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Tuesday, February 18, 2014

Will Texas Take On Patent Trolls?

In preparation for the 83rd Texas legislative session, both House and Senate committees have been directed to study potential solutions to the growing problem of patent troll litigation. Patent trolls (also known as “patent assertion entities”) are companies that acquire broadly-written patents, often for routine activities like transmitting audio or video online. These entities have no intent to use the patents themselves; their sole source of income is settlements and legal fees related to its patents. The entities send out thousands of letters to potential infringers, demanding exorbitant fees for a license to engage in the patented activity, and threatening suit if the recipient fails to pay for a license. The alleged infringing businesses are forced, even if the allegations are baseless, to either pay the license fee or face costly and uncertain litigation. Much of this litigation takes place in the Eastern District of Texas courts, where plaintiffs are awarded damages or injunctions twice as often as elsewhere .

Congress is examining legislation that would fight frivolous lawsuits by making them liable for court costs, should they lose their cases. But as the number of patent infringement lawsuits continues to rise, some states are taking on the problem themselves. The attorney generals in both Vermont and New Hampshire have sued alleged patent trolls under state consumer protection laws. Vermont has additionally passed legislation aimed at protecting companies from bad faith infringement lawsuits. Just this week, the Oregon Senate passed a bill that would make patent trolling a violation of Oregon’s Unlawful Trade Practices Act and the Kentucky legislature is considering similar legislation.

In Texas, the interim charges to the House Committee on Technology relating to patent trolls instructs the committee to examine if “abuses in the patent system” interfere with state business and innovation and “whether actions by the state can address any such abuses.” In turn, the Senate State Affairs Committee is charged with making “recommendations on how the State of Texas can address problems related to frivolous legal actions and unsubstantiated patent claims.” There are arguments as to whether or not such legislation would be pre-empted by federal law, as states cannot enact their own patent laws. In part 2 of this discussion, we’ll consider the arguments for and against states using their consumer protection laws to combat patent trolls. But we’ll have to wait for the next legislative session, in 2015, to see what route Texas will take.

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