A New Toll on Trolls?

Tangible IP, LLC
It can’t be fun being labeled a patent troll these days. Due to intense lobbying on the part of factions of the high tech sector, reform and regulation of the patent system continues on the federal and state levels of government to make life more difficult for Non Practicing Entities (NPEs). On the federal level, Congress, the White House and Supreme Court are all involved in contributing their part in the patent system “reform”. Various state governments are proactively taking on the patent system under state consumer protection laws, even though their efforts may face preemption from the federal legislative and judicial branches.
The US House fast tracked a comprehensive bill dubbed the “Innovation Act” just before the Christmas recess last year. The Act would move the US patent system towards a loser-pays regime, to the possible detriment of small and independent patent holders. In contrast, the Senate is now considering another bill, the Transparency in Assertion of Patents Act, S. 2049 that directly targets demand letters; delegating extensive enforcement authority to the Federal Trade Commission and state attorneys general to regulate them. The Senate bill has gathered criticisms from industry organizations like the Innovation Alliance, a group that includes among its supporters small as well as large patent holders with a stake in initiating licensing negotiations through demand letters Sponsors of the bill claim it targets abusive patent trolling in the pre-litigation stage, yet the Innovation Alliance and its members argue its "one-size fits all" approach is too broad and may harm the licensing market as an unintended consequence. Without a regulatory environment conducive to licensing negations, the only recourse for patent holders is litigation.
Not content to be left behind, the White House announced a new series of Executive Actions on the patent system that contains several anti-troll related measures. However, industry observer Gene Quinn from IPWatchdog notes that the Executive Actions are "much ado about nothing." Additionally, in a bizarre twist, even the USPTO – whose mission is to grant patents and support their very existence- has published a series of FAQs on its official website to help “victims” targeted by NPEs fight back. The FAQ only answers questions from the point of view of possible patent infringers, rather than that of patent holders whose patents are infringed; a glaring detail noted by patent industry observers.
On the judiciary side, the US Supreme Court is currently hearing oral arguments in Octane Fitness v. Icon Health & Fitness and in Highmark v. Allcare Health Mgmt. These cases address “fee shifting” for exceptional cases and the level of deference afforded to district court decisions on appeal under 35 U.S. Code § 285. Fee shifting is one of the few topics on which there is general consensus for patent litigation reform, although the optimal standards to adopt may differ between parties. Thus, it is somewhat surprising that while the Supreme Court hears two fee shifting cases, that the US and state Congresses are crafting fee shifting legislations without letting the Court proceedings take their course. So we could end up with some confusing mess if they reach opposite conclusions.
When it rains, it pours; individual States are also jumping on the troll bandwagon. On February 24, 2014, the attorneys general (AGs) of 42 states and territories sent a letter to the US Senate committee leadership addressing a carve out for states to enforce laws against bad faith demand letters and preemption issues for state anti-patent troll laws. These issues are, uncoincidentally, similar to provisions in the Senate’s Transparency in Assertion of Patents Act that would delegate patent regulation to the states. The AGs sent their letter in the same week that Senators Rockefeller and McCaskill introduced the Senate Act.  Inexplicably, the AGs did not seek to clarify preemption and delegation of authority between the state and federal level until now. The AG letter came one day before the Oregon state congress passed an anti-patent troll law, three days after a legislation proposal cleared the Kentucky state senate and nine months after the Vermont governor signed a measure into state law. There exists several concerns about state anti-patent troll laws that may affect patent holders and this may give one more reason for patent holders who need to assert their patents to continue their love affair with the Eastern District of Texas where owning patents is still very much like owning guns, i.e. a protected right.
The laws adopted in Oregon and Vermont, and the state senate bill passed in Kentucky, target meritless or deceptive patent demand letters done in "bad faith." Factors considered in determining bad faith, and good faith, are almost identical in the two state laws and one proposal. Some patent holders must be aware that their status and activities as non-practicing entities may preclude them from fulfilling factors that would signify their demand letters as sent in good faith because they have no made "substantial investment" in the commercialization of their patents and are neither the inventor, original assignee, an institution of higher education nor a technology transfer organization affiliated with such an institution. In other words, this is a first legislative attempt to distinguish between “good” (e.g. universities) and “bad” trolls (e.g. NPEs).
Courts can collect bonds of up to $250,000s. Patent targets may pursue patent holders for equitable relief, damages; costs and attorney's fees; or alternatively, the greater of exemplary damages totaling $50,000 or three times the total of damages, costs and fees. The reasonable likelihood standard is lower than standards the Supreme Court is considering for awarding attorneys fees under § 285. By adopting the standard of reasonable likelihood, states like Vermont and Kentucky may be able to regulate and impose costs on the patent system in situations where federal law may not.
Patent holders, not just NPEs, face a frontal attack that is possible only because the anti-troll lobby in the US is extremely powerful and well-funded. Parties who stand to lose most from any current legislation, beside a few bad actors, are small inventors who will be stripped of their main conduit to receive fair compensation for their innovative contribution to the public good. That same lobby is now exporting its narrative to Europe, the next battleground, as demonstrated in a letter to the EU by Apple and other US entities seeking to reduce the ability of NPEs to win injunctions in patent lawsuits. We can only hope that Europeans legislators will exercise more restrain before passing laws that, albeit well intentioned, tend to overreach and attack the very engine of innovation they are meant to protect.
Louis Carbonneau, Founder & CEO
Louis Carbonneau
Founder & CEO

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