By: Mohammad S. Rahman[1]

Patent reform has received a tremendous amount of attention lately.[2]  The U.S. Congress has signaled a willingness to address bad faith patent infringement assertions brought forth by non-practicing entities (a.k.a. “Patent Trolls”) only to fall short of promulgating federal legislation directed to the issue.  Recently, Senator Patrick Leahy (Vermont) of the Senate Judiciary Committee removed several pieces of proposed patent reform legislation focused on anti-troll matters until at least 2015, presumably not to interfere with the Congressional elections in November 2014.[3]  Various other bills are currently pending in Congress, but no further progress is expected on these bills for the time being.[4]  Undeterred, various individual states have taken it upon themselves to pass anti bad faith patent infringement assertion legislation (hereinafter “anti-troll legislation”).  In several states, such bills have been signed into law, some are awaiting signing by the executive branch, and in other states the bills are somewhere in the legislative process (e.g., in committee, or under further study, etc).

As of the writing of this article, the following states have passed and signed anti-troll legislation:  Alabama[5], Georgia[6], Idaho[7], Louisiana[8], Maine[9], Maryland[10], Missouri[11], Oklahoma[12], Oregon[13], South Dakota[14], Tennessee[15], Utah[16], Vermont[17], Virginia[18], and Wisconsin[19].  In many of these states the laws substantially mirror each other and the legislative histories are fairly non-contentious with many legislative votes resulting in unanimous passage and without any vetoes from the executive branch.  Accordingly, patent reform aimed at curbing bad faith practices by patent trolls is something that has easily transcended across party lines.  The following states have passed anti-troll legislation and await signature by the respective Governor of that state: Illinois[20] and New Hampshire[21].  Again, these bills are quite similar in scope and verbiage to the laws enacted by the other states mentioned above, and it is expected that executive approval will result.  The following states have introduced anti-troll legislation:  Connecticut[22], Kansas[23], Kentucky[24], Mississippi[25], Nebraska[26], New Jersey[27], North Carolina[28], Ohio[29], Pennsylvania[30], Rhode Island[31], and South Carolina[32].  The bills in these states also tend to echo the language in the other states’ similarly enacted laws or pending bills.  In some cases, the bills have been tabled for further debate or study at a later time (e.g., once the legislative session reopens in the various states).[33]  However, as more states continue to enact corresponding legislation and as more states begin executing the components of the various laws, it is only a matter of time before more states enact their own versions of anti-troll legislation.

Most of the above laws and/or proposed bills generally have several common elements including (1) prohibiting asserting a claim of patent infringement in bad faith; (2) authorizing the state’s Attorney General to investigate bad faith patent infringement; (3) allowing targets of bad faith infringement suits to bring civil actions to recover damages (including possibly punitive damages), court costs, and attorney’s fees; (4) allowing state courts to consider certain factors to determine whether bad faith has occurred including factors related to the specificity (or lack thereof) of the asserter’s demand letter; and (5) requiring patent asserters to post a bond in the amount of the alleged infringer’s likely cost to litigate the claim or some other amount if the alleged infringer establishes a reasonable likelihood that a bad faith assertion of patent infringement has been made.  The Illinois and Wisconsin bills/laws focus on the unfair or deceptive patent infringement demand letters themselves.[34]  No bond is required in the Illinois, Louisiana, Maryland, Nebraska, Oregon, or Virginia bills/laws.[35]  The first state to enact the anti bad faith law was Vermont.[36]  It appears most of the other states have used the Vermont law as a guide for their own bills/laws.

While the specifics of patent law are subject to federal preemption, the various states’ bills and laws focus on the tortious activities surrounding sending deceptive and bad faith demand letters by patent trolls and making bad faith claims of patent infringement (e.g., through demand letters), and not the mechanics of patent infringement, patent claim construction, or any other component of federal patent law.  Bad faith, deception, fraud, and unfair competition are torts in the various states based on state or common law, and therefore the various states have jurisdiction to curb the bad faith aspect of bringing forth patent infringement suits from patent trolls who are using the litigation or the threat of litigation as a tool to extort rather than seeking legitimate redress.  Thus, while a patent lawsuit is pending in federal court, a corresponding bad faith, deceptive, or unfair competition lawsuit could be pending in state court.

Interestingly, some of the states that are absent from the above lists for considering anti-troll legislation are five states with some of the most active patent producing entities:  California, Michigan, New York, Texas, and Washington.  Additionally, the state with several pro-business laws intact, Delaware, is also nowhere to be seen in the above lists.  While bills have not been formally proposed in these states, it is probable that they soon will be introduced given the overwhelming desire to address and overcome the patent troll dilemma and to foster and promote technological and economic advancement without fear of baseless claims of patent infringement.

In addition to legislative efforts, some recent court decisions have tried other means of achieving anti-troll patent reform.  The Federal Trade Commission (FTC) has attempted to prevent an entity, MPHJ Technology Investments, LLC (MPHJ), from asserting claims of patent infringement due to purported unfair deceptive trade practices.[37]  The FTC originally sought permanent injunctive and other relief against MPHJ’s practice of sending patent assertion letters to thousands of businesses citing violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a).[38]  MPHJ was attempting to sell licenses under its acquired patents and purportedly threatened small businesses with imminent patent infringement litigation if the target did not enter into a license.[39]  The FTC alleged that MPHJ never intended to engage in any litigation, and in fact did not engage in any litigation, and thus its demand letters were deceptive as merely being a mechanism to force a license with small businesses through the threat of imminent litigation.[40]  The FTC further alleged that the demand letters falsely suggested that a substantial number of other businesses had purchased proper licenses from MPHJ as a result of similar demand letters, when apparently no licenses had been sold to such other targets.[41]  MPHJ disagreed with the FTC’s allegations and filed its own complaint against the FTC for its actions in attempting to suppress MPHJ’s abilities to assert its patent rights.

MPHJ indicates that the FTC’s complaint suggests that if any U.S. patent owner threatens another party with a patent infringement suit, even against a single infringer, and then fails to promptly bring such as suit, then that U.S. patent owner has committed an unfair trade practice, unless that patent owner can prove that it intended to bring suit at the time it made such a threat.[42]  MPHJ suggests that the FTC’s imposed burden is improper, with the issues still unresolved in the ongoing case.

Other attempts through the courts to achieve anti-troll patent reform have not met with success.  A target of patent troll litigation unsuccessfully attempted to invoke the Racketeering Influenced and Corrupt Organizations (RICO) Act against a patent troll attempting to assert its acquired patent.[43]  The target, FindTheBest.com (FTB), claimed that Lumen View Technology, LLC (Lumen) made baseless patent infringement claims in order to extort licensing fees.[44]  FTB indicated that Lumen’s actions were in violation of the RICO Act, 18 U.S.C. §§ 1961, 1962(c) & (d).[45]  The court indicates that a viable RICO claim pursuant to 18 U.S.C. § 1962(c) must properly assert “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.”[46]  Here, the court finds no RICO case for alleged fraudulent assertion of patent infringement, and indicates that recognizing meritless litigation, patent infringement or otherwise, as a RICO violation would result in providing “complainants unprecedented access to federal courts and the treble damage remedy authorized under RICO” and would risk “chilling parties’ resort to the judicial system to resolve their disputes.”[47]  However, FTB was initially successful in prevailing in the patent infringement suit by having the court declare the asserted patent(s) invalid.[48]  Accordingly, FTB further successfully moved to declare that the original patent infringement suit brought by Lumen was exceptional under 35 U.S.C. § 285, and thus FTB was entitled to attorney fees as the prevailing party.[49]  Thus, while a RICO claim proved to be unsuccessful in this case, targets of patent troll lawsuits have shown to explore new options in defending against assertions deemed to be meritless.

The trend amongst the states is to protect companies from non-practicing entities, who have used patents as a means to extort rather than to progress the sciences.  Thus far 15 states have joined the anti-troll fight by fully enacting bad faith anti-troll legislation.  Moreover, 13 other states have introduced anti-troll bills.  As more states continue to enact anti-troll legislation, others may quickly join the process else risk being considered as anti-business states.

 

[1] Mohammad S. Rahman is a principal at the law firm of Rahman LLC in Columbia, Maryland and concentrates on intellectual property law.

[2] Patent Progress (http://www.patentprogress.org) provides a valuable synopsis of various patent reform measures across the U.S. Some of the data in this article was derived from the Patent Progress website, and the author recommends visiting their website for continuous updates on these matters.

[3] Patent Transparency and Improvements Act (U.S. Senate Bill S.1720); Patent Quality Improvement Act (U.S. Senate Bill S.866); Patent Abuse Reduction Act (U.S. Senate Bill S.1013); Patent Litigation Integrity Act (U.S. Senate Bill S.1612).

[4] Innovation Act (House of Representatives Bill H.R.3309); Transparency in Assertion of Patents Act (U.S. Senate Bill S.2049); Trade Protection Not Troll Protection Act (House of Representatives Bill H.R.4763); Demand Letter Transparency Act (House of Representatives Bill H.R.3540); Patent Litigation and Innovation Act (House of Representatives Bill H.R.2639).

[5] Alabama – Senate Bill S.B. 121 was signed into law on March 18, 2014.

[6] Georgia – Act 513 was signed into law on April 15, 2014 and it is effective on July 1, 2014.

[7] Idaho – Idaho S.B. 1354 was signed into law on March 26, 2014 and it is effective on July 1, 2014.

[8] Louisiana – Senate Bill S.B. 255 was signed into law on May 28, 2014.

[9] Maine – Maine S.P. 654, which was signed into law in April 2014.

[10] Maryland – Maryland S.B. 585 was signed into law on May 5, 2014.

[11] Missouri – Missouri S.B. 706 was signed into law on July 8, 2014.

[12] Oklahoma – House Bill H.B. 2837 was signed into law on May 16, 2014.

[13] Oregon – Oregon S.B. 1540 was signed into law on March 3, 2014.

[14] South Dakota – South Dakota S.B. 143 was signed into law on March 31, 2014.

[15] Tennessee –Tennessee H.B. 2117 was signed into law on May 1, 2014.

[16] Utah – Utah H.B. 117 was signed into law on April 1, 2014.

[17] Vermont – Vermont was the first state to enact anti-troll legislation.  Act 44 was signed into law on May 22, 2013.

[18] Virginia – House Bill H.B. 375 was signed into law on May 23, 2014.

[19] Wisconsin – Wisconsin S.B. 498 (Act 339) was signed into law on April 24, 2014.

[20] Illinois – The Illinois Legislature passed S.B. 3405, and is awaiting the Governor’s signature.

[21] New Hampshire – The New Hampshire legislature passed Senate Bill S.B. 303, and is awaiting the Governor’s signature.

[22] Connecticut – The Senate passed S.B. 258.  The House is considering the bill.

[23] Kansas – House Bill H.B. 2663 was introduced in the House, but it stalled in committee.

[24] Kentucky – The Senate passed S.B. 116, which is now being considered by the House.

[25] Mississippi – The House passed H.B. 521, but it stalled in the Senate Judiciary Committee.

[26] Nebraska – Nebraska has a unicameral legislature and has considered L.B. 677.  The bill is “indefinitely postponed”.

[27] New Jersey – Senate Bill S. 1563 was introduced in the Senate.

[28] North Carolina –The House passed H.B. 1032.  It is currently being considered by the Senate.

[29] Ohio – House Bill H.B. 573 was introduced in the House.

[30] Pennsylvania – Senate Bill S.B. 1222 was introduced in the Senate.

[31] Rhode Island – Senate Bill S.B. 2822 was introduced in the Senate.  The Senate Judiciary Committee voted to hold the bill for further study.

[32] South Carolina – House Bill H. 4629 was introduced in the House.

[33] See notes 26 and 31 supra.

[34] See notes 19 and 20 supra.

[35] See notes 8, 10, 13, 18, 20, and 26 supra.

[36] See 17 supra.

[37] MPHJ Technology Investments, LLC, et al. v. Federal Trade Commission, et al., Civil No. 6:14-cv-00011-WSS, (W.D. Tex. January 13, 2014).

[38] Id.

[39] Id.

[40] Id.

[41] Id.

[42] Id.

[43] Findthebest.Com, Inc. v. Lumen View Tech, LLC, 13 Civ. 3599 (DLC), 2014 WL 2050610 (S.D.N.Y. May 19, 2014).

[44] Id. at 2.

[45] Id.

[46] Id. at 8 (citing Sedima S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985)).

[47] Id. at 11 (citing Deck v. Engineered Laminates, 349 F.3d 1253, 1258 (10th Cir. 2003)).

[48] Lumen View Technology, LLC v. Findthebest.com, Inc., 13 Civ. 3599 (DLC), 2014 WL 6164341 (S.D.N.Y. Nov. 22, 2013).

[49] Lumen View Technology, LLC v. Findthebest.com, Inc., 13 Civ. 3599 (DLC), 2014 WL 2050610 (S.D.N.Y. May 30, 2014).