Vermont Heightens Enforcement Efforts Against Patent Assertion Entities

by Perkins Coie

With two deft strokes, Vermont simultaneously increased the tools in its enforcement toolbox and dealt a significant blow to a well-known patent assertion entity (PAE).  First, Vermont filed suit against MPHJ Technology Investments, LLC, a PAE, alleging that the company violated the Vermont Consumer Protection Act, 9 V.S.A. §§ 2451 et seq. Specifically, the complaint alleges that MPHJ committed unfair and deceptive business practices when it sent letters to small Vermont business owners threatening to file patent suits unless the businesses paid licensing fees.  Second, Vermont amended its Consumer Protection Act to include a specific cause of action to combat the practice of alleging patent infringement in bad faith. 

Vermont's Lawsuit Against MPHJ Technology Investments, LLC.

The Vermont attorney general's suit against MPHJ Technology Investments, LLC (MPHJ) alleges that through the operation and control of 40 wholly owned Vermont shell subsidiary companies, MPHJ sent predatory patent infringement letters to small businesses in Vermont.  The targeted businesses included nonprofits offering services to persons with developmental and physical disabilities and other companies that were likely unrelated to patent law.  The letters alleged that the small businesses had potentially infringed MPHJ's patents and demanded that the businesses either purchase a license or confirm noninfringement.  The complaint further alleges that:

  1. no court has determined the validity of the patents at issue in MPHJ's letters;
  2. although the earliest patent referenced in the letters was filed in 1998 and issued in 2001, MPHJ made no attempt to enforce the patent until 2012;
  3. the letters implied that many businesses participated in MPHJ's "licensing program," when in fact, few of the businesses that received letters had purchased licenses;
  4. the letters required a business claiming noninfringement to complete a questionnaire and produce burdensome and voluminous evidence; 
  5. if a business did not respond to the initial MPHJ correspondence, MPHJ's law firm sent follow-up correspondence, sometimes attaching a draft complaint;
  6. in light of the attached complaints, the letters implied that litigation was imminent, though MPHJ has never actually filed suit for patent infringement in Vermont or any other state; 
  7. the letters claimed broader ownership of patent licenses than MPHJ actually owned; and
  8. the letters implied that legal counsel for MPHJ had investigated the matters thoroughly and determined a colorable claim existed when there is no evidence that counsel conducted any investigation whatsoever.

The case is proceeding before the Superior Court of Vermont, Washington Unit, Docket No. 282-5-13 Wncv. 

Amendments to Vermont's Consumer Protection Act

Recognizing that the bad faith assertion of patent infringement results in wasteful diversion of resources, and in order to "facilitate the efficient and prompt resolution of patent infringement claims, protect Vermont businesses from abusive and bad faith assertions of patent infringement, and build Vermont's economy," the State of Vermont amended its Consumer Protection Act to prohibit bad faith assertions of patent infringement. 

The amendments empower Vermont courts to consider the following factors as evidence of a bad faith assertion of patent infringement:

  1. failing to include the patent number, the name and address of the patent owner(s) or assignee(s), or factual allegations regarding the specific technology or service that infringes the patent;
  2. failing to actually conduct an infringement analysis before sending a demand letter; 
  3. failing to provide information regarding the allegedly infringed patent to the demand letter recipient upon request; 
  4. demanding payment of a license fee or a response within an unreasonably short period of time; 
  5. requesting a license fee amount that does not reflect a reasonable valuation of the license;
  6. asserting a meritless claim for patent infringement when the person asserting infringement knew or should have known it was meritless;
  7. claiming patent infringement when the claim is deceptive; and
  8. claiming patent infringement even though the person alleging patent infringement has previously filed lawsuits based on the same or a similar claim of patent infringement when (a) those lawsuits lacked specific information regarding the patent, or (b) a court determined the claim was meritless.

Notably, the Vermont attorney general relied upon many of the same factors in making out the claims of unfair and deceptive trade practices in the MPHJ complaint even though the statute was not yet in force.

Vermont May Be a Trendsetter

Although the amendments to Vermont's Consumer Protection Act appear to be the nation's first anti-patent trolling law, national efforts to curb such activity are increasing.  In fact, several related bills were introduced to Congress this year:  the End Anonymous Patents Act, the Patent Quality Improvement Act and the Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act.  Significant questions remain as to the viability of such claims in view of state and federal free speech-related privileges, which often protect litigation and litigation enforcement efforts.  Generally, such efforts may only form the basis of the claim if they are deemed a “sham.”  Nevertheless, if Vermont’s efforts are successful, other states and private litigants may follow Vermont’s lead in using consumer protection laws to combat the wrongful assertion of intellectual property rights.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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