Patent Trolls in the Crosshairs: Vermont's Aggressive Stance and the Emerging Federal Response

Patent Trolls in the Crosshairs: Vermont's Aggressive Stance and the Emerging Federal Response


Vermont has begun a two-fronted battle against what it deems bad-faith patent-assertion entities (PAEs), which some commentators, including some in the Obama administration, have disparaged as "trolls."

On May 22, Vermont Governor Peter Shumlin signed into law H. 299, with the aim of ending "bad faith assertions of patent infringement" in the state by giving Vermont companies and the state attorney general the ability to sue for such litigation abuses.

Instead of defining the offending conduct, H. 299 lists factors meant to help judges spot bad faith, including sending a demand letter that lacks basic information about the infringement claim, demanding payment or a response within an unreasonably short period of time, failing to conduct an analysis of the target's business or products or to compare them to the patent claims, and continuing to assert a patent that a court has found to be invalid. The target of such a demand can sue the PAE and seek damages, costs and fees.

On the same day, Vermont's attorney general filed a civil complaint against MPHJ Technology Investments LLC under the Vermont Consumer Protection Act. The state's complaint accused MPHJ of unfair and deceptive commercial practices by sending a series of letters to many small businesses and non-profit organizations in Vermont that falsely stated that "many" businesses had taken licenses to the MPHJ patents, falsely stated that MPHJ would sue those businesses that did not pay for licenses, and made these threats without undertaking any investigation of the actual business practices of the target companies.

The MPHJ patents included claims directed to the use of a scanner to send an image of a document by e-mail to someone on a corporate network. The complaint alleges that MPHJ operated in Vermont through a web of 40 special-purpose entities, presumably as a means of shielding itself from liability that might arise in individual lawsuits.

The lawsuit is not asserted under the new Vermont legislation, but under the Vermont consumer protection statute, which prohibits "unfair and deceptive" trade practices, language that has found its way into the laws of most states and originated with the Federal Trade Commission Act in 1914.

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