A largely bipartisan movement to regulate patent trolls is unlikely to lose steam in the near future as the number of lawsuits filed by patent trolls, or entities that exist for the purpose of licensing patents in order to sue companies for alleged infringement of those patents, has increased nearly six-fold since 2004 to a peak of 4,600 in 2012. Known as non-practicing entities (NPEs), or patent assertion entities (PAEs), these organizations have been operating in the shadows over the past decade, gradually ramping up their activities to a point where lawmakers are starting to take notice. These entities typically operate by sending vaguely worded letters to companies demanding payment in the form of licensing fees with an unreasonably short payment deadline – sometimes two weeks or less. The cost of dealing with these legal threats can be costly for many companies, who would rather settle than take the matter to court, where potential legal fees far exceed the cost demanded by the trolls.
Under existing federal law, companies that are targeted by patent trolls may only recover litigation fees if a suit is deemed to be objectively baseless and filed in bad faith. Federal judges up to this point have been reluctant to do so, leaving companies and small businesses on the hook for their own legal expenses caused by these frivolous lawsuits. As such, a federal resolution is likely. The U.S Supreme Court took up the issue in February. Federal legislation, HR 3309, sponsored by Rep. Bob Goodlatte, R-Virginia, is scheduled for a March 12 hearing in the Senate Judiciary Committee. The bill previously passed the House in December with a vote of 325-21. The two Supreme Court cases, expected to be ruled on in early July, include Octane Fitness, LLC v. Icon Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Management Systems, Inc.
Despite action on the federal front, states have been proactive in addressing the issue. Vermont’s Democratic Attorney General Bill Sorrell recently came out swinging in a lawsuit against one of the biggest so-called patent trolls. Through a combined effort by Sorrel and state legislators, Vermont was able to pass the first patent troll law making bad-faith assertions of patent infringement illegal, thereby allowing the Attorney General to prosecute patent trolling offenders. Sorrel’s work has emboldened other states to end or curb the potential economic damage caused by patent trolling entities. Legislation is pending in Kentucky, Maine, Nebraska, New Jersey and South Carolina. Meanwhile Attorneys General have been active on the issue in Minnesota and New York, and Oregon Democratic Gov. John Kitzhaber signed a bill into law this month that prohibits bad faith claims of patent infringement.
Large tech companies are often the targets of patent troll lawsuits. Yet these big businesses aren’t the only entities with something to lose if patent troll activity isn’t curbed. Business of all sizes and from various sectors can be targeted and are potential players in the debate.