Maschoff Brennan



Don’t Be Mistaken for a Troll: Compliance with State Patent Legislation

February 3, 2015

By Adam Beckstrom

George Washington was one of many early supporters of the patent system, recognizing it as essential to provide encouragement to inventors to produce new and useful inventions. Despite early support from many of the founding fathers, the patent system has also received a great deal of criticism throughout the history of this country.

Recent critics of the patent system have focused their attacks on what has become known as the “patent troll” problem. There is no universal definition for the term “patent troll,” but use of this label conjures images of an entity that asserts purchased patents, without any intent to practice the claimed inventions, in an effort to extract licensing fees from their targets by threat of litigation.

How to deal with the patent troll problem has become a hot topic in the United States and is currently being considered by all three branches of government. Since Congress passed the American Invents Act, fourteen separate bills have been introduced with provisions intended to counteract the tactics used by patent trolls. These bills include fee shifting provisions, heightened pleading requirements, and other provisions to increase the transparency of patent claims at the onset of a patent action. In 2014, the Supreme Court of the United States decided three cases which have already begun to change the patent litigation landscape.[1] And in his 2014 State of the Union address, President Obama called on Congress to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation.”

Adam-table-300x293Even though many attempts at change have been proposed, Congress has been slow to enact new laws. This slow pace has not been present among State Legislatures who, in the absence of Congressional action, seem intent on addressing the patent troll problem on their own. As of January 29, 2015, eighteen states had enacted laws that address bad faith assertions of patent infringement in demand letters, a problem commonly associated with patent trolls, while another fourteen states had introduced bills that addressed this issue.

Utah’s law, Utah Code §78B-6-1901, prohibits distribution of bad faith demand letters asserting patent infringement and allows recipients of such letters who are incorporated, or reside, in the state to file an action.

The question becomes, when sending a patent demand letter to an entity in Utah, how does one avoid being confused with a patent troll and found liable for sending a demand letter in bad faith?   Utah’s law allows a court to consider a multifactor list to determine whether a patent demand letter has been sent in bad faith, along with a complementary set of mitigating factors.  Although lack of any single item is not dispositive of bad faith, a prudent practitioner should include the following information in all patent demand letters:

      1. Patent numbers of the patents being asserted;
      2. Name and address of the current patent owner;
      3. Name and address of any entity having the right to enforce or license the patent;
      4. Name and address of all persons/entities holding a controlling interest in the owner/exclusive licensee of the asserted patents;
      5. Identification of at least one claim of each asserted patent;
      6. A description of one or more allegedly infringing products for each asserted claim including the make, model number, or other specific identifying indicia;
      7. Sufficient detail to allow the recipient to assess the merits of the claim; and
      8. Identification of each pending judicial or administrative proceeding challenging the validity of the asserted patents.

Additionally, a prudent practitioner should avoid any of the following practices:

      1. Asserting a patent or claim that has been previously held invalid or unenforceable;
      2. Falsely asserting that a complaint has been filed;
      3. Asserting infringement based on acts that occurred after the patent at issue expired;
      4. Asserting  a patent that the client does not own or have the right to enforce or license;
      5. Asserting that compensation demanded will increase if target retains counsel or does not pay within 60 days or less;
      6. Including false or misleading statements; and
      7. Demanding payment of a license fee, or a response, within an unreasonably short period of time.

Most states that have enacted legislation related to patent demand letters employ this multifactor, totality of the circumstance approach to determine whether a letter has been sent in bad faith.  A few states (Illinois, Oklahoma, Tennessee, and Wisconsin) require all the information listed in the statute to be included in a demand letter to avoid a finding of bad faith.  Although the list of factors a court is required to consider in determining bad faith varies slightly from state to state, each state statute provides a similar list of available remedies including equitable relief, actual damages, costs and fees (including reasonable attorneys’ fees) and punitive damages.  Some statutes even grant the attorney general power to bring criminal actions against those who send patent demand letters in bad faith.

Navigating these state patent statutes should be a fairly easy process for anyone considering sending a patent demand letter, especially considering the requirement under Rule 11 of the Federal Rules of Civil Procedure that an entity conduct a proper prefiling investigation before bringing an action in federal court.  Similarly, the prohibited practices seem to be common sense and would likely already be covered by the Rules of Professional Conduct.

View the full presentation: Don’t Be Mistaken for a Patent Troll – Compliance with State Patent Legislation