Tips for Responding to Patent Trolls

Unfair and deceptive trade practices. One promising cause of action for attacking abusive tactics by patent trolls is offered by laws prohibiting unfair competition or unfair or deceptive trade practices. The Federal Circuit held in Mirafi, Inc. v. Murphy, 928 F.2d 410 (Fed. Cir. 1991), that “bad faith infringement litigation [such as knowingly asserting an invalid patent] . . . could violate North Carolina’s Unfair Competition Statute.” That North Carolina statute closely paralleled section 5(a) of the Federal Trade Commission Act, which prohibits “[u]nfair methods of competition . . . and unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. § 45(a)(1). The court held that bad-faith patent litigation, where a patentee initiates litigation on a patent he or she knows to be invalid or uninfringed, could constitute an unfair act or practice in violation of the statute.

A few federal district courts have come to similar conclusions regarding claims under various state laws prohibiting unfair or deceptive trade practices. Clearplay, Inc. v. Nissim Corp., No. 07-81170-CIV, 2011 WL 3878363, at *3 (S.D. Fla. Sept. 2, 2011) (bad-faith assertion of patent could support claim under Florida Deceptive and Unfair Trade Practices Act); Alien Tech. Corp. v. Intermec, Inc., No. 3:06-CV-51, 2008 WL 504527, at *4 (D.N.D. Feb. 20, 2008) (showing of bad-faith publication of patent in the marketplace would avoid federal preemption of claim under the Washington Consumer Protection Act); In re Innovatio IP Ventures, LLC Patent Litig., 921 F. Supp. 2d 903, 906 (N.D. Ill. 2013) (dismissing unfair competition claim under California Business & Profession Code section 17200 for failure to allege facts showing that Innovatio’s licensing campaign was a sham or in bad faith); DeSena v. Beekley Corp., 729 F. Supp. 2d 375, 401 (D. Me. 2010) (bad-faith conduct in connection with patent would avoid federal preemption of claim under the Maine Uniform Deceptive Trade Practices Act).

These state laws, and the elements necessary to state a claim under them, vary from one state to the next. Many, like the Federal Trade Commission Act and the North Carolina statute, broadly proscribe “unfair or deceptive acts or practices” in commerce. N.C. Gen Stat. § 75-1.1(a). The California statute prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” Cal. Bus. & Prof. Code § 17200. Other state laws are limited to the protection of consumers or require some consumer nexus. Still others apply more narrowly to unfair competition. Thus, the viability of a claim under a particular state law will depend in the first instance on the elements required under that state’s statute. If those elements are met and there is sufficient evidence to prove that the troll acted in bad faith, the claim should be allowed to proceed, and not preempted by federal patent law.

State statutory anti-troll causes of action. Several states have adopted laws providing for private causes of action against trolls or others for sending bad-faith or abusive patent assertion letters. Vermont passed the first such law in 2013, Bad Faith Assertion of Patent Infringements, 9 Vt. Stat. Ann. §§ 4195–4199. The Vermont statute includes a list of factors to determine what constitutes bad-faith patent assertion, including sending assertion letters that fail to identify the patent at issue, the owner, or exactly how the target’s product infringes the patent; demanding an unreasonably fast response or unreasonably large license fees; and making false or deceptive statements. Wisconsin and Oregon have enacted similar statutes, both providing private causes of action for what the laws determine to be bad-faith or abusive patent assertion letters. 2014 Or. Laws 1540; 2014 Wis. Sess. Laws 498.

On August 28, 2014, Illinois passed an amendment to its Consumer Fraud and Deceptive Business Practices Act banning patent assertion letters that falsely threaten litigation, make assertions that lack a reasonable basis in fact because the asserting party does not have the right to license the patent or because the patent has expired or been held invalid, or fails to include sufficient information regarding the patent owner or the specific features of the accused product alleged to be covered by the claims in the patent. 815 Ill. Comp. Stat. 505/2RRR. The law provides for a private cause of action and enforcement by the Illinois Attorney General.

Tortious interference. Tortious interference claims could be asserted against patent trolls where their conduct is directed at actual or potential customers or business partners, and has interfered with those relationships. A typical example is where a troll sends infringement letters to customers, claiming that a product they are using infringes the troll’s patent. Such claims could be sustained if they meet the state law elements and the troll acted in bad faith by asserting objectively and subjectively baseless claims. In Zenith Electronics Corp. v. Exzec, Inc., 182 F.3d 1340, 1347 (Fed. Cir. 1999), for example, the Federal Circuit upheld a state law tortious interference claim based on allegations that the patent holder made statements to the target’s customers to the effect that the target infringed the patent holder’s patent and could not design around the patent, knowing that such statements were false. Business disparagement. Business disparagement or trade disparagement claims may also be available where the troll’s licensing letters or public statements are disseminated to third parties, falsely accuse the alleged infringer, and damage its reputation or relationships. Again, the plaintiff would need to show bad faith and meet the elements of the particular state law governing the claims. See, e.g., Zenith Elec. Corp., 182 F.3d at 1355, (upholding Lanham Act and state unfair competition claims against patent holder for trade libel and product disparagement for allegedly false allegations of infringement made to customers). Unjust enrichment. Unjust enrichment is another fairly broad cause of action available in many states, and it could be asserted against abusive trolls, depending on the circumstances. In Illinois, for example, the cause of action requires proof that “the defendant has unjustly retained a benefit to the plaintiff’s detriment, and that defendant’s retention of the benefit violates the fundamental principles of justice, equity, and good conscience.” Gagnon v. Schickel, 983 N.E. 2d 1044, 1052 (Ill. App. Ct. 2012). In addition, to avoid federal preemption, a plaintiff would need to plead and prove that the troll acted in bad faith. Civil conspiracy. Many states also allow causes of action for civil conspiracy. Again using Illinois as an example, the elements of a claim for civil conspiracy are (1) a combination of two or more persons, (2) for the purpose of accomplishing by some concerted action either an unlawful purpose or a lawful purpose by unlawful means, (3) in the furtherance of which one of the conspirators committed an overt tortious or unlawful act. Fritz v. Johnston, 807 N.E. 2d 461, 469–70 (Ill. 2004) (log-in required). Depending on the circumstances, this may be a viable cause of action in a suit challenging abusive troll tactics. In addition to the above elements, proof of bad faith would be required to avoid federal preemption.

RICO. RICO claims have also been asserted based on abusive patent troll tactics, but those claims have proved difficult to sustain. The elements of a RICO claim, unlike many broad state law claims, are narrowly defined by statute and include required elements like specific predicate acts of mail or wire fraud, extortion, or other specified criminal activity; proof of a RICO “enterprise”; and proof of a pattern of RICO activity.

In Innovatio IP Ventures, LLC Patent Litigation, 921 F. Supp. 2d 903 (N.D. Ill. 2013), three major manufacturers of WLAN products, Cisco Systems, Motorola Solutions, and Netgear, filed a 55-count complaint against patent troll Innovatio, alleging that Innovatio’s patent assertion campaign was a sham, conducted in bad faith, and constituted a pattern of extortion and mail and wire fraud in violation of RICO and various state laws. The court granted Innovatio’s motion to dismiss all of the RICO and state law claims for the plaintiffs’ failure to adequately plead that Innovatio’s patent assertion actions, aimed at some 8,000 end users of Wi-Fi technology, were conducted in bad faith or a sham. While RICO claims may be viable in the right case, the Innovatio case illustrates the difficulty of sustaining such claims based on even somewhat egregious patent troll tactics.

Antitrust claims. Alleged infringers frequently file antitrust claims or counterclaims against patentees under the federal antitrust laws. While these are typically limited to claims against competitors, at least one case, OpenLCR.COM, Inc. v. Rates Technology, Inc., 112 F. Supp. 2d 1223 (D. Colo. 2000), sustained antitrust claims against a patent troll for attempted monopolization arising out of the troll’s alleged bad-faith assertion of its patent rights. A class action suit filed in the Eastern District of Louisiana also asserted state and federal antitrust claims against a patent troll in a patent assertion campaign. Eng’g & Inspection Serv., LLC v. Intpar, LLC & MPHJ Tech. Inv., LLC, No. 13-0801 (E.D. La. June 25, 2013). That suit was dismissed for lack of personal jurisdiction, so the court did not reach the issue of whether the complaint stated a valid cause of action.

• a prior court determination that the troll acted in bad faith with respect to the patent at issue

• a prior court or U.S. Patent and Trademark Office determination that the patent at issue is invalid

• evidence that the asserted patent was obviously invalid or plainly not infringed, and the troll knew or should have known that to be the case

• assertion of the patent without an adequate pre-suit investigation of infringement, which might be indicated by assertion activities directed at a large number of defendants where the accused infringement is not based on the same devices

• threats to sue on the patent where the troll has never followed through and has no intent to actually sue

• assertion letters containing false or misleading statements

• assertion letters claiming without adequate basis that the target cannot design around the patent

• assertion entities set up in a manner to hide true ownership of the patent

• a pattern of terminating litigation before any determinations of infringement or invalidity are made