The excesses of patent troll litigation in the past few years have galvanized the business community on the need for reform in this area. What started out as a manageable nuisance several years ago (about 19% of patent infringement actions in 2006 were brought by patent assertion entities (PAE’s), or so-called patent trolls) has become a serious threat to industry and to the integrity of the patent system. An astonishing 62 percent of patent litigation actions brought in 2012 (2921 of the total 4,701 patent suits filed) were attributable to patent trolls, with a price tag for legal fees and license fee settlements estimated between $11 and $39 billion in 2012.
The America Invents Act (AIA), which took effect in September of last year, had two provisions expected to provide defendants some relief against trolls. The new post-grant review (PGR) proceedings will allow for speedier and relatively inexpensive challenges to the validity of asserted patents, and Section 299 limits the ability of a plaintiff in a patent infringement action to join multiple parties as defendants. Beyond the AIA, there are bills before both houses of Congress that would either erect barriers to patent troll suits, or introduce economic disincentives into the litigation process. The house currently has before it the Shield Act of 2013 (HR845) and the End Anonymous Patent Act (HR2024), while the Senate is debating the Patent Quality Improvement Act (S.866) and the Patent Abuse Reduction Act (S.1013). GovTrack.us doesn’t give any of these bills more than a 2% chance of passage.
It is therefore encouraging to see that one state, at least, has taken some legislative initiative in this area. In May of this year, Gov. Peter Shumlin, Democrat of Vermont, signed into law legislation that amends the state’s consumer protection laws to protect Vermont businesses and residents from bad faith patent litigation. Vermont Bill H.299 empowers the state’s Attorney General, Vermont businesses, and private citizens to bring legal action against patent holders who bring bad-faith patent infringement claims against its businesses or citizens.
The Vermont bill recognizes, first, the important role of innovation and patents in the state’s efforts to build an entrepreneurial and knowledge based economy. “Attracting and nurturing small and medium sized internet technology (“IT”) and other knowledge based companies is an important part of this effort and will be beneficial to Vermont’s future.” The bill also acknowledges its limitations in passing any law that might be seen as preempting federal patent law.
With that background, and in view of the complexity and expense of patent litigation, the new law allows targeted companies to seek recovery of their legal fees, damages and other remedies in state court if they can show that the patent owner’s demand was made in bad faith. In making this determination, the law provides a lengthy list of factors for the court to consider; not surprisingly, many of the factors take direct aim at the patent troll model-- the relationship of the demand entity to the inventor, the terms of the demand letter, the business practices of the demand entity, how often and against whom the patent has already been asserted, and with what results. Aggrieved target companies will not have to bear the entire burden of exposing bad faith patent litigants; the law also allows the Vermont Attorney General to bring suit against alleged patent trolls.
Vermont’s new law will almost certainly be challenged as preempting federal patent law, raising the question of whether a defendant in a patent lawsuit can assert a counterclaim under state law if the patent owner asserts a claim in bad faith. However that question is eventually decided, the Vermont law may give reformers in Congress a blueprint on how bad-faith patent litigation can be attacked through federal legislation.