As Feds Debate & Wait, Vermont Takes First Real Aim at "Trolls"

By Maggie Tamburro

While the White House, Federal Trade Commission, Congress, and a host of others continue seemingly endless debate about the perceived growing problem of abusive patent infringement lawsuits, one state has boldly taken matters into its own hands.

On May 22, 2013, the Governor of Vermont signed into law bill H. 299, taking aim at what some label abusive tactics committed by so-called patent trolls, by creating a brand new state cause of action: Bad Faith Assertions of Patent Infringement.

Vermont’s law is the first state patent legislation of its kind to arm those who claim to be unfairly targeted by so-called trolls with ammunition in fighting back.

Enacted as part of the Vermont Consumer Protection Act, the new law seeks to protect Vermont businesses from harm and expense associated with abusive patent litigation techniques. Essentially treating certain businesses as consumers, the law seeks to give Vermont companies a means to combat allegedly unfair and deceptive practices claimed to have taken place by those engaging in bad faith patent infringement assertions and associated actions.

A Brand New Method of Attack

Vermont’s law is unique. In addition to being the first state law of its kind, it tackles the issue of abusive patent litigation by primarily focusing on the patent assertion entity’s activity – instead of focusing on the players – perhaps a wise move for those who supported passage of the bill.

As history has shown, attempting to define “good” patent players from “bad’ ones is difficult at best, as the line between abusive patent assertion entities and legitimate non-practicing entities is not always clear. By honing in on the activity, Vermont’s law gives businesses a proactive way to focus on specific factors that can be used as evidence to show certain patent infringement assertion tactics are deceptive or made in bad faith, without need to categorize the players.

In this way, the focus of Vermont’s law differs significantly from other recently proposed federal legislation aimed at alleged abusive tactics – such as the SHIELD Act, which has now been re-introduced in Congress after once failing.

Vermont’s new patent law also contains a first-ever state regulatory component, in addition to creating a new cause of action for plaintiff businesses. It authorizes the Vermont Attorney General to conduct civil investigations and bring civil enforcement actions against those who allegedly assert patent infringement claims made in bad faith.

And forget imposition of a loser pays regime – as was seen in the federally proposed SHIELD Act – an aggrieved Vermont plaintiff who successfully brings an action can claim affirmative relief ranging from enjoining the offending assertion entity to the imposition of monetary damages, including “exemplary damages” which allows a judge to triple the total amount of damages, costs, and fees.

The Vermont Law – Factors of Bad Faith & Good Faith

Bad Faith

In focusing on specific activity rather than players, the law lists a number of factors that a court can consider as evidence of “bad faith” patent infringement assertion.

For example, does the demand letter contain the patent number, the name and address of the patent owner or assignee, or set forth specific areas in which the accused product, service or technology infringe the patent?

Did the sender engage in some level of claim analysis and/or due diligence prior to firing off the demand letter in an attempt to identify specific areas in the allegedly infringing product, service, or technology covered by claims in the patent?

Did the letter demand payment for a license within an unreasonable amount of time, or make a claim that is essentially meritless?

Have any of the defendant’s subsidiaries or affiliates of the defendant previously filed or threatened other lawsuits based on similar claims, and were claims previously found by a court to be without merit?

Good Faith

Conversely, the law also enumerates factors that can be used as evidence that a person or entity has not engaged in bad faith assertions of infringement.

For example, did the demand letter provide the patent number, reveal the identity of the patent owner and/or assignee, and provide sufficient factual allegations regarding specific areas of infringement?

If no, did the sender of the demand letter send the information, if requested by the business, within a reasonable amount of time?

Did the sender of the demand letter engage in “good faith” efforts to demonstrate infringement and negotiate a remedy?

Has the sender making the assertion of infringement “demonstrated good faith business practices in previous efforts to enforce the patent” or successfully enforced the patent in prior litigation?

The court may also consider, as evidence to defeat bad faith, whether the person asserting the infringement is an inventor, involved substantially in actual use of the patent, or is a technology transfer organization, but the focus of this bill is clearly not on the players at issue, as claiming such status does not seem to guarantee a finding either way.

The Making of a Case

Vermont didn’t stop with mere passage of the law, but immediately set about giving bite to its bark. On May 22 – the very day that the bill was signed into law – Vermont Attorney General William H. Sorrell filed the first suit under the new law against defendant MPHJ Technology Investments LLC, accusing the company of engaging in unfair and deceptive practices by, among other things, allegedly sending letters to certain Vermont businesses which threaten patent litigation unless the businesses agree to pay licensing fees.

The complaint makes numerous allegations, including among them that a number of Vermont businesses have received letters from one of forty shell companies, wholly owned by the defendant, alleging possible infringement of defendant’s patents, some of which were the subject of prior litigation and were voluntarily dismissed by the then patent holder without any determination of validity.

How Will the Law Play Out?

Vermont’s new law raises valid legal concerns regarding the application of state law to claims of patent infringement, a matter that typically falls under jurisdiction of the federal courts. Will the law successfully overcome claims of federal preemption, conflict, or perhaps even allegations of denial of due process that may follow?

Whether you like Vermont’s new law or don’t, the state perhaps grew weary of ongoing federal debate without action, political posturing, congressional and lobbying shenanigans, and proposed (and enacted) federal legislation that proved difficult to implement, understand, or failed to take root.

Do you think state legislation that favors examining the intent and specifics of the activity over defining the players is a good idea? Or will it create a plethora of new patent cases which now must be litigated at the state level and result in decisions which might interfere or conflict with federal infringement claims?

Only time will tell.

Regardless of whether you are in favor of such legislation, there’s no doubt that the new law and first-of-its-kind case filed against MPHJ Technology Investments, LLC will be under the microscope. And given that Vermont’s Attorney General has already filed its first suit, the answers might be a lot closer than we think.

Tell us what you think – is Vermont’s legislation good law or overreaching?

Maggie Tamburro

Maggie Tamburro

Maggie Tamburro is an attorney and writer who holds a Juris Doctor from The John Marshall Law School and a Bachelor of Arts from the University of Texas. She was admitted to the Illinois Bar in 1994 and Florida Bar in 1999 and has significant experience in legal research, editing, and writing. Maggie is active her in local community, holding various publicly appointed civic board positions.

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