A growing handful of states, including Michigan have either introduced or passed legislation aimed at combating the so called “patent trolls.” The perceived problem is the growth of, and tactics utilized by, what are known as “patent assertion entities” (PAEs) the less colorful or less pejorative name for patent trolls.
These entities often, if not typically, buy up rather broadly worded issued patents — very often in the IT/software related arena. Their intention is not to use the patented technology in the development of any product, but rather the intent is to sue or threaten to sue a broad array of big and small companies for infringement of what many may call patents of dubious relevance in the hopes that companies will pay to avoid the huge cost of litigation that can run in the millions of dollars. Leveraging that high cost of litigation against and settling with a large number of targets for relatively modest sums is the business model of the patent troll.
While this conduct has gotten the attention of Congress, with bills floating around from time to time aimed at curtailing what some see as abusive litigation or abusive tactics, nothing concrete has yet been passed. Because patent law and patent infringement is exclusively within the province of, and thus preempted by, federal law, it is Congress which must act to define the relative rights of the parties to patent litigation.
However, states are now, arguably without violating this preemption doctrine, enacting their own legislation aimed at cracking down on and hopefully curtailing patent trolling. Most of these state bills are titled something like “Bad Faith Assertions of Patent Infringement” (Vermont) or in Michigan – “Bad Faith Patent Infringement Claims Act.” Undoubtedly the Michigan law is intended to keep pace with other states and maintain or boost the state’s attractiveness to small- and medium-size entrepreneurial knowledge-based businesses.
According to the language of the bill, “abusive patent litigation, and especially the assertion of bad-faith infringement claims, can harm companies in this state.” This, and other similar state laws, allow for the patent troll target to go on the offensive in state court seeking a determination that that there is a “reasonable likelihood that a person has made a bad-faith assertion of patent infringement” requiring the person to post a bond relative to the cost of litigation and allows the target to seek other potential damages. To be sure, the state-enacted laws do not, and cannot, pass on the likelihood of the validity and or infringement of the asserted patents; that is exclusively within the jurisdiction of the federal courts. The laws do, however, make a determination that the patent asserter or PAE is acting in “bad faith.”
This bad faith is to be determined relative to a number of factors typically common to most of these newly enacted state statutes. Among these factors are whether or not the asserter adequately identified the specific patent(s) the target is accused to have infringed, the complete identity of the owner of the asserted patent(s), detailed factual allegations of the target’s products or technology or that the asserter adequately conducted an analysis comparing the patent’s asserted claims to the target’s accused products, and whether or not a reasonable amount of time was given to the target to respond to the assertions. As you can see, it is not the patents themselves or the accused conduct the state court passes on, but rather the nature of the tactics employed by the so-called patent troll that is at issue. The hope is that curbing the perceived abusive tactics may well result in many fewer meritless patent infringement assertions.
It remains to be seen if Michigan’s victims of alleged abusive patent assertion tactics will avail themselves of this new law or whether there will be a commensurate decline in the number of patent infringement claims asserted by PAEs. It will be interesting to see how courts approach and resolve the ultimate bad faith issue. Furthermore, it is perhaps also no slam dunk that some or all of the various state statutory schemes do not run afoul of the federal preemption issue. Finally, there are a number of interested parties who simply believe the whole “patent troll” issue is overblown and that PAE’s provide a value to the world of innovation by creating a market for these unused patents. Of course, we must also wait and see what may ultimately come out of Congress on the issue.
The author, Professor Gerald T. Tschura, is the director of WMU-Cooley’s Intellectual Property LL.M. program. Before joining the WMU-Cooley faculty in 2002, he worked with a number of intellectual property firms, where he handled multiple areas, including patent and trademark litigation, general commercial litigation, complex multiparty insurance coverage litigation, occupational and toxic exposure claims, product liability and patent infringement matters, and more. On numerous occasions, Professor Tschura has appeared and argued cases before the U.S. Court of Appeals for the Federal Circuit and has extensive experience in preparation and prosecution of applications for patents and trademarks before the United States Patent and Trademark Office.