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March 11, 2015 Articles

Tips for Responding to Patent Trolls

Some of the most promising causes of action for responding to abusive tactics are standard business torts.

By Bradley Nelson

Much of the recent discussion about dealing with abusive litigation and licensing campaigns by so-called patent trolls and other non-practicing entities has focused on one of two things: (1) legislative attempts to pass new laws, or amend the Patent Act, to make life more difficult for trolls; and (2) court decisions such as the Supreme Court’s recent opinions in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), and Highmark v Allcare Health Management System, Inc., 134 S. Ct. 1744 (2014), which significantly relaxed the standard for awarding attorney fees under 35 U.S.C. § 285 against anyone, including trolls, accused of filing meritless cases or engaging in abusive litigation tactics. Often overlooked is a third category: whether a party subjected to a suit or licensing campaign by a patent troll may have a basis for going on the offensive, by asserting claims or counterclaims seeking damages or other relief. That third option is the subject of this article.

Some of the most promising causes of action for responding to abusive troll tactics are standard business torts, including unfair competition, deceptive trade practices, tortious interference, business disparagement, unjust enrichment, civil conspiracy, and, possibly, antitrust or claims under the Racketeer Influenced and Corrupt Organizations (RICO) Act. These and other potential causes of action are outlined below. But, first, we look at the strategic landscape and the initial first hurdle—the requirement of showing bad faith.

The Requirement of Showing Bad Faith

The right to file suit for patent infringement in the federal courts is generally protected under the First Amendment, as part of the constitutional right to petition the government for redress of grievances. The Supreme Court first recognized that the First Amendment right to petition the government extends to the right to file suit in federal court in the antitrust and labor contexts. See E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); United Mine Workers v. Pennington, 381 U.S. 657 (1965). This so-called Noerr-Pennington doctrine, however, does not protect “sham” litigation, i.e., litigation that is both objectively baseless and subjectively brought for an ulterior motive, such as to interfere with the business relationships of a competitor.

The Federal Circuit has applied the Noerr-Pennington doctrine to patent suits, holding that federal patent law preempts any state law cause of action that would impose liability for a patent holder’s “good faith conduct” in asserting its patent rights. Globetrotter Software, Inc. v. Elan Computer Grp., Inc., 362 F.3d 1367, 137 (Fed. Cir. 2004). The Federal Circuit affirmed, however, that the doctrine does not bar claims where the patent holder’s assertion activity amounts to “bad faith.” Relying on Noerr-Pennington, the court held that to establish the requisite “bad faith,” a claimant must allege and prove that the assertion of patent rights was objectively and subjectively baseless, in that the patent was either “obviously invalid or plainly not infringed,” and that the patentee knew or should have known that to be the case. Globetrotter Software, 362 F.3d at 1374–75. Further, the court held that the Noerr-Pennington doctrine extends to protect pre-litigation conduct, such as sending letters accusing a person of infringement and threatening suit. Thus, any state law claim or counterclaim asserted against a patent troll for abusive litigation or pre-litigation activities must be accompanied by pleading allegations of both objective and subjective bad faith sufficient to overcome the immunity recognized in Globetrotter Software and other cases.

Potential Causes of Action

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. Engg & 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.


The strength of any potential case will depend on a multitude of factors, the most important of them being evidence of bad faith, as well as which federal or state laws may apply. A colorable claim of subjective bad faith may be provided by a troll’s pattern of asserting claims without ever allowing them to reach the point of an outcome. A claim of objective bad faith must be based on an examination of whether the troll’s infringement claim is plainly wrong or the patent is obviously invalid. Allegations of bad-faith troll activity sufficient to meet these requirements could be based on a wide array of facts.

Factors that have been identified in different cases or state statutes as providing a basis for overcoming the immunity recognized in Globetrotter Software include the following:

• 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

These and other factors may provide a basis for turning the tables and leveling the playing field, by opening the door to a possibly viable cause of action for damages against anyone engaged in abusive or bad-faith patent assertion activities.

Keywords: litigation, business torts, patent trolls, patent assertion, infringement, bad faith

Bradley Nelson – March 11, 2015