Watch out, patent trolls – the Attorney General of Vermont is coming to get you. Vermont recently became the first US state to enact an anti-“patent trolling” law.
Synopsis of the Law
The new law, H.299, or Bad Faith Assertions of Patent Infringement, is to be codified at 9 V.S.A. § 4195-4199. It is the first piece of state legislation in the United States that cracks down on patent trolling. One definition of patent trolling is “the practice of making deceptive claims of patent infringement in the hopes of collecting licensing or settlement money.” Simply put, patent trolling means alleging patent infringement against an individual or business for the purpose of extorting money, where a legitimate case is not likely to exist. The new law is an amendment to the state’s consumer protection law which is, arguably, a quiet way to introduce a patent law without seeming to encroach on federal jurisdiction. How does the new law work? It basically sets out a list of guidelines for judges to determine whether an assertion for a patent is legitimate or illegitimate. For example, to weed out bad faith assertions, a judge may consider whether the claimant is demanding too quick a response or too much money, or whether the potential litigant is making meritless assertions with little factual basis. Conversely, a judge may find that an assertion of patent infringement is legitimate if the claimant is the original inventor or if the individual has successfully enforced the patent in a different court. In lieu of providing hard and fast definitions, the new law essentially sets out a list of factors against which a court might assess the particulars of a case to see whether the allegation is being made in good faith.
Question of Authority – The Limits of Federalism
One of the more debated issues is whether Vermont has legal authority to regulate patent activity. On the one hand, Vermont is stepping right into federal jurisdiction. That is, due to federal pre-emption laws, states are not allowed to enact their own patent laws. As such, Vermont’s new law may be struck down in its nascent stage. Furthermore, the new law is arguably not entering uncharted territory either. Congress has already taken significant steps with cracking down on patent trolling at the federal level by introducing additional bills such as the SHIELD Act, the Patent Quality Improvement Act and the End Anonymous Patents Act. Simply put, if Vermont’s new law oversteps its boundaries and overlaps in purpose or effect, it may have a challenge ahead in terms of establishing its legitimacy. On the other hand, it could also be argued that the new state law fills a gap that has yet to be addressed in the existing federal legislation. Legal scholar Camilla Hrdy takes this route in suggesting that the US Patent Act does not directly address threats from “patent trolling” by Patent Assertion Entities (PAEs) and that the Federal Circuit has sanctioned “baseless” lawsuits in the past which indicates a potential need for a tighter net, perhaps at the state level. She argues that while federalism may benefit patent law to a certain extent, states must also be given enough autonomy to “use state law to grow local innovation ecosystems, like California has with Silicon Valley.” In short, the new VT law has created at least two distinct camps: one side seems to champion a traditional approach through federalism, whereas the other side proposes an alternative vision of federalism that is, arguably, closer to a bottom-up approach to anti-patent trolling law.
A Canadian Perspective
How might such a situation play out in Canada, which has its share of big-time patent trolls? Federals courts do not have inherent jurisdiction, whereas provincial superior courts do, which may potentially give the latter lee-way to overlap in subject matter jurisdiction with the federal courts. Generally though, in Canada, like in the US, patent law is under the jurisdiction of federal power and cases are decided at the federal court level which has statutory authority to hear intellectual property disputes. Adam Tracy from Canadian IP firm, MBM Intellectual Property Law, suggests that it is generally “difficult to predict” the effects of a state law in the IP sphere given the lack of precedent both in the US and in Canada. Tracy points out that a likely consequence will be that cease and desist letters will become more expensive to come by, going forward, in the state of Vermont. As such, potential litigants are likely to take more time at the front-end considering whether to enforce their rights. On the one hand, the law would likely disincentive frivolous and vexatious lawsuits; on the other hand, rights holders with bona fide claims will see the cost of litigation increase, contrary to Hrdy’s prediction, as previously discussed. What is certain is that industry players, academics and bloggers on both sides of the border will keep an eye on how the new Vermont law interacts with existing federal legislation as an indicator of the way in which similar legislation might play out in other provinces and states. In the meantime, happy hunting Vermont.
Ying Cheng is an IPilogue Editor and a JD Candidate at Osgoode Hall Law School.