Vermont Declares War On Patent Trolls; Passes New Law And Sues Notorious Patent Troll

from the wow dept

I've always liked the state of Vermont -- but mainly because it was a nice place to visit. But, now the state appears to be declaring war on patent trolls. A new anti-patent trolling law has been quietly enacted, H.299, which targets patent trolls. Or, as it says "bad faith assertions of patent infringement." It does this by amending the state's consumer protection laws, to give tools to judges to recognize when patent litigation is done in bad faith (i.e., for trolling, rather than legitimate reasons). Eric Goldman summarizes the law this way:
Vermont’s law (H.299, to be codified at 9 V.S.A. § 4195-4199) is entitled “Bad Faith Assertions of Patent Infringements.” However, it doesn’t define “bad faith patent assertion.” Instead, it enumerates factors to help judges distinguish legitimate from illegitimate patent assertions. Factors that suggest a bad faith patent assertion include not identifying the patent(s)-at-issue, the patent owner, and exactly how the recipient’s behavior violates the patent; demanding too quick a response or too much money; and making deceptive or meritless assertions. Factors that suggest a legitimate patent assertion include commercializing the patented invention; being either the original inventor (i.e., not having bought the patent for assertion purposes) or an educational institution; and having successfully enforced the patent in court.
The law would allow those threatened by trolls to sue back and seek damages, even if no lawsuit has been filed. In other words, it helps those who are being shaken down and don't want to settle. That's a nice feature, but there are some reasons to be skeptical. It also allows the state Attorney General to go after patent trolls. While the law may scare of some patent trolls, I think Eric Goldman is right that a state-based solution is neither a good idea for this, nor is it probably legal. Patent law is a federal law, and federal preemption likely means that state laws that impact patents aren't allowed. This tries to hide it as a consumer protection law, which is an interesting strategy, but I could easily see this law being tossed out.

Of course, even before the law was officially on the books, it looks like Vermont's Attorney General has already sued a patent troll under existing consumer protection laws (raising questions as to why the new law is necessary). In this case, the troll is one we've written about a few times. Remember the series of rotating shell companies that had claimed that businesses who had a networked scanner need to pay $1,000 per employee? Yeah, that one.

The Vermont Attorney General claims that many of the statements made in the threat letters sent out by the rotating set of shell companies include "deceptive statements" and "deceptive practices" that violate consumer protection laws:
Defendant engaged in unfair trade practices in commerce in violation of the Vermont Consumer Protection Act, 9 V.S.A. § 2453(a) including:
a. Stating that litigation would be brought against the recipients, when Defendant was neither prepared nor likely to bring litigation;
b. Using legal counsel to imply that Defendant had performed a sufficient pre-suit investigation, including investigation into the target business and their potentially infringing activities, that would be required to justify filing a lawsuit;
c. Targeting small businesses that were unlikely to have the resources to fight patent-litigation, or even to pay patent counsel;
d. Sending letters that threatened patent-infringement litigation with no independent evidence that the recipients were infringing its patents;
e. Shifting the entire burden of the pre-suit investigation onto the small businesses that received the letters;
f. Propounding burdensome information demands on any business that claimed not to infringe the patents; and
g. Using shell corporations in order to hide the true owners of the patents, avoid liability, and encourage quick settlements.
Defendants engaged in deceptive trade practices in commerce in violation of the Vermont Consumer Protection Act, 9 V.S.A. §2453(a), by making deceptive statements in the threatening letters which would likely lead consumers to believe the following:
a. Defendant would sue the target business if they did not respond within two weeks;
b. Defendant would sue the target business if they did not pay money;
c. Defendant had a reasonable basis for identifying the target businesses as infringing its patents;
d. Subsidiary Shell LLCs were exclusive licencees able to enforce the patents;
e. Target companies were within the sending Shell LLC's alleged area of exclusivity;
f. Defendant's licensing program had received a positive response from the business community;
g. Many or most businesses were interested in promptly purchasing a license from Defendant;
h. Based on prior licensing agreements, the fair price of a license was between $900 and $1200 per employee;
i. Target businesses were receiving a third letter, which refers to two prior letters, when in many cases recipients had received no prior letters.
The lawsuit also claims that lawyer Jay Mac Rust is really the person who owns the patents via the company MPHJ. As you may recall, last month we wrote about Mac Rust after Joe Mullin at Ars Technica interviewed him in connection with the case. At the time, Mac Rust claimed that he was just one lawyer working for the owner of the patent, but who handled the "irate" recipients. So it's interesting to see the claim that he's really the guy behind MPHJ. As we've noted, there's long been an assumption that the use of shell companies is often done to hide the fact that it's the patent lawyers themselves who own the patents being used.

The use of consumer protection law in response to patents is an interesting strategy. I'm skeptical as to how well it will actually work in court, but there's no denying that many of the claims made in threat letters are, in fact, untrue and could be deemed deceptive (this kind of thing might work against copyright trolls as well). No matter what, this is going to be a key case to follow.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    out_of_the_blue, May 23rd, 2013 @ 12:16pm

    See? Patent and copyright trolls only require gov't to protect.

    If our hired servants did their jobs to crack down on extortionists instead of sell out to corporate interests, there's really no need to reform either patents or copyright.

    The only legitimate purpose of gov't is to protect citizens against the multitudes of criminals -- whether those are foreign or domestic, other gov't offices, or privateers -- and that definitely includes the abuse of paper money by banksters.

    BUT because the merger of corporations and gov't is far along, any GOOD gov't does is now an anomaly.

     

    reply to this | link to this | view in thread ]

  2.  
    icon
    btr1701 (profile), May 23rd, 2013 @ 12:17pm

    Huh?

    I'll admit from the start that I don't know much about patents. I usually skip all the patent stories on this site because the technicalities of it all make my head hurt and I lose interest.

    But here I have to ask about this bit:

    > Factors that suggest a bad faith patent assertion
    > include not identifying the patent(s)-at-issue,
    > and exactly how the recipient's behavior violates
    > the patent

    How the hell can someone sue, claiming a violation of their patent without even identifying the patent at issue? Or how the defendant is violating it?

    How would such a suit even work? Does the plaintiff go into court and just say, "Defendant is violation a patent I own. Not gonna say how, or even which one. Just trust me, I own it, and they're violating it."

    While I don't know much about patents, I do know basic civil procedure, and that seems ripe for a summary judgement ruling in favor of the defense.

     

    reply to this | link to this | view in thread ]

  3.  
    identicon
    Anonymous Coward, May 23rd, 2013 @ 12:25pm

    Re: Huh?

    MS has been doing it to the Linux community for years.

    "trust us. linux is infringing. if you use linux, we _could_ sue you. best to just stick with non-infringing MS products."

    classic FUD attempt to get a payout before any trial begins.

    i'm sure if the suit ever did go to trial, the patents in question would need to be identified.. and quickly invalidated... which is why they won't say which patents are being infringed

     

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  4.  
    icon
    Mike Masnick (profile), May 23rd, 2013 @ 12:49pm

    Re: Huh?

    How the hell can someone sue, claiming a violation of their patent without even identifying the patent at issue? Or how the defendant is violating it?

    This is before suing. It's become increasingly common for trolls to send threat letters demanding settlement, but without revealing the patents in question.

    We wrote about one such case here: http://www.techdirt.com/articles/20111206/10340216991/famed-patent-troll-smacked-down-over-anonymous -threat-letter.shtml

     

    reply to this | link to this | view in thread ]

  5.  
    icon
    apauld (profile), May 23rd, 2013 @ 1:08pm

    Re: Re: Huh?

    I wonder if a way to combat patent trolling and copyright trolling would be to make the threat of a lawsuit be considered an act of extortion.

     

    reply to this | link to this | view in thread ]

  6.  
    identicon
    Anonymous Coward, May 23rd, 2013 @ 2:08pm

    Re: See? Patent and copyright trolls only require gov't to protect.

    Nope. Not accepting that thesis alone.

    As Mike mentioned, the solution is of dubious legality and the far worse problem is that this is adding laws to close loopholes in other laws, which makes for more papers to read through for normal citizens to not understand, lawyers to abuse and for judges to carve out to meaninglessness.

    You need to keep the number of laws to a minimum regardless of economic and social policies. This is just adding more law-material without universally addressing the problem it is meant to fix.

     

    reply to this | link to this | view in thread ]

  7.  
    identicon
    out_of_the_blue, May 23rd, 2013 @ 2:11pm

    {Imposter}

    ROFL! NICE! I hope more states follow suit!


    OH yeah almost forgot, Mike is the devil, and hmm what else.. Hmm, I hate all the haters, but that's only because I'm packing two inches of heat.

    Trololo

     

    reply to this | link to this | view in thread ]

  8.  
    icon
    Stephan Kinsella (profile), May 23rd, 2013 @ 8:56pm

    Preemption

    I suspect this law will be held to be unconstitutional as preempted by federal patent law. Just a guess.

     

    reply to this | link to this | view in thread ]

  9.  
    identicon
    staff, May 24th, 2013 @ 6:49am

    more dissembling by Masnick

    Nuts! These are dissemblings of large multinational invention thieves and their paid puppets.

    “patent troll”

    infringers and their paid puppets’ definition of ‘patent troll’:

    anyone who has the nerve to sue us for stealing their invention

    The patent system now teeters on the brink of lawlessness. Call it what you will...patent hoarder, patent troll, non-practicing entity, shell company, etc. It all means one thing: “we’re using your invention and we’re not going to stop or pay”. This is just dissembling by large invention thieves and their paid puppets to kill any inventor support system. It is purely about legalizing theft. The fact is, many of the large multinationals and their puppets who defame inventors in this way themselves make no products in the US or create any American jobs and it is their continued blatant theft which makes it impossible for the true creators to do so. To them the only patents that are legitimate are their own -if they have any.

    It’s about property rights. They should not only be for the rich and powerful. Our founders: Jefferson, Franklin, Madison and others felt so strongly about the rights of inventors that they included inventors rights to their creations and discoveries in the Constitution. They understood the trade off. Inventors are given a limited monopoly and in turn society gets the benefits of their inventions (telephone, computer, airplane, automobile, lighting, etc) into perpetuity and the jobs the commercialization of those inventions bring. For 200 years the patent system has not only fueled the US economy, but the world’s. If we weaken the patent system we force inventors underground like Stradivarius and in turn weaken our economy and job creation. Worse yet, we destroy the American dream -the ability to prosper from our ingenuity for the benefit of our children and communities. Who knows who the next Alexander Graham Bell will be. It could be your son or daughter. It could be you. To kill or weaken the patent system is to kill their futures. Show me a country with weak or ineffective property rights and I’ll show you a weak economy with high unemployment. If we cannot own the product of our minds or labors, what can we be said to truly own. Life and liberty are fundamentally tied to and in fact based on property rights. Our very lives are inseparably tied to our property. Large multinational corporations are on the brink of destroying the American dream -our ability to pull ourselves up by our bootstraps from the working classes by building our own companies while making better futures for our children and our communities.

    Prior to eBay v Mercexchange, small entities had a viable chance at commercializing their inventions. If the defendant was found guilty, an injunction was most always issued. Then the inventor small entity could enjoy the exclusive use of his invention in commercializing it. Unfortunately, injunctions are often no longer available to small entity inventors because of the Supreme Court decision so we have no fair chance to compete with much larger entities who are now free to use our inventions. Essentially, large infringers now have your gun and all the bullets. Worse yet, inability to commercialize means those same small entities will not be hiring new employees to roll out their products and services. And now those same parties who killed injunctions for small entities and thus blocked their chance at commercializing now complain that small entity inventors are not commercializing. They created the problem and now they want to blame small entities for it. What dissembling! If you don’t like this state of affairs (your unemployment is running out), tell your Congress member. Then maybe we can get some sense back into the patent system with injunctions fully enforceable on all infringers by all patentees, large and small.

    Those wishing to help fight big business giveaways should contact us as below and join the fight as we are building a network of inventors and other stakeholders to lobby Congress to restore property rights for all patent owners -large and small.

    For the truth about trolls, please see http://truereform.piausa.org/default.html#pt.
    http://www.hoover.org/publications/defining-ideas/art icle/142741
    http://ssrn.com/abstract=1792442

     

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  10.  
    icon
    apauld (profile), May 24th, 2013 @ 1:49pm

    Re: more dissembling by Masnick

    So, you support MPHJ shaking down small businesses instead of going after the manufacturers of scanners?

     

    reply to this | link to this | view in thread ]

  11.  
    icon
    btr1701 (profile), May 27th, 2013 @ 9:17am

    Re: Re: Huh?

    > This is before suing. It's become increasingly common for
    > trolls to send threat letters demanding settlement

    Well, that makes more sense. The wording of the article quoted above-- "it enumerates factors to help judges distinguish legitimate from illegitimate patent assertions"-- made it sound like they're talking about cases that have already gone to court.

     

    reply to this | link to this | view in thread ]

  12.  
    icon
    Ninja (profile), May 27th, 2013 @ 10:12am

    Re: more dissembling by Masnick

    It all means one thing: “we’re using your invention and we’re not going to stop or pay”. This is just dissembling by large invention thieves and their paid puppets to kill any inventor support system.

    It all means one thing: we have broad and stupid patents granted by an inefficient and dumbass patent office and use it to shake down businesses (which sizes depend on how bold and big we are) while producing absolutely nothing, not even rudimentary prototypes of what our patent seems to cover.

    FTFY

    As for the rest of your post it's not even worth commenting. Debunked ad nauseam.

     

    reply to this | link to this | view in thread ]

  13.  
    identicon
    joe, Jan 16th, 2014 @ 6:57am

    How?

    How is this lawyer finding out what businesses own one-touch scanners?

     

    reply to this | link to this | view in thread ]


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