Patent troll cases have been on a steady and concerning rise over the past decade. Indeed, as of 2012, they represented approximately two-thirds of all patent infringement lawsuits. Many patent trolls engage in the tactic of sending out numerous demand letters to companies, without prior due diligence or a legitimate basis for claiming infringement. These patent trolls do not invent or manufacture anything. Yet, this common patent troll business model works because defending patent lawsuits can be incredibly expensive.
It is therefore not surprising that the targets of these claims often choose to spend a few thousand dollars, or even a few hundred thousand dollars, to settle the “dispute” as opposed to engaging in a costly and lengthy legal battle. In response to concerns voiced by numerous organizations and businesses that have been impacted by these patent troll tactics, the U.S. Supreme Court, various state legislatures and attorneys general, and even the Federal Trade Commission have each recently taken steps towards curbing this problem.
In its recent decision Nautilus, Inc. v. Biosig Instruments, Inc., the Supreme Court made it easier for defendants to attack patent claims deemed “indefinite.” The patent-atissue concerned a heart rate monitor for use during exercise, and the plaintiff alleged that the defendant used the patented technology in its exercise machines. The patent claim comprised, among other elements, a live electrode and a common electrode mounted in “spaced relationship” with each other. The Nautilus Court held that a patent is invalid for indefiniteness if its claims – read in the light of the patent’s specification and prosecution history – fail to inform those skilled in the art about the scope of the invention. The Court continued that the Patent Act requires precision, and therefore, a patent claim deemed to be simply “amenable to construction” or “insolubly ambiguous”, for example, would not satisfy the statute’s indefiniteness requirement. In this case, the defendant argued that “spaced relationship” was open to multiple interpretations reflecting markedly different understandings of the patent’s scope and that the claim was therefore indefinite.
The Supreme Court remanded for further proceedings consistent with its opinion. The Nautilus decision will be helpful in addressing patent troll claims as it allows for cases asserting vague patent claims to be thrown out earlier in the litigation process.
Further bolstering a company’s challenge to a patent troll’s claim is the Supreme Court’s June 18, 2014 ruling in Alice Corp. Pty. Ltd. v. CLS Bank Int’l., which once again confirmed that abstract ideas are not eligible for a patent simply because they are implemented using a computer. The patent-at-issue contained claims concerning computerized methods for reducing risk in future events, such as financial transactions. Since business method software patents are the most frequent type of patent that patent trolls use in strike lawsuits or threatening letters, especially when it comes to websites and mobile applications, this decision could be a big blow to patent trolls.
Over twenty states have either enacted or are currently reviewing legislation that creates a cause of action against any person who makes a bad faith assertion of patent infringement.
Considering that issues of patent law are exclusively in the jurisdiction of federal courts, the exact role of state legislatures and attorneys general in these situations is currently unclear. Even so, Vermont v. MPHJ Technology, Inc. represented the first effort by an attorney general to use state consumer protection law to stop a patent troll. The defendant, MPHJ, had sent demand letters to numerous Vermont businesses claiming to have a patent for scanning a document that is then attached to and sent via email. Vermont’s claim against MPHJ alleged that the letters contained false and misleading statements and that the threats of imminent litigation were untrue. Although the case was filed in state court, MPHJ removed it to federal court under the theory that issues of patent law are a federal question. However, in April the federal court remanded the case back to state court, and MPHJ is currently appealing that decision. This case, along with pending state legislation, represents a welcome sign that state politicians and agencies are no longer willing to stay silent as patent trolls use the threat of litigation to obtain license fees where there is no legitimate claim of infringement.
FEDERAL TRADE COMMISSION
The FTC has also launched a study looking into patent trolls, based on authority to investigate industries or conduct under § 6(b) of the FTC Act. Although such reports do not need to have an enforcement agenda, FTC Chairwoman Edith Ramirez has expressed a clear willingness to bring cases against patent trolls before the study is completed. The FTC intends to monitor the marketplace in this area and look at any activity that involves deceptive acts or unfair methods of competition.
Although it was unclear who was on the FTC’s radar since the investigation was not public, MPHJ brought a “preemptive” lawsuit in response to the FTC’s investigation of that troll. This lawsuit brought to light the fact that the FTC is in fact taking action and targeting some of the most egregious patent trolls.
Despite the recent progress, patent reform took a major hit when the Patent Transparency and Improvement Act was removed from the Senate agenda, killing the bill for the foreseeable future. Prospects for reform had seemed strong, including a well-received committee hearing and vocal bi-partisan support, but lawmakers were ultimately unable to come to an agreement. Among other things, the bill would have allowed for fee-shifting, which means that if a patent troll lost a case, it would have been responsible for the defendant’s legal fees.
Despite this setback, fee-shifting was recently granted against a patent troll in Lumen View Technology, LLC v. Findthebest.com, Inc. In Lumen View, Judge Denise Cote became the first judge to follow the Supreme Court’s decision in Octane Fitness, which allows for fee-shifting in “exceptional” cases. Cote determined the Lumen View lawsuit was indeed an exceptional case – Lumen did not do any reasonable pre-suit investigation and filed a number of near-identical boilerplate complaints over a very short time period. Judge Cote noted that it was clear Lumen was engaged in “a predatory strategy aimed at reaping financial advantage from the inability or unwillingness of defendants to engage in litigation against even frivolous patent lawsuits.” By the time Cote had invalidated Lumen’s patent, FindTheBest had spent $200,000 in legal fees.
The Lumen View case may signal the beginning of a trend, as the Court of Appeals for the Federal Circuit also recently ordered a trial court to reconsider the denial of defendant’s request for attorneys’ fees in light of the Octane Fitness decision. While Octane Fitness only allows for feeshifting in “exceptional” cases, as with much of the recent activity surrounding patent trolls, it is certainly a step in the right direction.
THE BOTTOM LINE
The Supreme Court’s Nautilus and Octane Fitness decisions represent major victories in the fight against patent trolls as they allow defendants to more easily attack “indefinite” claims, have cases thrown out earlier in the litigation process, and to shift legal fees when the lawsuit is “exceptional.” In addition, state legislatures and attorneys general, along with the FTC, have thrown their hats in the patent troll “boxing ring,” sending a clear message that they disfavor the tactics that patent trolls have historically employed.
The long-term effect of all this activity by politicians and government agencies is not yet clear, but it represents an encouraging move towards further restricting the advance of patent trolls. These recent events are particularly welcome considering the Patent Transparency and Improvement Act, which would have heralded major patent reform targeted at patent trolls, was recently removed from the Senate agenda.