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New Vermont Law Targets Abusive Patent Litigation
Practical Law Legal Update 9-530-1625 (Approx. 3 pages)
New Vermont Law Targets Abusive Patent Litigation
by PLC Intellectual Property & Technology
| Published on 28 May 2013 • USA (National/Federal) |
Vermont enacted the first state-based legislation aimed at curbing abusive patent litigation by facilitating targeted companies' redress against bad faith infringement claims.
Vermont Governor Peter Shumlin signed H. 299 into law on May 22, 2013. Entitled "Bad Faith Assertions of Patent Infringement," the legislation aims to aid Vermont companies who are the targets of abusive patent litigation by enabling them to offensively seek a more prompt and efficient resolution of patent infringement claims. The legislature noted that bad faith patent infringement claims are problematic because they, among other reasons:
- Lead to financial burdens on the targeted Vermont businesses.
- Undermine efforts to attract small and medium sized knowledge-based companies to Vermont.
The law will take effect on July 1, 2013.
The legislation lists factors that a court may consider as evidence of a bad faith assertion of patent infringement. For example, a demand letter may evidence bad faith if:
- It does not contain:
- the patent number.
- the name and address of the patent owner and assignee.
- factual allegations concerning the specific areas where the target's products, services and technology infringe the patent or are covered by the claims in the patent.
- It demands payment within an unreasonable period of time or includes an unreasonable offer to license the patent.
- It is based on claims the person knew or should have known were meritless.
- The claim or assertion of infringement is deceptive.
The legislation also specifies factors that a court may consider as evidence of a good faith assertion, for example, that the demand letter included information regarding how the product, service or technology may have infringed the patent at issue, and sought an appropriate remedy. The court may also consider whether the person has made substantial investment in the use of the patent, or a covered product or service.
Under the new legislation, the target of a bad faith assertion can file a claim in Vermont Superior Court against the asserter seeking:
- Equitable relief.
- Actual damages.
- Costs and fees, including attorney's fees.
- Exemplary damages equal to $50,000 or three times the total of actual damages, costs and fees, whichever is greater.
The target may also file a motion to require that the asserter post a bond of up to $250,000 to cover the victim's attorney's fees if it prevails. The legislation further permits Vermont's Attorney General to make rules, conduct investigations and bring the same claims under the statute.
As the first legislation of its kind, the statute may provide Vermont companies with a shield to offensively challenge a bad faith accuser prior to engaging in protracted litigation and may also cause asserters targeting Vermont companies to take a more cautious approach. However, the law is likely to be challenged on a constitutional grounds concerning issues of:
- Preemption, to the extent that it conflicts with exclusive jurisdiction of the federal courts to develop patent law, for example by necessitating that state courts adjudicate patent validity and infringement, or conflicting with the Federal Circuit decisions allowing state-law tort liability only for allegations of infringement that are "objectively baseless."
- Federal due process, to the extent that its efforts to distinguish between good and bad faith claims prevents legitimate claims from being aired in court.
On the same day the legislation was enacted, the Vermont Attorney General brought an action against alleged bad faith asserter. The complaint alleges that MPHJ Technology has engaged in unfair and deceptive acts under Vermont’s Consumer Protection Act. As the first action of its kind by state attorney general, the suit highlights another nascent approach at the state-level to the issue of patent abuse.