or chancery court. A court shall award litigation costs and fees, including reasonable attorneys' fees, to a plaintiff who prevails in an action brought pursuant to this section. In addition, the court may award the following remedies to a plaintiff who prevails in an action brought pursuant to this chapter:

(1) Actual damages; and

(2) Punitive damages in an amount equal to three (3) times the actual damages.

These damages could certainly motivate litigation over this type of activity.  However, as always, the ability to collect an award is often going to be a concern with the kinds of people and companies that are likely to violate this statute.

Impact of Statute:

This statute is broad and has several provisions that are open for interpretation.  This statute could certainly increase litigation over patent trolls as well as individuals who attempt to abuse the patent system in Tennessee.  There are significant monetary motivations to bring an action under this new law due to the fact the prosecuting party can recover attorney’s fees, costs, actual damages and punitive damages equal to three times the actual damages.  There is currently a significant industry of individuals and companies that abuse the patent litigation process and threaten small to medium size businesses so they have to pay settlements to avoid expensive patent litigation.  Often small and medium sized businesses do not have the money to fight these abusive practices.  This new statute now gives them an important tool to fight back.  If your Tennessee company receives an illegitimate patent litigation threat, you should have an attorney review the threats immediately to assess whether these is a viable cause of action under this new statute.