Vermont vs. the patent troll: is state action a bridge too far?

• Author: DeSisto, Ryan

"Vermont quietly enacted a first-in-the-nation law to combat patent trolling.... It's not clear whether Vermont has the legal authority to regulate patent activities, but even if not, its efforts foreshadow a coming legislative crackdown on patent trolls." (1)

1. INTRODUCTION

   Inventor Brandon Shalton was in the process of testing his invention, which would digitize phone messages and post them instantly to his church's website, when he received a demand letter from Acacia Research Corporation. (2) The letter claimed that Shalton's invention infringed an Acacia patent and demanded a license payment under the threat of litigation. (3) Faced with the high cost and uncertainty of litigation, Mr. Shalton did what many small- and medium-sized inventors and businesses have chosen to do when faced with a broad and threatening patent-infringement demand letter: He abandoned his invention. (4) The 2011 passage of the Leahy-Smith America Invents Act (AIA) represented the most significant patent reform in over half a century and an earnest attempt by Congress to foster innovation and patent rights while discouraging frivolous patent-infringement claims. (5) Alas, only a few years removed from the passage of the AIA, there is already a growing consensus among industry insiders and those in Washington D.C. that more needs to be done to prevent bad-faith patent-infringement claims. (6) This Note will explore the growing trend of bad-faith patent-infringement assertions, commonly referred to as "patent trolling," in the context of proposed and enacted state and federal responses to the systematic threat patent trolls pose to the innovation economy. (7)

   In May 2013, Vermont became the first state to pass legislation targeting bad-faith Patent Assertion Entities (PAEs), also known as patent trolls. (8) Vermont's anti-patent trolling law, which is certain to face a federal preemption challenge on the basis that federal patent law trumps and negates any state patent law, uses careful language and nuance in an attempt to thread the needle of federal preemption. (9) This Note will discuss the likely outcome of any legal challenge to Vermont's authority to enact the anti-patent trolling statute. (10)

   While Vermont's law is the first state attempt to shield patent holders from extortion by PAEs, the federal government is also monitoring the effect of patent trolls and appears poised to act in the near future. (11) The Federal Trade Commission (FTC) and the Obama Administration appear--to veteran outside observers--amenable to wielding their considerable clout in an effort to tamp frivolous patent-infringement claims and demand letters. (12) Meanwhile, a unanimous Supreme Court recently issued a pair of rulings making it easier for victims of frivolous patent-infringement claims to receive attorney's fees from their opponents. (13) Additionally, in the last few months, at least three proposed bill drafts have been floated by members of Congress aimed at making it harder for PAEs to intimidate small- and medium-sized businesses with meritless patent-infringement assertions. (14) This Note will analyze the differences between all these bills and the bills' likely effects on PAEs. (15)

   First, this Note will discuss the history of patent law in the United States and familiarize the reader with the recent history of bad-faith patent assertions. (16) Next, it will examine current federal and state remedies against patent trolls and discuss several congressional bills being considered to deal with the issue. (17) Finally, it will discuss Vermont's anti-patent trolling statute with an acute focus on the question of federal preemption and an analysis of the possible outcomes of that law and a congressional response on the larger intellectual property market. (18) This Note will conclude by applauding Vermont's attempt to deter patent trolling and recommending the passage of current pending federal legislation. (19)

2. HISTORY

   1. The Origins and Development of U.S. Patent Law

      1. The Constitution and Thomas Jefferson (1787-1829)

         The United States Constitution gave Congress power over patents for the purpose of "promot[ing] the Progress of Science and useful Arts." (20) Shortly after the ratification of the Constitution, Congress enacted the Patent Act of 1790, which laid down the foundation for American patent law. (21) Then Secretary of State Thomas Jefferson was a crucial figure in the passage of the subsequent Patent Act of 1793, which carried over many central principles of the earlier Act and added some of the most recognized tenets of modern patent law, including the public-use infringement defense. (22)

         Jefferson's view on patents emphasized the public good over private interests. (23) Perhaps the most illuminating Jefferson quotation on the subject is contained in an 1813 letter he wrote to Isaac McPherson, stating that "the exclusive right to invention [is] given not of natural right, but for the benefit of society." (24) This utilitarian perspective was embedded in the earliest foundations of American patent law, as Jefferson was an architect of our system of intellectual property rights. (25)

         Although history suggests Jefferson was primarily concerned with the free dissemination of ideas and inventions for the benefit of society, he also recognized the important incentive provided by the limited monopolies of patents. (26) The balance between the right of inventors to profit from their ingenuity and the right of the public to also benefit was a major theme in Pennock v. Dialogue, the first major patent case to reach the Supreme Court. (27) In that 1829 decision, the Court acknowledged that one objective of the Patent Act of 1793 was to incentivize and reward inventors, but the Court also emphasized that the primary goal of the act was to serve the public good through the advancement and distribution of knowledge and inventions. (28)

      2. Creation of the Patent Office and Shifting Supreme Court Attitudes (1836-1952)

         The Patent Acts of 1836 and 1839 substantially reformed U.S. intellectual property law by creating a Patent Office tasked with ensuring that only those inventions that were sufficiently novel received patent protection. (29) In addition, the 1836 Act codified the Pennock doctrine by barring the patenting of any invention that had previously been "in public use or on sale." (30) The legislature largely abstained from making patent law for the next century, allowing the judiciary to mold the law through its decisions. (31)

         In the late-nineteenth and early-twentieth centuries, lower courts developed the "First-to-Invent" doctrine, making the United States the only nation to award patents based on time of invention and not time of filing. (32) While lower courts developed practical law to assist in the day-to-day operations of the courts, the Supreme Court released a series of decisions suggesting a need to rein in the American patent system. (33) An improved economy corresponded with a noticeable softening of the Court's attitude towards the novelty requirement for patents. (34) In a clear departure from previous rulings requiring elevated levels of novelty and invention, the Court upheld patents for inventions that were not significantly different from previous technology. (35)

      3. The Birth of Modern Patent Law and "Patent Trolls" (1980-2013)

         The patent system experienced increased publicity and scrutiny following a 1980 Supreme Court decision holding that genetically altered living microorganisms were patentable. (36) Two years after that decision, Congress created the Court of Appeals for the Federal Circuit and gave the newly formed court exclusive jurisdiction over cases involving U.S. patent law. (37) Today, the decisions of this court are profoundly important to the interpretation of American patent law and patent-related disputes in the International Trade Commission. (38)

         The most recent significant alteration to U.S. patent law came in the form of legislation--the 2011 AIA. (39) While the AIA left a good deal of American patent law intact, one major change written into the law was the abandonment of the historical and unique "First to Invent" system of awarding patents in favor of the more widely used "First to File" system. (40)

         While the AIA largely punted on the issue of patent trolls, it did include a section which called for the Comptroller General to conduct a study and produce a report on the impact of PAEs. (41) The report, released in August 2013, noted that in 2011 there were more software-related patents granted in the U.S. than all other types of patents combined. (42) The report concluded that, beginning in the late 1990s, technology companies began accumulating "patents for offensive or defensive purposes--that is, to use them to sue or countersue competitors in infringement lawsuits, rather than use them to recoup R&D costs." (43) Downplaying the role of PAEs in abusive litigation, the report focused instead on the failings of current software patents as a major factor in the trend of frivolous patent claims. (44)

   2. Patent Trolls Through the Years

      The term patent troll was introduced into the American lexicon by Peter Detkin, former counsel to Intel, in 2001. (45) Detkin's definition of a patent troll--"somebody who tries to make a lot of money off a patent that they are not practicing and have no intention of practicing"--is still applicable today. (46) The value of so-called patent trolls is a matter of substantial debate; proponents argue that PAEs encourage innovation and prevent small- to medium-sized entrepreneurs from being swallowed up by big businesses. (47) Patent troll critics contend that they contribute nothing to innovation and instead simply impose an unseen tax on inventions and businesses as a result of their overly litigious techniques. (48)

      1. Historical Patent Trolls

         Alleged abuses of the U.S. patent system trace back to the birth of patent law in Jefferson's time. (49)...