Considerations for using the new state statutes to stop abusive patent troll assertions

October 2014 | EXPERT BRIEFING | INTELLECTUAL PROPERTY

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From President Barack Obama enacting several executive orders to Judge Randall Rader, then Chief Judge of the United States Court of Appeals for the Federal Circuit, penning an op-Ed in the New York Times, patent trolls (or non-practicing entities, if you prefer) continue to garner ire around the country, and continue to be a widespread drain on corporate resources.

Such ire has not only remained at the federal level. A large and growing number of states have taken steps to protect its citizens from ‘bad faith’ patent lawsuits using consumer protection laws. These laws often allow a threatened party to initiate a lawsuit against the patent troll, if the troll has not performed the requisite due diligence. These state laws can be a valuable sword and shield against patent trolls. But before a party avails itself to this state protection, there are a number of factors to consider, as outlined below.

Can you bring the lawsuit? When assessing whether to utilise a state’s bad faith patent assertion statute, it is important to determine whether you, as the alleged infringer, are capable to bring the lawsuit. For instance, Maryland’s code (Md. Code Ann., Com. Law § 11-601, et seq.) does allow a ‘Target’ to bring an action as a result of a bad faith infringement assertion. With this private right of action, you are able to initiate the lawsuit. This, however, differs from state to state. For instance, Virginia’s House Bill 375 would not create a private right of action, but empowers the state’s attorney general or an attorney for the commonwealth to issue civil investigative demands related to such bad faith assertions. The attorney general would also have the power to seek injunctive relief against the party making such bad faith assertions. In Virginia, for example, it would be imperative to contact the attorney general’s office to make a consumer protection complaint. It would then be up to the attorney general to decide whether to move forward with the complaint.

Letter vs. lawsuit. Many of the state statutes protect consumers who have been the recipients of demand letters. On the other hand, some states protect both a person who has been the recipient of a demand letter and those who have already been sued. Using Maryland again as an example, its code specifically acknowledges that a ‘Target’ includes anyone “against whom an assertion of patent infringement has been made” or “against whom a lawsuit has been filed alleging patent infringement”. So, in Maryland, one would be able to attack a patent troll even if a lawsuit has already been initiated. It is important to check the statute to confirm that you are a protected party.

Will your lawsuit be preempted? One issue to consider is whether a federal court would preempt it. Federal courts have exclusive jurisdiction over patent cases. The issue – one that has not been fully decided – is whether the bad faith patent assertion claim requires the court to resolve patent claims. Though you could argue that the state court need not reach any decision regarding noninfringement or invalidity, it is at this point unclear how courts will handle the preemption issue.

Is it truly a bad-faith assertion? It is important to objectively look at the patent infringement assertion to determine if a court is likely to find that the assertion is in bad faith. A court is likely to consider the following factors as evidence that the party has made a bad faith assertion: (i) the demand letter does not contain the patent number; the name and address of the patent owner or assignee; or facts relating the specific area in which the product, service, or technology allegedly infringes the patent; (ii) the information was requested by the alleged infringer and the asserting party failed to provide the information; (iii) before sending a demand letter, the asserting party did not conduct an analysis comparing the claims in the patent to the alleged infringer’s product, service, or technology; (iv) the demand letter demanded a response or payment within an unreasonably short period of time; (v) the asserting party offered to licence the patent for an amount that is not based upon a reasonable estimate of the value of the licence; (vi) the assertion of patent infringement is deceptive; and (vii) the asserting party or an affiliate has previously filed or threatened a lawsuit based on the same or a similar patent and a court has found the asserting party’s assertion to be without merit.

A court may consider the following factors as evidence that a person has made an assertion of patent infringement in good faith: (i) the demand letter does contain the information described above; (ii) the asserting party has engaged in a good faith effort to establish that the alleged infringer has infringed the patent, and the asserting party has attempted to negotiate an appropriate remedy; (iii) the asserting party has demonstrated good faith business practices previously when enforcing its patent, or has successfully enforced its patent through litigation; (iv) the asserting party has made a substantial investment in the use of the patent; and (v) the asserting party is an inventor of the patent, an original assignee, or a representative of an institution of higher education or a technology transfer organisation affiliated with an institution of higher education.

As part of utilising any one of the state statutes, it is important to review any decisions that have been rendered or actions brought under the statute, especially until there has been a body of law established.

R. David Donoghue is the Deputy Practice Group Leader of the IP group, and Anthony J. Fuga is an associate, at Holland & Knight LLP. Mr Donoghue can be contacted on +1 (312) 578 6553 or by email: david.donoghue@hklaw.com. Mr Fuga can be contacted on +1 (312) 715 5771 or by email: anthony.fuga@hklaw.com.

R. David Donoghue and Anthony J. Fuga

Holland & Knight LLP