Trolls are bad. They are bad characters in folk tales. There are also bad internet and social media trolls. Patent trolls join this club. But, what exactly are patent trolls and why have they attracted the attention of the Electronic Frontier Foundation and NPR shows such as This American Life, as well All Tech Considered? That’s what I’m here to tell you about – as well as how to possibly stop/limit patent trolls.
What Are Patent Trolls?
Before we can get to patent trolls, we need to take a step back and start with patents. Patents provide a period of exclusive use for novel inventions. United States patents are only granted after the U.S. Patent and Trademark Office reviews the application and determines that the invention meets all of the patentability requirements. This review process is called prosecution.
The major purpose of patents is to promote innovation. Patent trolls can threaten this goal by taking advantage of the system. Broadly speaking, patent trolls are not all necessarily bad. A more neutral term you may not have heard of is non-practicing entities (NPEs). These are entities that own a patent(s) to an invention without making, using, or selling the invention (i.e. they don’t “practice” it). The “bad” patent trolls are people or entities that acquire patents with broad scope and often questionable validity. They then use the threat of patent infringement litigation (i.e. enforcement of patent rights) to force unsuspecting victims to pay for an unnecessary license.
Patent Troll Tactics
What’s the first step of patent troll tactics? They send a demand letter, alleging that the party is infringing (i.e. violating) one or more of their patents and demanding payment for a license to use the technology.
You may be thinking that this sounds like legitimate enforcement of patent rights. It is true that as a patent owner you have the ability to exclude all others. However, patent trolls tend to send these letters to hundreds, or even thousands, of parties and many (or even all) of whom are not actually violating the patent.
At this point, the party receiving the letter has three options: (1) pay the license (2) ignore the letter or (3) fight. If the recipients of the demand letters are confident they would win in court, why do they so often pay for the license? The answer is simple: patent litigation is extremely expensive, even if you have a winning case. Patent trolls know this, and strategically price their licenses well below the cost of litigation. By doing this, a high number of businesses choose to pay for the license even when they know there is no legitimate infringement claim.
How Bad Can Patent Trolls Be?
Very. Let’s consider an example. The seriousness of the patent troll problem can best be shown by describing the activities of one of the most notorious trolls: MPHJ Technology Investments. MPHJ is commonly referred to as the “scanner troll” since they own patents related to scan-to-email processes. If you have ever worked in an office, you have likely used a scanner that has the ability to send scanned documents directly to your email. MPHJ targeted businesses that used this very common technology.
So, why is MPHJ notorious? Let’s consider some facts. By 2014, MPHJ sent letters to 16,465 U.S. companies that used scan-to-email technologies, demanding $1,000 per employee. While many of the business targets were small, MPHJ also went after large businesses. MPHJ even followed through on a threat to sue Coca-Cola in 2014.
While MPHJ perhaps represents the most notorious of the patent trolls, it is by no means the only one. Patent trolls have been around since the Nineteenth Century (back then known as “patent sharks” and “patent peddlers”) and still remain a major problem. So, how can they be stopped?
State Laws to the Rescue?
While there has often been discussion of a federal anti-patent troll law, no such law has been passed.
Vermont started the trend in 2013 when it passed a law aiming to prevent bad faith assertions of patent infringement. In short, the law prohibits bad faith assertion of patent infringement and provides a series of factors that courts can consider as evidence that an assertion was made in bad faith. 35 states have since passed similar laws.
The Federal Preemption Problem
The biggest hurdle that stands in the way of these laws is something called federal preemption. Simply put, substantive patent law is exclusively a federal issue. Therefore, any state law that attempts to make any substantive impact on patent law will be considered preempted (i.e. blocked) by federal law, and thus invalidated.
Courts, like the Maine Supreme Court, have held that in order for a state claim under one of these statutes to avoid federal preemption, the assertion of patent infringement must have been both (1) objectively baseless and (2) made in subjective bad faith. Subjective bad faith is generally an explicit requirement for a cause of action under a state anti-patent troll statute. Therefore, the sticking point is going to be whether the claim was “objectively baseless.” But how is this defined? It is actually quite a high standard. A claim is only objectively baseless when no reasonable party could expect success on the merits.
Given the “objectively baseless” requirement, these statutes are only going to be effective against trolls who have asserted patents with no real basis at all. A cause of action against a troll who has any kind of arguable claim, however minimal, is likely going to be struck down as being preempted by federal law.Will these laws deter the trolls? Only time will tell. At the very least, these statutes are sending a signal that patent trolls are problematic.
Loyola University Chicago School of Law, JD 2021