PublishedMay 30, 2013

Vermont Targets A Bottom-Feeding Patent Troll, But It Can’t Do The Job Alone

There should be a rule of thumb for patent trolls: don’t target the disabled. You ignore this rule at your peril. Notorious patent troll MPHJ did, and now it’s just been sued by the Vermont Attorney General for violating the Vermont Consumer Protection Act.

MPHJ, and its 40 or so shell companies, goes around threatening small companies that it believes might use a scanner attached to a network. Two of the organizations that MPHJ targeted were Vermont non-profits that help the disabled.

That was too much for the Vermont AG, who brought suit against MPHJ, accusing it of violating consumer protection laws by lying in its demand letters.

It’s certainly creative, and I applaud the AG for trying to do something about MPHJ. Unfortunately, as I wrote the other day, it’s a stretch to apply state law to patent trolls.

MPHJ is what Mark Lemley calls a “bottom-feeder troll”:

Second, a growing number of trolls are interested in quick, low-­value settlements for a variety of patents. These plaintiffs do not want to go to trial and are thus not particularly interested in the quality of their patents or whether they are infringed. Rather, they rely on the high cost of patent litigation — a median of $6 million for substantial cases that go to trial, by one recent estimate — to induce the parties they sue to settle for small amounts of money rather than pay millions to their lawyers. We call this group the “bottom‐feeder” trolls. While no individual patent suit in this model makes a lot of money, the model can be lucrative because patent holders can sue lots of defendants on the same patent, forcing multiple settlements, and because there are lots of patents to be had for very little money as long as quality is unimportant.

There are a number of litigation reforms being discussed in Congress, and those are important. But getting at bottom-feeders needs more than just litigation reform, because trolls like MPHJ don’t litigate. Their goal is to get a large number of payoffs using the threat of litigation as leverage.

Part of the problem is that small businesses feel helpless — legal advice is expensive, and patent lawyers (including yours truly) can’t promise anything except that litigation will cost a lot, meaning that there’s a substantial risk of going bankrupt. It takes a lot of guts to go all-in when your business is being threatened.

Bottom-feeders thrive on the isolation of one small business at a time. That suggests that bringing small businesses together to share information and resources should be part of any package aimed at dealing with patent trolls.

It’s also important for manufacturers to be part of this process. Xerox, Ricoh, and HP have petitioned the PTO to review some of MPHJ’s patents. But right now, a manufacturer doesn’t have the right to intervene to protect its customers. That needs to change as well.

Vermont is doing the best it can, but it will take federal action to have much of an effect.

Matt Levy

Previously, Matt was patent counsel at the Computer & Communications Industry Association

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