States Are Getting Desperate to Do Something About Patent Trolls

As we’ve written before, it’s getting bad for small businesses — as David Balto pointed out yesterday, patent trolls are going after supermarkets, hotels, retailers, you name it.

At least one state has decided to take matters into its own hands.

The Vermont legislature has just passed House Bill 299, which creates a right to sue a patent owner for making a “bad faith assertion” of patent infringement. My understanding is that Governor Shumlin is likely to sign the bill this week.

Here are a couple of the legislature’s findings:

(6) Abusive patent litigation, and especially the assertion of bad faith infringement claims, can harm Vermont companies. A business that receives a letter asserting such claims faces the threat of expensive and protracted litigation and may feel that it has no choice but to settle and to pay a licensing fee, even if the claim is meritless. This is especially so for small and medium sized companies and nonprofits that lack the resources to investigate and defend themselves against infringement claims.

(7) Not only do bad faith patent infringement claims impose a significant burden on individual Vermont businesses, they also undermine Vermont’s efforts to attract and nurture small and medium sized IT and other knowledge based companies. Funds used to avoid the threat of bad faith litigation are no longer available to invest, produce new products, expand, or hire new workers, thereby harming Vermont’s economy.

The bill basically requires that a patent demand letter be specific about the infringement accusation and give a reasonable time to respond. Any offer to license should be for an amount that is “based on a reasonable estimate of the value of the license.” There are some exceptions, such as for the original inventor or original assignee of the patent, or for an entity that makes “a substantial investment in the use of the patent.”

Honestly, the bill has some problems. It’s probably preempted by federal patent law, and it may violate the Due Process Clause as well. Justin McCabe, a Vermont patent attorney who blogs at Green Mountain IP, has a good explanation of the bill and some of the obstacles it faces.

But even if the law itself does little directly to improve the patent troll situation, it serves an important purpose. This bill clearly expresses the desperation people are feeling. Small companies understandably feel helpless against patent trolls. And state governments are feeling powerless to help their citizens.

For better or worse, patents are a federal creation. That means it’s up to Congress. The states just can’t do much, if anything.

Vermont, we feel your pain.

Matt Levy

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Matt Levy is Patent Counsel at the Computer and Communications Industry Association, where he handles legal, policy advocacy, and regulatory matters related to patents and is lead blogger for CCIA’s Patent Progress.

Matt joined the CCIA in 2013 from the IP boutique Cloudigy Law, PLLC. He has also been an associate at Finnegan, Henderson, Farabow, Garrett, & Dunner, LLP and at Hogan & Hartson LLP. He got first-hand experience in both patent prosecution and patent litigation, including defending clients against patent trolls.