Trolls Aren’t Welcome in Lake Wobegon

We all know the virtues of Garrison Keillor’s Lake Wobegon, a mythical town in rural Minnesota “where are the women are strong, all the men are good looking and all the children are above average.”  Well now we know something more, although the people are friendly and unceasingly humble, they aren’t hospitable to patent trolls.

Earlier this week, the Minnesota Attorney General’s office announced a landmark settlement with patent troll MPHJ Technology Investments, LLC. MPHJ is infamous for suing small businesses for using basic office equipment to scan and email documents. MPHJ sent letters demanding $1,000 – $1,200 per employee for this simple task. According to the settlement terms, MPHJ cannot send further demand letters without seeking approval from the state attorney general office. In addition, if any Minnesota residents or businesses have been found to have paid MPHJ, then MPHJ will have to fully refund all payments and pay a $50,000 civil penalty.

Minnesota joins Nebraska and Vermont in taking action to stop MPHJ from abusing the patent system. As we have previously written, MPHJ is what Mark Lemley describes as a “bottom feeder” troll. These trolls go after many defendants for small settlements that are less than the costs of litigation. By using this tactic, MPHJ can guarantee a steady stream of income regardless of the quality of the patents used or the likelihood of infringement. If a target of MPHJ commits to actual litigation, MPHJ can simply dismiss the case while incurring little cost of its own. This tactic is so successful it has even been used by another patent troll to silence a critic.

The states’ efforts in addressing the “bottom feeder” trolls are vitally important. The court system has very little opportunity to address this abuse because of the ability of patent trolls to dismiss lawsuits that could give them trouble. When a “bottom feeder” case was appealed to the Federal Circuit, the Court seemed legitimately surprised at the “indicia of extortion” the lower court found. In that case the Federal Circuit lamented:

As a non-practicing entity, Eon-Net was generally immune to counterclaims for patent infringement, antitrust, or unfair competition because it did not engage in business activities that would potentially give rise to those claims. And while Eon-Net risked licensing revenue should its patents be found invalid or if a court narrowly construed the patents’ claims to exclude valuable targets, Eon-Net did not face any business risk resulting from the loss of patent protection over a product or process. Its patents protected only settlement receipts, not its own products.

“Bottom feeder” patent trolls are especially problematic because they take advantage of the high costs of litigation and inexperienced defendants. The demand letters (sample here at Trolling Effects) often are obscure and overly complex, present a one-sided view of what the patents cover, highlight the high costs and risks of litigation, and give the potential defendants a short response time. They are often simply a coercion tool.  A patent attorney’s opinion of validity and infringement of the patents will often cost more than the settlement offered, and the cost of a defense is many times greater. This “bottom feeder” activity provides no benefit to innovation and creates a deadweight loss to society by using patent law as a pretext to extract money based on the high costs of litigation.

I applaud the efforts of Minnesota, Nebraska and Vermont in addressing the problems of “bottom feeder” trolls. The states have broad powers under the individual state laws and they should fully utilize those powers to restrain these clearly egregious practices.  While there are many patent reform issues to address in the coming years, we should not delay in addressing the “bottom feeder” troll issue because it is a direct attack on the efforts of and the faith in the American justice system.

Trolls are not welcome in Lake Wobegon.  They should not be welcomed anywhere.

David Balto

David Balto

David Balto is a public interest antitrust lawyer in Washington, DC.  He has over 15 years of government antitrust experience as a trial attorney in the Antitrust Division of the Department of Justice and in several senior level positions at the Federal Trade Commission. David was the Policy Director of the Bureau of Competition of the Federal Trade Commission (1998-2001) and attorney advisor to Chairman Robert Pitofsky (1995-1997). He was a senior advisor in all aspects of the FTC’s merger and non- merger enforcement program and helped litigate the challenges to the Staples/Office Depot, Drug Wholesalers, and Heinz/Beechnut mergers, the Intel monopolization case, and the challenges to anticompetitive conduct by several pharmaceutical companies.