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Jessica Chesher

Managing Editor


Innovation eReview
State Action on Patent Trolls

Patent troll is a term that has become familiar in recent years. The term refers to patent assertion entities (PAEs) or non-practicing entities (NPEs), companies that buy and assert patents through litigation or requests for licensing fees but do not develop or transfer them. Although the majority of patent litigation news about trolls centers around large companies and corporations, small companies are not immune and the effects can be devastating.

A research paper by Santa Clara University School of Law Assistant Professor Colleen Chien found that at least 55% of unique defendants in patent lawsuits by PAEs make under $10 million a year. Small businesses are especially essential to state economic success so it might be inevitable that some states would chose to intervene. Recently Attorney Generals in Vermont, Nebraska, and Minnesota have taken actions to stem what they view as unfair patent assertion practices against small businesses.

On May 22nd, Vermont Governor Peter Shumlin signed into law a bill designed to discourage some of the more egregious patent troll behavior, namely bringing bad faith patent lawsuits against Vermont businesses. Although patent law is under federal jurisdiction Vermont is using its ability to legislate consumer protection laws to defend against possible federal pre-emption challenges. Vermont Attorney General Bill Sorrell is currently pursuing a lawsuit against MPHJ Technology Investments, LLC under Vermont's pre-existing consumer protection laws.

MPHJ is also the recipient of a cease and desist letter from the Nebraska Attorney General Jon Bruning because of an accused violation of the Nebraska Consumer Protection Act. August 20th, Minnesota Attorney General Lori Swanson announced a settlement with the same company to cease its patent assertion campaign in the state.

MPHJ has been singled out as one of the most blatant examples of patent trolling. The company has been accused of sending hundreds and perhaps thousands of letters nationwide to small businesses that use office scanners to send emails, claiming to own a patent on the process. The letters threaten litigation unless the businesses pay a licensing fee to the company, in some cases up to $1,000 per employee.

While patent protection is an important right of patent holders, these states see a legitimate need for additional protection for businesses. The Vermont law, for example, only applies to companies that send out “bad faith” patent assertion letters. The criteria for the label “bad faith” includes a lack of specific allegeations of infringement in the letter, a demanded license fee due in an unreasonably short period of time, deceptive letters, and reasonable knowledge that a patent infringement claim is meritless.

Currently there is no talk of similar actions by New York State Attorney General Eric Schneiderman. Exact numbers are hard to find as many businesses avoid publicizing the fact that they are being pursued for infringement by patent holders, but it is unlikely New York State businesses are exempt from the attention of “patent trolls.” According to Patent Freedom, a service that assists businesses in assessing patent litigation risk, the number of New York companies sued for patent infringement grew 73% to 288 from 2006 to 2012.

On September 27th of this year, the US Federal Trade Commission announced it is starting an in-depth investigation of alleged abuses of the US patent system. The review will include scrutiny of PAEs like MPHJ. Continued investigation and research may illuminate potential policies at the state and federal level, to encourage protection for intellectual property without unreasonable demands on businesses.

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