Georgia's New Patent Law
| Publication year | 2014 |
| Pages | 0010 |
By Jeffrey R. Kuester and Michael A. Cicero
On July 1, 2014, a new Georgia law took effect, particularly targeting how “nonpracticing entities” communicate patent infringement threats and placing a potent weapon in the hands of Georgia businesses on the receiving end of such threats. Georgia’s law represents one of the most recent actions by states to address concerns about such threats. Although primarily aimed at non-practicing entities, the law more broadly prohibits any “bad faith assertion of patent infringement,” identifying evidentiary factors and providing remedies for those targeted by such assertions, including treble damages and attorneys’ fees. Consequently, practitioners should give serious consideration to this new law when sending or receiving patent infringement threats.
A non-practicing entity (NPE) “is an entity that ‘enforces patent rights against accused infringers in an attempt to collect licensing fees, but does not manufacture products or supply services based upon the patents in question.’”[1] In the patent arena, the more “colloquial”[2] term for such an NPE is “patent troll,” which conjures images of the mythical brute lurking beneath a bridge, waiting to accost travelers and impede their progress across the bridge unless the traveler renders a fee unto the troll. Interesting commentaries and litigation stories surround this colorful metaphor, including an attorney’s claim that labeling his client as a “patent troll” constituted a hate crime under Ninth Circuit law;[3] a judge’s suggestion that “Gollum” may be a more accurate term for a patent claimant who “seeks to remain invisible while simultaneously proclaiming possession of a precious ‘Silver Bullet;’”[4] a court’s denial of a motion to strike the term “patent troll” from an amended complaint because the term “is not so extreme or salacious that it warrants an exercise of the Court’s discretion under [Rule 12(f)];”[5] and a court’s exclusion of any utterance of “patent troll” during an upcoming trial because it was a “derogatory characterization.”[6]
However one may characterize an NPE, they have become increasingly well known by not only legions of businesses confronted by their lawsuits but also by the judiciary. In an op-ed piece titled “Make Patent Trolls Pay in Court,” a federal appellate judge and his two prominent co-authors presented sobering problems resulting from NPEs’ litigation activities:
The onslaught of litigation brought by ‘patent trolls’—who typically buy up a slew of patents, then sue anyone and everyone who might be using the claimed inventions—has slowed the development of new products, increased costs for businesses and consumers, and clogged our judicial system. Their business plan is simple: trolls . . . make money by threatening companies with expensive lawsuits and then using that cudgel, rather than the merits of a case, to extract a financial settlement. In the apt summary of President Obama, who on Tuesday announced plans to stave off frivolous patent litigation, trolls just want to “hijack somebody else’s idea and see if they can extort some money.”
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In the meantime, vexatious patent litigation continues to grind through our already crowded courts, costing defendants and taxpayers tens of billions of dollars each year and delaying justice for those who legitimately need a fair hearing of their claims. Trolls, in fact, filed the majority of the roughly 4,700 patent suits in 2012—and many of these were against small companies and start-ups that often can’t afford to fight back.[7]
According to a study cited by PricewaterhouseCoopers, NPEs filed 67 percent of all U.S. patent cases in 2013, up from just 28 percent in 2009.[8] In its “2014 Patent Litigation Study,” PricewaterhouseCoopers observes:
These statistics, along with some notorious examples of aggressive NPE tactics, not only caught the attention of practicing entities, but also instigated multiple political responses. As widely reported in the media and discussed by numerous commentators, these responses include strong anti-NPE comments by President Obama, several executive actions aimed at tightening patent ownership disclosures and narrowing patent claims, a formal probe of NPE litigation activity initiated by the Federal Trade Commission (FTC) and a myriad of legislative proposals and state Attorneys General actions that generally seek to rein in NPE litigation.[9]
Distaste for NPEs, however, is not as one-sided as one might conclude. While their overall success rate lags behind that of practicing entities (25 percent to 35 percent, respectively), their jury trial success rate exceeds that of their practicing counterparts (79 percent to 76 percent).[10] Furthermore, a recent report by the U.S. Government Accounting Office remarks that “‘the focus on the identity of the litigant—rather than the type of patent—may be misplaced,’” as software-related patents “‘accounted for about 89 percent of the increase in defendants between 2007 and 2011, and most of the suits brought by [NPEs] involved software-related patents.’”[11]
Regardless of where one stands in the NPE debate (and this article does not purport to take sides or resolve it), there is no doubt that NPEs have made their presence felt here in Georgia. A guest column remarks: “Atlanta entrepreneurs have recently begun experiencing the scourge of patent trolls, just like their industry colleagues in Silicon Valley and New York.”[12] Tino Mantella, the president of the Technology Association of Georgia, likewise refers to “a growing number of cases in Georgia,” and exhorts the federal government to “take the lead against the patent troll epidemic for the sake of innovation and good of our nation’s entrepreneurs.”[13]
Vermont Leads the Charge; Other States Soon Follow
In a manner reminiscent of the first battle of the Revolutionary War, when Vermonter Ethan Allen led his Green Mountain Boys in a surprise dawn attack on Fort Ticonderoga in 1775,[14] Vermont fired the opening salvo against NPEs, inspiring an imposing array of other states, including Georgia, to join the fray.
Vermont’s Lead
In May 2013, Vermont launched its attack on two fronts: enacting “bad-faith assertion” legislation and taking unprecedented legal action against one of the most aggressive trolls:
The first shot in the battle over trolls was fired in Vermont, as the Green Mountain state, which actually has the highest per capita number of inventors, passed a law enabling courts to require a bad-faith patent plaintiff to post a bond to cover the cost and to permit a right of action for bad faith demand letters asserting patent infringement with punitive damages of up to $50,000. The day the law went into effect, the state’s attorney general filed the first lawsuit under the new law against MPHJ Technology Investments, a notorious patent troll that had sent hundreds of demand letters to small businesses seeking $1,000 per employee for their claimed patent on the process for scanning documents into an email.[15]
“Both developments were prompted by lobbying by an ad-hoc collection of Vermont businesses,” whose attorney explained: “Vermont has a history of political activism by companies.”[16]
Now codified in 9 V.S.A. §§ 4195 to 4199, Vermont’s law took effect on May 23, 2013. The opening section sets forth legislative findings and the purpose statements, including: “Not only do bad faith patent infringement claims impose a significant burden on individual Vermont businesses, they also undermine Vermont’s efforts to attract and nurture small- and medium-size IT and other knowledge-based companies.”[17] The act defines a “target” of a threat to include not only the actual business or person who received the threat, but also someone whose customers have received a demand letter containing a patent infringement accusation.[18] Another section prohibits bad-faith assertions of patent infringement and sets forth an open-ended list of factors a court may consider in determining whether a given assertion was made in bad faith, including whether a demand letter omitted specifics concerning the alleged infringement, namely, the patent number, the identity of the patent owner and allegations as to how the target’s products are covered by the patent’s claims.[19] Other examples of such factors include whether the sender sets an unreasonably short time for a response or payment of a license fee, or knows a claim of infringement to be meritless.[20] The statute then recites a similarly open-ended list of factors a court may consider in deciding that the infringement assertion was not in bad faith, such as a demand letter containing the specifics referred to above, the supplying of such information within a reasonable period of time following a request from...
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