Vermont’s Attorney General has sued a patent holding company—MPHJ Technology Investments, LLC—for violation of the state’s consumer fraud statutes. The Vermont complaint alleges “unfair and deceptive trade practices.” The substance of the complaint asserts that one or more in a series of threatening letters was false, deceptive or misleading. Specifically, it says the letters falsely claimed to have received a “positive response,” misrepresented the treatment that most recipients gave the letter, or that the defendant did not make an adequate investigation before sending its letters threatening suit.

The complaint raises a host of interesting issues, including jurisdiction, federalism and the First Amendment. These types of suits may be preempted by 28 U.S.C. § 1338, which gives federal courts exclusive jurisdiction over claims arising under the patent laws. They may be impliedly preempted too. Further, the Petition Clause may limit state’s abilities to restrict the kinds of federal claims threatened or brought by persons. This is a case to watch.

The White House has taken notice of patent holding companies too. Recently it released a report titled “Patent Assertion and U.S. Innovation.” The report, prepared by the President’s Council of Economic Advisers, the National Economic Council, and the Office of Science & Technology Policy discusses “Patent Assertion Entities” (PAEs). The report cites the recent uptick in litigation filed by PAEs:

Click here to view graph.

The White House’s report favorably cites the basis of Vermont’s lawsuit as an example of “abusive practices in litigation by patent assertion entities.” The report makes a few interesting points:

  • Not all PAEs are bad.
  • PAEs cause more harm than good in the net.
  • PAEs can harm large and small companies alike.
  • Claim uncertainty, especially in software patents, provides PAEs with an unfair bargaining power.
  • 19th Century patent litigation problems involving agricultural equipment and railroad equipment may provide a roadmap to address issues with today’s PAEs.

The report contains general recommendations to promote more straightforward, precise patents, to apply a higher burdens for novelty and non-obviousness, and to reduce patent litigation costs. The positions taken by the White House with respect to issues like Vermont’s are especially interesting because the likelihood that state-level action will be preempted may depend in large part on articulated federal goals and interests.