Earlier this month, Virginia’s general assembly passed legislation aimed at protecting the state’s businesses from patent trolls. The bill clamps down on patent infringement claims being made in bad faith such as through a demand letter that includes false statements, does not identify the patent holder or fails to specify how the target is infringing.
Virginia joins Oregon, which passed a patent troll bill in February, and Vermont, which was the first state to pass legislation in May last year.
In addition, a similar bill passed Kentucky’s Senate at the end of February and will now be considered by its House. Maine is also working on its own bill, with a vote expected in the state’s Senate soon.
Expect other states to follow suit. Targeting patent trolls is a popular pastime for state attorneys general this year. On February 24, AGs from 42 states wrote to Senate leadership urging it to pass patent reform legislation. This followed 42 AGs writing to the Federal Trade Commission in January urging it to take action on the patent troll problem.
In addition to urging others to take action, AGs are increasingly looking to take matters into their own hands. It is possible, however, that this will do more good to the AG’s reputations than to the patent system.
State limits
There are clear limits to how much can be achieved at state level. As I outlined in a feature in February called “US states declare war on patent trolls” (available to subscribers and triallists – you can take a free trial here), state legislation against patent trolls is untested and could muddy the water further.
First, it is not clear the legislation against patent trolls would stand up. It is possible state law would be preempted by federal law, although specialists are confident the state law regarding demand letters is generally fine. Another potential issue is uncertainty around which state’s laws apply for demand letters sent to companies domiciled in one state but doing business in many states.
Second, the state action is a piecemeal approach that has potential to cause further confusion. The laws being passed by states are all slightly different. A patchwork of different laws in many different states could increase costs and uncertainty for all patent owners trying to comply and enforce their patent rights.
This point was raised, perhaps more self-servingly, in a blog post last week from IP NAV, which defines itself as a patent monetization firm but has been called by others “the most notorious patent troll in America” (although there is certainly a lot of competition for this title – MPHJ, for one).
Responding to the passing of the Virginia bill and claims from that state’s AG Mark Herring that it would clamp down on bad faith assertions of patents, IP NAV wrote: “The first thing we would point out to Herring is that while he complained about ‘baseless lawsuits’, the bill does not address lawsuits at all. That’s because patent litigation is governed by federal law – states don’t have anything to say on the matter. The bill addresses ‘demand letters’, and has a long list of criteria for determining whether a demand letter is in bad faith or not.”
This is correct, but it could be argued that the Virginia bill will help cut down on the threat of baseless lawsuits. The most egregious form of patent trolling rarely leads to actual litigation, with the intention to receive settlements from firms eager to make the threat go away. Therefore, the state legislation has a good shot at stopping people and businesses being extorted in the eyes of some.
IP NAV went on to say the criteria included in the clampdown on demand letters “may sound reasonable to a lay person, but in fact are problematic”. The Virginia law dictates that a demand letter can be deemed bad faith if it does not identify specific areas in which the products, services and technology are covered by the claims in the patent.
“The problem with this clause is that if a patent owner or his agent provides all of these details in an initial communication, the company that is alleged to be infringing a patent has all of the ammunition it needs to file its own lawsuit first – it can seek a declaratory judgment that the patent is invalid and/or that it does not infringe the patent,” said IP NAV.
It continued: “There are advantages to being the first one to file a lawsuit – the biggest one being choice of venue. NOT because some district courts are biased in favour of patent owners. Our experience is this is not the case. However, some districts are much faster than other districts when it comes to hearing patent cases (and time is money), and some districts are more logistically convenient for the patent owner.”
This argument sounds reasonable but would likely be met by the public with little sympathy.
Will more suits be filed?
IP NAV’s last point I have more sympathy with.
“Not only that, since every state is now looking at their own legislation and their own rules for determining what’s a ‘bad faith’ demand letter, we are faced with the burden of having to keep track of the rules in every state, and making sure that whatever we send a company that may be infringing a client’s patent was in keeping with the laws of their state. And if we missed something, we could be sanctioned for sending a “bad faith” demand letter, even though there was no bad faith at all.
“The safest course of action, therefore, is not to send letters at all – but just go straight to filing a lawsuit, which is governed by federal law, not state law.”
This is a fair point. If there is a lack of consistency between states it could be a nightmare for everybody, not just trolls. While state legislation could clamp down on the most brazenly egregious patent trolling behaviour, the concern is whether other non-practising entities would increase the amount of lawsuits filed, as threatened by IP NAV. I suspect this would not be the case, however.
I asked Robin Feldman, professor of law and director of The Institute for Innovation Law at the University of California Hastings College of the Law, for a response to IP NAV’s claims.
She told me: “The patent system is a notice system. Everyone should know what the patent holder has invented and what territory the patent holder claims as his own. Openness is critical to the proper functioning of the patent system. Forum shopping, in contrast, is not an inherent right or even a goal of either the patent system or the US litigation system.
“Hide and seek may give you a tactical advantage, but these tactical games are not in the interests of society or in the interests of the patent system. The solution is to reduce the threshold level for when targets may file for a declaratory judgment action.”
She said this would end what she describes in her book “Rethinking Patent Law” as “the dance of the sugar plum letter”.
Targeting patent trolls at a state level is a frustratingly inefficient and inconsistent solution. Those that would like to see patent trolls suffer will surely be hoping Congress will soon make more a more meaningful contribution.
