On January 14, 2014, the Office of the New York State Attorney General (OAG) made a significant contribution in combating the ignominious patent troll.
Attorney General Eric Schneiderman announced that MPHJ Technology Investments, LLC (MPHJ), a so-called “patent troll”, entered into an Assurance of Discontinuance (or settlement) with the OAG stemming from the OAG’s June 2013 investigation of potentially deceptive statements, and other abusive conduct, by MPHJ relating to its patent licensing program which targeted New York businesses as potential infringers of its patents.
See Assurance No. 14-015. The Attorney General’s investigation focused on MPHJ’s use of deceptive and abusive tactics when it contacted hundreds of small and medium-sized New York businesses in an effort to strong-arm them into paying MPHJ for patent licenses of dubious value.
Thankfully, the State of New York is taking corrective measures against patent troll abusive tactics. The settlement establishes guidelines for entities who exemplify patent troll behavior. Amongst other things, the settlement contains guidelines for future patent assertion conduct that, in part, include:
- good faith basis for asserting patents after conducting reasonable diligence;
- providing material information necessary for an accused infringer to evaluate a claim;
- material information necessary to evaluate a reasonable royalty rate;
- no misleading statements about a license fee;
- transparency of ownership of the patent holder and financial interest;
- additional safeguards against deceptive patent assertion conduct; and,
- material information necessary to evaluate the value of a proposed license
It is important to note that the guidelines in the OAG’s settlement are minimum standards and are not a safe harbor. OAG states that “[t]he requirements imposed on MPHJ in the settlement should be viewed by other patent trolls as the minimum standards that such entities seeking to contact New York businesses must follow to avoid liability for unlawful deceptive practices.”
MPHJ v. FTC
In addition to falling squarely within the crosshairs of the New York, Nebraska, Minnesota, and Vermont Attorney Generals, MPHJ is one of the first patent trolls to ostensibly catch the consumer protection watchful eye of the Federal Trade Commission (FTC). Prior to the FTC filing its draft complaint, MPHJ filed its own preemptive complaint on January 13, 2014 in the Western District of Texas against the FTC and its commissioners and directors. See MPHJ Technology Investments v. FTC et al.; case no. 6:14-cv-00011-WSS. As a bit of background, the FTC first sent a subpoena to MPHJ in July 2013, “seeking certain information regarding MPHJ’s patent-related correspondence and enforcement activity” prior to likely seeking a consent judgment or pursuing FTC Act litigation barring deceptive trade practices. FTC also served a subpoena on Farney Daniels, the law firm retained by MPHJ to help with its enforcement campaign.
MPHJ contends that its lawsuit against the FTC arises out of the “unlawful interference and threats by the FTC Defendants against MPHJ and its counsel directed at stopping or impeding the lawful, proper, and constitutionally protected efforts by MPHJ to identify and seek redress for infringement of its U.S. patents.”
To date, the FTC has not filed its reply to MPHJ’s Complaint. Notwithstanding, intellectual property enthusiasts and many interested others anxiously await greater, appropriate patent reform.
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It is good to see the State of New York taking steps to combat the abusive Patent Assertion Entities (PAEs) or Patent Trolls. This should help pave the way for new patent reform legislation; legislation that can appropriately safeguard inventors and technology users from future, frivolous litigation. The Obama legislation is making efforts to get appropriate patent reform legislation passed because the 2011 Leahy-Smith America Invents Act was inadequate to thoroughly address current PAE litigation tactics. The Act was effective in addressing some of the problematic behavior of the PAE’s by creating programs at the Patent and Trade Office to create patent litigation alternatives, new methods to review the issued patents and increasing patent quality by clarifying and tightening standards. However the aggressive, litigious PAE behavior that has become common place, was not fully understood at the time the Act was drafted, which lessens the efficacy of the Act.
One trick with the PAEs is that they use the public’s lack of knowledge as to whether a patent has been infringed upon. The Patents and Trademarks Office grants patents only if the claims are novel, useful and not obvious to a person learned in the relevant art. But, what has happened is that skilled draftsmen have drafted patents with unclear metes and bounds, which provides fertile grounds for infringement allegations. For instance, claiming exclusive rights over any device that performs a given function, regardless of how the function is performed. Such overbroad patents used to be a common infringement claim with software patents until the Alice Corp. v. CLS Bank (Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (U.S. 2014)) case where it was held that a claim over a function or an “abstract idea” fails to transform into a patent-eligible invention.
Even if PAE activities do not result in a trial, the activities can often still cause trouble to defendants. The defendants might opt to cease all innovation in the particular litigated field to prevent being viewed as a willful infringement. Additionally, even if one patent in a product is infringed upon, it can be argued that the complete product cannot be sold. This puts companies in a standstill position. The lack of product sales, in turn cascades and also adversely affects employees’ salaries, advancements in technology and research and value to customers.
A good approach to dealing with these issues would be to reduce the extent to which the law allows PAEs to capture a disproportionate share of returns to investment. Patents must be given to inventors who have a novel product, described with clarity. The patent innovation system should be refurnished to adapt better to challenges posed by the new business models and technologies. New York State’s step in the above article is to be applauded but it still is not enough and it is important that there be codified laws to address the patent troll issues. States like Oregon and Virginia have already gone ahead and passed anti-troll legislation (e.g., Oregon S.B. 1540 signed into law on March 2014; Chapter No. 19, and House Bill H.B. 375 was signed into law on May 23, 2014; Acts of Assembly Chapter No. 810, respectively) and it hopefully won’t be long before New York is added to the list.