Patent trolls: new developments at federal and state level

While the healthcare industry has become well-acquainted with patent trolls, they are not the only industry that has been hit. According to a Boston University study, American businesses paid $29 billion in 2011 alone to patent trolls in “licensing fees” in order to avoid litigation. In response to the expanding activities of patent trolls, more formally known as PAEs (patent assertion entities), efforts have been underway at the federal and state levels to develop mechanisms for protecting businesses. A patent reform bill which passed the House of Representatives 325-91 in December 2013, and had President Obama’s vocal support, was dropped by the Senate Judiciary Committee in May 2014 shortly before it would have come to a vote on the Senate floor. Observers say a new bill on the subject is unlikely to appear before 2015.

States are coming up with some creative ideas to address PAE activities. States are suing PAE’s under existing state consumer protection laws, and are also passing new laws directed at the activities of PAEs specifically. Some of the new laws include fee shifting measures, requiring a PAE to post bond for the legal fees the target of their lawsuit would incur in order to facilitate their payment of their opponent’s legal fees if the PAE’s suit fails. Bad faith demand letters tend to share common traits including being so vague regarding the recipient’s alleged unlawful behavior that the recipient is unable to determine the validity of the accusation which, in the case of PAE demand letters, is patent infringement. Measures in some of the new state laws address these letters specifically by legislating how demand letters must be written to be legal, and/or requiring PAEs to submit their demand letters to the state for approval before they may send them out.

Despite the states’ energy around this issue, they are hampered in their efforts by a century-old Supreme Court decision. In 1912 the Supreme Court ruled that for the most part cases pertaining to patent law fall under the jurisdiction of federal courts. The case currently in the limelight testing how restrictive the 1912 decision will be for the states is Vermont v. MPHJ. MPHJ asserts that, pursuant to the 1912 Supreme Court decision, the Vermont state court system in which Vermont filed its lawsuit against MPHJ has no jurisdiction. The question has gone before the federal courts twice so far in this case. In April 2014, Judge William K. Sessions III of the U.S. District Court for the District of Vermont noted that what the 1912 Supreme Court ruling actually says is that “Federal courts have exclusive jurisdiction of all cases arising under the patent laws, but not of all questions in which a patent may be the subject-matter of the controversy.” According to Judge Sessions, the Vermont case is about bad faith demand letters rather than about patent issues, and therefore, the state court does have jurisdiction. In August 2014, the U.S. Appellate Court for the Federal Circuit dismissed MPHJ’s appeal, remanding the case back to state court. According to observers, MPHJ is likely to file another jurisdictional appeal.

See additional information at:
“Patent-troll fight ends in retreat,” Burlington Free Press (July 7, 2014)
“Patent troll case referred back to Vermont courts,” Brattleboro Reformer (August 15, 2014)
“States go after patent trolls – how far can they go?” ABA Landslide Magazine (July/August 2014)

Posted in ARRA, Higher Ed, HITECH Act, News, Privacy & Security Tagged with: , , , , ,

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