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Friday, February 21, 2014

Can State Laws Combat Patent Trolls?



As discussed in my last post, in the 2015 legislative session Texas may consider using state consumer protection law to combat patent trolls. Attorneys General of Vermont and Nebraska, for example, have separately taken action against patent trolls by suing under state consumer protection laws. More recently, Vermont enacted legislation that is specifically aimed to combat patent trolls. But do states have the power to regulate patents at all? And is that the best avenue for relief from patent trolls? Let’s look at some different perspectives:

Federal Patent Law & States

Due to federal law, states cannot enact their own patent laws. Federal courts have original jurisdiction over civil actions relating to patent and patent infringement (28 U.S.C.A. § 1338). The Vermont law states that a person “shall not make a bad faith assertion of patent infringement.” (Vt. Stat. Ann. tit. 9, § 4197 (West 2013).  If a patent asserter (i.e. patent troll) is accused of asserting its patents in bad faith, the judge may award equitable relief (including injunctions) and damages. Critics claim that making judgments about patents may make conflict impermissibly with federal patent law.  

Proponents of the state legislation instead say that the law does not attack the validity of the patent itself, but the determination of “bad faith” hinges on the behavior of the patent asserter. A few of the  factors used to determine bad faith under the Vermont law include: demand letters failing to specify the patent number; lack factual allegations about the specific way in which the entity is infringing on the patent; and demand for a license fee in an unreasonably short amount of time. (Vt. Stat. Ann. Tit. 9, §4197 (West 2013). Similarly, the statute also contains factors that can be evidence of no bad faith on the patent asserter, such as when the asserter is the inventor or an institution of higher education. By relying on these factors, and not the underlying patent itself, many believe this will save the law from preemption.   

 A Patchwork of State Laws 

Critics of state laws to combat patent troll activities have also suggested that a patchwork of different laws from all the states would lead to confusion and inefficiency, and a single federal law would be more appropriate. Some fear that this would make it significantly more expensive for intellectual property owners to enforce their rights. Finally, they suggest that determining which state’s law should apply will be unreasonably difficult, as these activities could very well cross state lines. 

Advocates of the state laws may agree, and see the additional costs as a deterrent to patent trolls.  Patent trolls may send thousands of demand letters all across the country, with the understanding that at least some of the recipients will settle immediately to avoid litigation. If these letters may now spur action from state attorneys general, who can effectively fight back with attacks of their own under state law, patent trolling may cease to be lucrative.

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