Attorneys General Join Legislators in Pushing Patent Trolls Back Under Bridges

Vermont’s Democratic Attorney General Bill Sorrell recently came out swinging in a lawsuit against one of the biggest so called ‘patent trolls,’ or entities that exist for the purpose of licensing patents in order to sue companies for alleged infringement of those patents. Known as non-practicing entities (NPEs), or patent assertion entities (PAEs), these organizations have been operating in the shadows over the past decade, gradually ramping up their activities to a point where lawmakers are starting to take notice. These entities typically operate by sending vaguely worded letters to companies demanding payment in the form of licensing fees with an unreasonably short payment deadline – sometimes two weeks or less. The cost of dealing with these legal threats can be costly for many companies, who would rather settle than take the matter to court, where potential legal fees far exceed the cost demanded by the trolls. Through a combined effort by Sorrel and state legislators, Vermont was able to pass the first patent troll law making bad-faith assertions of patent infringement illegal, thereby allowing the Attorney General to prosecute patent trolling offenders.

Vermont is not the only state that has moved to end or curb the potential economic damage caused by patent trolling organizations, as Sorrel’s work has emboldened other states, and the U.S. Congress to act on the matter. Among the states taking action:

  • Kentucky SB 116 passed the Senate on February 25 and is pending in the House Judiciary Committee. The bill would make bad-faith assertion of patent infringement a violation of the state’s consumer protection law.
  • Maine LD 1660 is currently pending in the Joint Judiciary Committee. It would allow victims of patent trolls to bring forth civil suit in order to recoup losses caused by bad faith assertions of patent infringement.
  • In Minnesota, the state’s Attorney General has issued a ‘stay-away’ order to the largest and most egregious patent troll, MPHJ Technology Investments, LLC.
  • Nebraska’s Attorney General has warned patent trolls operating in the state, and legislation that would prohibit them, LB 677, is pending in the House Judiciary Committee.
  • New Jersey AB 2462 would prohibit making bad faith assertions of patent infringement. The bill is pending in the Assembly Commerce and Economic Development Committee.
  • New York’s Attorney General reached a deal with MPHJ to create new guidelines to assure patent claims to not use improper tactics.
  • Oregon SB 1540 was signed by Democratic Gov. John Kitzhaber on March 3 and took effect immediately. This new law prohibits bad faith claims of patent infringement.
  • South Carolina also has a bill pending in the House Judiciary Committee, HB 4629, which would make it an unlawful trade practice to make a bad faith assertion of patent infringement.

The largely bipartisan movement to regulate patent trolls is unlikely to lose steam in the near future as the number of lawsuits filed by patent trolls has increased nearly six-fold since 2004 to a peak of 4,600 in 2012. Under existing federal law, companies that are targeted by patent trolls may only recover litigation fees if a suit is deemed to be objectively baseless and filed in bad faith. Federal judges up to this point have been reluctant to do so, leaving companies and small businesses on the hook for their own legal expenses caused by these frivolous lawsuits.

As such, a federal resolution is likely. The U.S Supreme Court took up the issue in February. Federal legislation, HR 3309, sponsored by Rep. Bob Goodlatte, R-Virginia, is scheduled for a March 12 hearing in the Senate Judiciary Committee. The bill previously passed the House in December with a vote of 325-21. The two Supreme Court cases, expected to be ruled on in early July, include Octane Fitness, LLC v. Icon Health & Fitness, Inc. andHighmark Inc. v. Allcare Health Management Systems, Inc.