A Quest to Slay the Trolls: Legislative Attempts to Send a Cease and Desist Message to Patent Trolls

Concerns about shake-down patent assertion have prompted response at federal and state levels, from all branches of government. Proposed legislative solutions have included bills that would penalize bad faith claims, impose fines on patent assertion entities (“PAEs”) that send letters with vague allegations of infringement, or make the awarding of attorney’s fees standard in PAE patent litigations. While no legislative proposal answers all the unique challenges patent trolls represent, these lawmaking efforts have highlighted the issue and are prompting other stakeholders to meaningfully assess the holes in the current patent system.

Congress has considered several proposed solutions, including:

• Transparency in Assertion of Patents Act, S. 2049, (which requires that demand letters include detailed descriptions of the patents at issue and claims of infringement and exposes those companies sending the letters to regulation by the Federal Trade Commission (“FTC”));
• Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013, H.R. 6245, (which defines a troll as a non-inventor patent owner who does not exploit the patent by making a product, and forces the troll who loses an infringement case to foot its opponents’ costs of suit);
• Innovation Act, H.R. 3309, (which, among other changes, heightens pleading standards, provides limitations on discovery, permits stays of suits against end-users in favor of litigation by the manufacturer of the technology, and calls for regulation of patent licensing demand letters by the FTC).
• Patent Transparency and Improvements Act of 2013, S. 1720, (which, among other changes, permits courts to clear up patent ownership obfuscation, permits stays of suit against customers where manufacturers have also been sued, subjects unfair or deceptive demand letters to regulation by the FTC, and expands some provisions of the America Invents Act related to claim construction);
• Patent Litigation and Innovation Act of 2013, H.R. 2639, (which heightens specificity of pleading requirements for patent infringement actions, as well as requiring clarity of real party in interest, requiring the courts to make findings about attorneys’ conduct, and authorizing the court to impose sanctions for bad behavior);
• Patent Abuse Reduction Act of 2013, S. 1013, (which focuses on transparency of the entity asserting the patent, provides for more ready shifting of attorneys’ fees even to “interested parties” in the event the losing party cannot pay, requires greater specificity in pleading links between asserted claims and accused instrumentalities, and delays discovery until after delivery of the claim construction order); and
• Patent Litigation Integrity Act of 2013, S. 1612, (which requires award of fees and costs to prevailing party in patent action, unless position and conduct of the non-prevailing party were substantially justified or that special circumstances make an award unjust).

At least one state has also chosen to enact legislation against patent trolls. In May 2013, Vermont passed “Bad Faith Assertions of Patent Infringements” (H.299, to be codified at 9 V.S.A. §§ 4195-4199) to strengthen consumer protection laws by permitting companies to sue patent owners that send demand letters in bad faith. Other states’ legislatures, such as Virginia, Kentucky, Oregon and Maine, have passed or are currently considering similar bills directed to protecting these states’ businesses from PAE litigation.

Patent owners in a coalition named Innovation Alliance have already sent a letter to the Senate Committee on Commerce, Science and Transportation decrying potential fallout from too hasty efforts, fearing that the over-eagerness to eradicate trolls may result in fewer rights for all patent owners. The Innovation Alliance is especially concerned that the Transparency in Assertion of Patents Act “significantly expands the powers of the FTC to police the licensing and enforcement-related communications of all patent holders – the vast majority of which are engaging in perfectly reasonable and appropriate economic activity – and to threaten patent owners with litigation at the hands of federal and state regulators if one fails to follow the FTC’s specific guidelines.”

As patent practitioners will appreciate, the best option will protect valuable patent owners’ rights while curbing abuse. However, given the breadth of options, one cannot expect fast resolution through a quickly enacted law. Gibbons will continue to monitor developments in this area, and in particular, whether another branch of government may find that mythical balance of interests.