Vermont enacts 1st U.S. law against patent trolling

Vermont Gov. Peter Shumlin signed into law Wednesday a novel measure aimed at protecting companies from so-called patent trolling, the practice of making deceptive claims of patent infringement in the hopes of collecting licensing or settlement money.

The new law, believed to be the first in the nation, allows courts to consider if a claim is deceptive, specifies factors that can be considered as evidence, and provides for damages or relief to Vermont companies wrongly pressured into paying licensing fees or a settlement. The Vermont attorney general also can conduct civil investigations and bring civil action against violators.

"This bill will help to protect our good Vermont businesses from unscrupulous patent trolls who take advantage of them through bad faith claims of patent infringement. It will help us grow jobs," the governor said.

'This is such a novel approach' —Law professor Eric Goldman

New York lawyer Jeffrey Lewis, president of the American Intellectual Property Law Association, said the association has been watching the legislation move through the Vermont Legislature in recent weeks and knows of no other law like it in the country.

"It's, as far as we can tell, a novel approach for states to try to do, this sort of bootstrapping, if you will, of the unfair competition laws to try to address patent assertions," he said.

Intellectual-property law professor Eric Goldman of Santa Clara University in California said that while the law is novel, it's not clear Vermont has the authority to regulate patent activity.

"At the state level, we're not sure if states can even have a voice in the matter, so there's a question about whether the law will even stand," he said. "But that's part of why this is such a novel approach."

Fines possible

Under the law, a court can consider as evidence of a bad faith claim a letter that does not provide the patent number, the name and address of the patent owner and/or assignee, or an explanation of how the target company's products or services infringed on the patent.

The court also can consider if the letter demands payment of a license fee or a response in an unreasonably short period of time.

Coinciding with the new law, the state filed a lawsuit Wednesday accusing a Delaware company of patent trolling. The attorney general's office sued Wilmington-based MPHJ Technology Investments and its 40 subsidiary companies operating in Vermont.

The office alleged that MPHJ claimed to have a patent on the process of scanning documents and attaching them to emails via a network and that MPHJ sent letters making deceptive statements to small businesses in Vermont, demanded money, and threatened litigation over licensing fees.

Bryan Farney of Austin, Texas, an attorney for MPHJ, said the company disputes the allegations and is doing its best to identify companies that used the technology. Farney said the company was aware of Attorney General Bill Sorrell's investigation and stopped its activities in Vermont during the review.

"We are disappointed that they chose to take that step," Farney said. "And we think that we are attempting as best we can to legitimately identify people who are using the client technology, which has been admitted and issued by the U.S. Patent office and try to figure a reasonable licensing fee from them."