Patent trolls are on the House calendar today as lawmakers consider a new law designed to protect North Carolina companies from abusive patent litigation.
The wrong sought to be righted by the “Abusive Patent Assertions Act” is the perceived shakedown of legitimate business by so-called “patent assertion entities” — “patent trolls,” in the vernacular.
Defense attorneys will tell you that these companies typically do little or no patent development of their own. Instead they buy patents from smaller inventors and then hunt down alleged infringers and extort settlements by threatening lengthy and costly litigation in the federal courts.
Because federal law largely governs patent litigation, the bill seeks only to arm state companies with the ability to collect their attorneys fees in any case in which they successfully defend against claims by trolls and establish that those claims were asserted in bad faith. It also authorizes the Attorney General to take enforcement action and provides for a recovery of treble damages.
North Carolina is not necessarily a hot bed of patent litigation (see graphic below), and state companies have a greater likelihood of defending patent claims in federal courts elsewhere, notably in either the Eastern District in Texas or in Delaware. In those cases, the law on attorneys fees in the jurisdiction where the case is pending will govern, so if passed the North Carolina bill might not be of much use in those pending cases.
But what the Act does — modeling a law passed in Vermont in 2013 which is now also being considered in at least 13 other states — is allow the companies to file a separate action here to collect fees paid in the action filed elsewhere as well as other damages.
Following the lead of state lawmakers, Vermont’s Attorney General is also setting the pace for law enforcement involvement iin the patent abuse area, filing a novel lawsuit under state consumer protection law.
As summarized in a report by the National Association of Attorneys General:
This type of conduct led Vermont, in May, to file suit under state consumer protection law against an alleged patent troll. The lawsuit, Vermont v. MPHJ Technology, Inc., is the first effort by an attorney general to use state consumer protection law to stop a patent troll. The defendant in the case sent letters to scores of small businesses in Vermont (and hundreds more nationwide) claiming to have a patent on a process for scanning a document and attaching it to an email via a network. The recipients, some of which were non-profits, were asked to provide extensive paperwork to prove that they were not infringing the patents, and if they could not do so, were asked to purchase “licenses” costing approximately $1,000 per employee.
Vermont’s complaint in MPHJ alleges that the letters contained false and misleading statements about, among other things, the asserted value of the license and the response the sender had received from the business community. Vermont also alleges that the letters’ threats of imminent litigation were false. The case was filed in state court, but the defendant removed it to federal court. The defendant has also moved to dismiss for lack of personal jurisdiction. Vermont’s motion to remand as well as the defendant’s motion to dismiss, are both pending in federal court. Stay tuned.
So far the AG is holding his own in that case.