1 South Carolina General Assembly 2 120th Session, 2013-2014 3 4 H. 4371 5 6 STATUS INFORMATION 7 8 General Bill 9 Sponsors: Rep. Finlay 10 Document Path: l:\council\bills\nl\13362sd14.docx 11 12 Introduced in the House on January 14, 2014 13 Introduced in the Senate on April 3, 2014 14 Last Amended on April 2, 2014 15 Currently residing in the Senate 16 17 Summary: Patents 18 19 20 HISTORY OF LEGISLATIVE ACTIONS 21 22 Date Body Action Description with journal page number 23 12/3/2013 House Prefiled 24 12/3/2013 House Referred to Committee on Judiciary 25 1/14/2014 House Introduced and read first time ( House Journalpage 52) 26 1/14/2014 House Referred to Committee on Judiciary ( House Journalpage 52) 27 3/20/2014 House Committee report: Favorable with amendment Judiciary ( House Journalpage 10) 28 3/26/2014 House Debate adjourned until Tues., 4114 ( House Journalpage 56) 29 4/2/2014 House Amended ( House Journalpage 46) 30 4/2/2014 House Read second time ( House Journalpage 46) 31 4/2/2014 House Roll call Yeas106 Nays1 ( House Journalpage 50) 32 4/3/2014 House Read third time and sent to Senate ( House Journalpage 13) 33 4/3/2014 Senate Introduced and read first time ( Senate Journalpage 9) 34 4/3/2014 Senate Referred to Committee on Judiciary ( Senate Journalpage 9) 35 4/4/2014 Senate Referred to Subcommittee: Gregory (ch), Young, Kimpson 36 5/21/2014 Senate Committee report: Majority favorable with amend., minority unfavorable Judiciary 37 ( Senate Journalpage 16) 38 5/22/2014 Scrivener's error corrected 39 40 41 VERSIONS OF THIS BILL 42 43 12/3/2013 44 3/20/2014 45 4/2/2014 46 5/21/2014 47 5/22/2014 48 1 COMMITTEE REPORT 2 May 21, 2014 3 4 H. 4371 5 6 Introduced by Rep. Finlay 7 8 S. Printed 5/21/14--S. [SEC 5/22/14 12:56 PM] 9 Read the first time April 3, 2014. 10 11 12 THE COMMITTEE ON JUDICIARY 13 To whom was referred a Bill (H. 4371) to amend the Code of 14 Laws of South Carolina, 1976, by adding Section 157570 so as to 15 provide that no person in this State, in regard to patent, etc., 16 respectfully 17 REPORT: 18 That they have duly and carefully considered the same and 19 recommend that the same do pass with amendment: 20 21 Amend the bill, as and if amended, by striking it in its entirety 22 and inserting the following: 23 / A BILL 24 TO AMEND TITLE 39, CODE OF LAWS OF SOUTH 25 CAROLINA, 1976, BY ADDING CHAPTER 4, RELATING TO 26 ABUSIVE ASSERTIONS CONCERNING INTELLECTUAL 27 PROPERTY, SO AS TO PROVIDE THAT BAD FAITH 28 ASSERTIONS OF PATENT INFRINGEMENTS ARE 29 PROHIBITED AND CONSTITUTE UNFAIR TRADE 30 PRACTICES, TO DEFINE TERMS, TO PROVIDE FOR A 31 PRIVATE CAUSE OF ACTION IN STATE COURTS BY A 32 RECIPIENT OF A BAD FAITH ASSERTION TO PATENT 33 INFRINGEMENT, TO PROVIDE THAT ENFORCEMENT 34 ACTIONS MAY BE BROUGHT BY THE ATTORNEY 35 GENERAL AND WILLFUL AND KNOWING VIOLATIONS 36 MAY RESULT IN CIVIL PENALTIES OF NOT MORE THAN 37 FIFTY THOUSAND DOLLARS PER VIOLATION, TO 38 PROVIDE FOR THE FACTORS THAT A COURT MAY 39 CONSIDER WHEN MAKING A BAD FAITH 40 DETERMINATION, TO PROVIDE THAT A CLAIM FOR 41 RELIEF UNDER 35 U.S.C. SECTION 271(E)(2) OR 42 U.S.C. 42 SECTION 262 SHALL NOT BE SUBJECT TO THE

[4371-2] 1 PROVISIONS OF THIS ARTICLE, AND TO PROVIDE THAT 2 CERTAIN NOTIFICATIONS ARE NOT VIOLATIONS. 3 Be it enacted by the General Assembly of the State of South 4 Carolina: 5 SECTION 1. It is the intent of the General Assembly to 6 encourage research, development, and innovation. Doing so 7 provides jobs for South Carolina’s residents and boosts the 8 economy of the State. Patents encourage research, development, 9 and innovation. Holders of patents have legitimate rights to 10 protect and enforce their patents. It is not the intent of the General 11 Assembly to interfere with the good faith enforcement of patents 12 or good faith patent litigation. The assertion of infringement 13 claims made in bad faith is conduct that hurts South Carolina 14 businesses and citizens. Businesses must use funds to respond to 15 these threats of bad faith assertions of patent infringement and 16 those funds are no longer available to invest, to produce new 17 products, to expand, or to hire new workers. This harms the 18 citizens and the economy of South Carolina. Through the 19 provisions of this narrowly focused chapter, the General 20 Assembly, in order to protect South Carolina’s businesses, 21 citizens, and economy, seeks to facilitate the efficient and prompt 22 resolution of the conduct of persons asserting bad faith patent 23 infringement claims and not to interfere with legitimate patent 24 infringement claims. 25 SECTION 2. Title 39 of the 1976 Code is amended by adding: 26 “Chapter 4 27 Abusive Assertions Relating to Intellectual Property 28 Section 39-4-100. This act shall be known as the ‘Bad Faith 29 Assertion of Patent Infringement Act’. 30 Section 39-4-110. For purposes of this chapter: 31 (1) ‘Demand letter’ means a letter, email, or other written 32 communication asserting or claiming, in bad faith, that the 33 recipient has engaged in patent infringement. 34 (2) ‘Demander’ means a person or entity that sends a demand 35 letter. 36 (3) ‘Recipient’ means a person in this State who purchases, 37 rents, leases, or otherwise obtains a product or service in the 38 commercial market for its intended purpose, and not for resale in 39 the ordinary course of the recipient’s business, and is, or later 40 becomes, the subject of a patent infringement allegation. 41 Section 39-4-120. It is an unfair trade practice for a person to 42 send a demand letter alleging patent infringement in bad faith. 43 This offense is a violation of Section 39520.

[4371-3] 1 Section 394130. Venue under this chapter shall be proper 2 in the circuit court of the county in which a recipient resides, is 3 doing business, or has its principal place of business, or the county 4 in which the alleged patent infringement was or is being 5 committed. 6 Section 394140. A person or entity that sends a demand 7 letter to a recipient, asserting, in bad faith, allegations of patent 8 infringement or threatening litigation to a recipient or a recipient’s 9 customers shall be considered to be transacting business within 10 this State and thereby subject to the jurisdiction of the courts of 11 this State. 12 Section 394150. (A) The Attorney General has the same 13 authority under this chapter to make rules, conduct civil 14 investigations, enter into assurances of discontinuance, and bring 15 civil actions, which include actions for injunctive relief or civil 16 penalties, as provided under Chapter 5, Title 39. 17 (B) For purposes of this chapter, if a court finds that a 18 demander willfully violated the provisions of this chapter, and the 19 demander committing the violation knew or should have known 20 that its conduct was a violation of this chapter, the Attorney 21 General, upon motion to the court, may recover on behalf of the 22 State a civil penalty not to exceed fifty thousand dollars for each 23 violation. 24 (C) This chapter shall not be construed to limit the rights and 25 remedies available to the State or to any person under any other 26 law and shall not alter or restrict the Attorney General’s authority 27 with regard to conduct involving assertions of patent infringement. 28 Section 394160. (A) A recipient that is aggrieved by a 29 violation of Section 394120 may assert a cause of action under the 30 provisions of Section 395140 in the circuit court where venue is 31 proper. A court may award remedies provided in Chapter 5, Title 32 39 to an aggrieved recipient that prevails in an action brought 33 pursuant to this chapter. 34 (B) A recipient may assert a violation of this chapter as a 35 defense in any litigation alleging patent infringement and, if a 36 court finds that a demander has made a bad faith assertion of 37 patent infringement, the court may award remedies to the recipient 38 as if the recipient had brought an action pursuant to subsection (A). 39 (C) Upon motion by a recipient and a finding by the court that a 40 recipient has established a reasonable likelihood that a demander 41 has made a bad faith assertion of patent infringement in violation 42 of this chapter, the court may require the demander to post a bond 43 in an amount equal to an amount reasonably likely to be recovered

[4371-4] 1 pursuant to subsection (A), conditioned upon payment of any 2 amounts finally determined to be due to the recipient. A hearing 3 shall be held if either party so requests. A bond ordered pursuant 4 to this chapter shall not exceed two hundred fifty thousand dollars. 5 The court may waive the bond requirement if it finds the demander 6 has available assets equal to the amount of the proposed bond or 7 for other good cause shown. 8 Section 394170. (A) A court shall consider the following 9 factors as evidence that a demander has made a bad faith assertion 10 of patent infringement: 11 (1) the demand letter does not contain the following 12 information: 13 (a) the patent number; 14 (b) the name and address of the patent owner or owners 15 and assignee or assignees, if any; and 16 (c) factual allegations concerning the specific areas in 17 which the recipient’s products, services, and technology infringe 18 the patent or are covered by the claims in the patent; 19 (2) the demand letter lacks the information described in item 20 (1), the recipient requests the information, and the demander fails 21 to provide the information within a reasonable period of time; 22 (3) the demand letter demands payment of a license fee or 23 response from a recipient within an unreasonably short period of 24 time; 25 (4) the demander offers to license the patent for an amount 26 that is not based on a reasonable estimate of the value of the 27 license; 28 (5) the claim or assertion of patent infringement is 29 deceptive; 30 (6) the demander or its subsidiaries or affiliates have 31 previously filed or threatened to file one or more lawsuits based on 32 the same or similar claim of patent infringement and: 33 (a) those threats or lawsuits lacked the information 34 described in item (1); or 35 (b) the demander attempted to enforce the claim of patent 36 infringement in litigation and a court found the claim to be 37 meritless; and 38 (7) any other factor the court finds relevant. 39 (B) A court shall consider the following factors as evidence 40 that a demander has not made a bad faith assertion of patent 41 infringement: 42 (1) the demand letter contains the information described in 43 subsection (A)(1);

[4371-5] 1 (2) where the demand letter lacks the information described 2 in subsection (A)(1) and the recipient requests the information, the 3 demander provides the information within a reasonable period of 4 time; 5 (3) the demander engages in a good faith effort to establish 6 that the recipient has infringed the patent and to negotiate an 7 appropriate remedy; 8 (4) the demander makes or has made a substantial 9 investment in the use of the patent or in the production or sale of a 10 product or item covered by the patent. ‘Use of the patent’ means 11 actual practice of the patent and does not include licensing without 12 actual practice; 13 (5) the demander is: 14 (a) the inventor or joint inventor of the patent or, in the 15 case of a patent filed by and awarded to an assignee of the original 16 inventor or joint inventor, is the original assignee; or 17 (b) an institution of higher education or a technology 18 transfer organization owned or affiliated with an institution of 19 higher education; 20 (6) the demander has: 21 (a) demonstrated good faith business practices in previous 22 efforts to enforce the patent, or a substantially similar patent; or 23 (b) successfully enforced the patent, or a substantially 24 similar patent, through litigation; and 25 (7) any other factor the court finds relevant. 26 Section 394180. A demand letter or assertion of patent 27 infringement that includes a claim for relief arising under 35 28 U.S.C. Section 271(e)(2) or 42 U.S.C. Section 262 shall not be 29 subject to the provisions of this chapter. In addition, it is not an 30 unfair trade practice or a violation of the provisions of this chapter 31 for a person or entity that owns or has the right to license or 32 enforce a patent to notify another person or entity of that 33 ownership or right of license or enforcement, to notify another 34 person or entity that the patent is available for license or sale, to 35 notify another person or entity of the infringement of that patent 36 pursuant to the provisions of Title 35 of the United States Code, or 37 to seek compensation on account of a past or present patent 38 infringement, or for a license to the patent, upon demonstration to 39 the recipient of the notification of the basis for its reasonable belief 40 that the person or entity from whom compensation is sought may 41 owe this compensation, or that the person or entity may need or 42 want such a license to use the patent.”

[4371-6] 1 SECTION 3. If any section, subsection, paragraph, 2 subparagraph, sentence, clause, phrase, or word of this act is for 3 any reason held to be unconstitutional or invalid, such holding 4 shall not affect the constitutionality or validity of the remaining 5 portions of this act, the General Assembly hereby declaring that it 6 would have passed this act, and each and every section, subsection, 7 paragraph, subparagraph, sentence, clause, phrase, and word 8 thereof, irrespective of the fact that any one or more other sections, 9 subsections, paragraphs, subparagraphs, sentences, clauses, 10 phrases, or words hereof may be declared to be unconstitutional, 11 invalid, or otherwise ineffective. 12 SECTION 4. This act takes effect on July 1, 2014. / 13 Renumber sections to conform. 14 Amend title to conform. 15 16 Majority favorable. Minority unfavorable. 17 CHAUNCEY K. GREGORY GERALD MALLOY 18 For Majority. For Minority. 19 20 21 STATEMENT OF ESTIMATED FISCAL IMPACT 22 ESTIMATED FISCAL IMPACT ON GENERAL FUND 23 EXPENDITURES: 24 SEE BELOW 25 ESTIMATED FISCAL IMPACT ON FEDERAL & OTHER 26 FUND EXPENDITURES: $0 (No additional expenditures or savings are expected) 27 EXPLANATION OF IMPACT: 28 Office of the Attorney General 29 The office reports that this bill will have an impact on the 30 General Fund of the State of approximately $48,000 annually. 31 This cost is broken down to $45,500 in personal service/fringe 32 benefits and there would be the remaining $2,500 in operating 33 cost. The personal service cost is for 0.5 of a State FTE and this 34 position is for an Attorney III with half the annual work load 35 dedicated to the duties assigned with this bill. 36 37 Approved By: 38 Brenda Hart 39 Office of State Budget 40

[4371-7] 1 2 3 4 5 6 7 8 9 A BILL 10 11 TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 12 1976, BY ADDING SECTION 157570 SO AS TO PROVIDE 13 THAT NO PERSON IN THIS STATE, IN REGARD TO 14 PATENT OWNERSHIP AND POTENTIAL PATENT 15 INFRINGEMENT, MAY INTENTIONALLY INTERFERE 16 WITH THE EXISTING CONTRACTUAL RELATIONS OF 17 ANOTHER PERSON OR INTENTIONALLY INTERFERE 18 WITH THE PROSPECTIVE CONTRACTUAL RELATIONS OF 19 ANOTHER PERSON, TO PROVIDE THAT A PERSON 20 AGGRIEVED BY ANOTHER PERSON’S INTENTIONAL 21 INTERFERENCE WITH HIS EXISTING CONTRACTUAL 22 RELATIONS OR WITH HIS PROSPECTIVE CONTRACTUAL 23 RELATIONS HAS A CAUSE OF ACTION IN BOTH 24 INSTANCES AGAINST THAT PERSON, AND TO PROVIDE 25 FOR THE ELEMENTS OF EACH CAUSE OF ACTION AND 26 THE DAMAGES WHICH MAY ENSUE. 27 28 Be it enacted by the General Assembly of the State of South 29 Carolina: 30 31 SECTION 1. Chapter 75, Title 15 of the 1976 Code is amended 32 by adding: 33 34 “Section 157570. (A) No person in this State, in regard to 35 patent ownership and potential patent infringement, may 36 intentionally interfere with the existing contractual relations of 37 another person or intentionally interfere with the prospective 38 contractual relations of another person. A person aggrieved by 39 another person’s intentional interference with his existing 40 contractual relations or with his prospective contractual relations 41 has a cause of action in both instances against that person and is

[4371] 8 1 entitled to compensatory damages and injunctive relief, and 2 additionally punitive damages as provided by law. 3 (B) To successfully maintain a cause of action for intentional 4 interference with existing contractual relations, it must be 5 established that: 6 (1) a contract existed that was subject to interference; 7 (2) the act of interference was wilful and intentional; 8 (3) the act itself was the person’s disingenuous claim of 9 ownership of intellectual property; 10 (4) the intentional act was the proximate cause of the injured 11 party’s damage; and 12 (5) actual damage or loss occurred. 13 (C) To successfully maintain a cause of action for intentional 14 interference with prospective contractual relations, which is a 15 separate cause of action from that specified in subsection (B), it 16 must be established that: 17 (1) a valid expectancy of a business relationship existed; 18 (2) the person committing the act of interference 19 intentionally prevented a business relationship from occurring with 20 the purpose of harming the injured party; and 21 (3) the act itself was the person’s disingenuous claim of 22 ownership of intellectual property.” 23 24 SECTION 2. Article 1, Chapter 5, Title 39 of the 1976 Code is 25 amended by adding: 26 27 “Section 395190. (A) For purposes of this section: 28 (1) ‘Demand letter’ means a letter, email, or other 29 communication asserting or claiming that the target has engaged in 30 patent infringement. 31 (2) ‘Target’ means a South Carolina person or entity: 32 (a) who has received a demand letter or against whom an 33 assertion or allegation of patent infringement has been made; 34 (b) who has been threatened with litigation or against 35 whom a lawsuit has been filed alleging patent infringement; or 36 (c) whose customers have received a demand letter 37 asserting that the person’s product, service, or technology has 38 infringed a patent. 39 (B) It is an unlawful trade practice for a person or entity to 40 make a bad faith assertion of patent infringement. This offense is 41 a violation of Section 39520. 42 (C) A court may consider the following factors as evidence that 43 a person has made a bad faith assertion of patent infringement:

[4371] 9 1 (1) the demand letter does not contain the following 2 information: 3 (a) the patent number; 4 (b) the name and address of the patent owner or owners 5 and assignee or assignees, if any; and 6 (c) factual allegations concerning the specific areas in 7 which the target’s products, services, and technology infringe the 8 patent or are covered by the claims in the patent; 9 (2) prior to sending the demand letter, the person fails to 10 conduct an analysis comparing the claims in the patent to the 11 target’s products, services, and technology, or the analysis was 12 done but does not identify specific areas in which the products, 13 services, and technology are covered by the claims in the patent; 14 (3) the demand letter lacks the information described in item 15 (1), the target requests the information, and the person fails to 16 provide the information within a reasonable period of time; 17 (4) the demand letter demands payment of a license fee or 18 response within an unreasonably short period of time; 19 (5) the person offers to license the patent for an amount that 20 is not based on a reasonable estimate of the value of the license; 21 (6) the claim or assertion of patent infringement is meritless, 22 and the person knew, or should have known, that the claim or 23 assertion is meritless; 24 (7) the claim or assertion of patent infringement is 25 deceptive; 26 (8) the person or its subsidiaries or affiliates have previously 27 filed or threatened to file one or more lawsuits based on the same 28 or similar claim of patent infringement and: 29 (a) those threats or lawsuits lacked the information 30 described in item (1); or 31 (b) the person attempted to enforce the claim of patent 32 infringement in litigation and a court found the claim to be 33 meritless; and 34 (9) any other factor the court finds relevant. 35 (D) A court may consider the following factors as evidence that 36 a person has not made a bad faith assertion of patent infringement: 37 (1) the demand letter contains the information described in 38 subsection (C)(1); 39 (2) where the demand letter lacks the information described 40 in subsection (C)(1) and the target requests the information, the 41 person provides the information within a reasonable period of 42 time;

[4371] 10 1 (3) the person engages in a good faith effort to establish that 2 the target has infringed the patent and to negotiate an appropriate 3 remedy; 4 (4) the person makes a substantial investment in the use of 5 the patent or in the production or sale of a product or item covered 6 by the patent; 7 (5) the person is: 8 (a) the inventor or joint inventor of the patent or, in the 9 case of a patent filed by and awarded to an assignee of the original 10 inventor or joint inventor, is the original assignee; or 11 (b) an institution of higher education or a technology 12 transfer organization owned or affiliated with an institution of 13 higher education; 14 (6) the person has: 15 (a) demonstrated good faith business practices in previous 16 efforts to enforce the patent, or a substantially similar patent; or 17 (b) successfully enforced the patent, or a substantially 18 similar patent, through litigation; and 19 (7) any other factor the court finds relevant. 20 (E) Upon motion by a target and a finding by the court that a 21 target has established a reasonable likelihood that a person has 22 made a bad faith assertion of patent infringement in violation of 23 this section, the court shall require the person to post a bond in an 24 amount equal to amounts reasonably likely to be recovered 25 pursuant to Section 395140, conditioned upon payment of any 26 amounts finally determined to be due to the target. A hearing shall 27 be held if either party so requests. A bond ordered pursuant to this 28 section shall not exceed two hundred fifty thousand dollars. The 29 court may waive the bond requirement if it finds the person has 30 available assets equal to the amount of the proposed bond or for 31 other good cause shown. 32 (F)(1) The Attorney General has the same authority to act on a 33 violation of this section as is provided in this chapter. 34 (2) This section shall not be construed to limit rights and 35 remedies available to the State or to any person under any other 36 law and shall not alter or restrict the Attorney General’s authority 37 with regard to conduct involving assertions of patent infringement. 38 (G) A target of conduct involving assertions of patent 39 infringement, or a person aggrieved by a violation of this chapter 40 may bring an action for relief. A court may award remedies to a 41 target who prevails in an action brought pursuant to this chapter. 42 (H) A demand letter or assertion of patent infringement that 43 includes a claim for relief arising under 35 U.S.C. Section 271(e)

[4371] 11 1 (2) or 42 U.S.C. Section 262 shall not be subject to the provisions 2 of this chapter.” 3 4 SECTION 3. This act takes effect upon approval by the 5 Governor. 6 XX 7

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