Angels Rush in Where Fools Fear to Tread: State Enforcement Against Patent Trolls

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Jay Himes, Matthew Perez, Jan 14, 2014

Nobody likes trolls-those mythical creatures, “considered dangerous to human beings,” who hide under bridges waiting to prey on unsuspecting travelers. Like their mythological namesakes, patent trolls-or, as they are known in more polite company, patent assertion entities (“PAEs”)—are fearsome to many a business. Patent trolls have sued major technology companies like Apple, Hewlett-Packard, Samsung, and Google for years. Apple alone has faced over 170 lawsuits from patent trolls in the past five years.

Patent trolls, it is often said, seek only to extort licensing fees for patents that they do not practice (or ever intend to practice), but that they claim have been infringed. As Kent Walker, Google’s Senior Vice President and General Counsel, has put it:

Trolls use the threat of time-consuming and expensive litigation to extort settlements, even where their claims wouldn’t hold up in court.

This kind of patent troll litigation has grown like a particularly noxious weed, increasing four-fold since 2005. By some estimates it cost the U.S. economy nearly $500 billion over the past two decades. And the problem is growing.

“Growing,” indeed. According to a June 2013 presidential report, “[t]he increase in the number of suits filed [by patent trolls] for patent infringement has . . . been accompanied by an increasingly large number of suits threatened. . . . Conservative estimates place the number of threats in the last year alone [2012] at a minimum of 60,000 and more likely at over 100,000.” Of late, patent trolls have begun to issue demand letters to businesses across the country-often start-up and small companies, or “downstream” technology users-accusing them of infringing patents that the trolls hold and demanding licensing fees to avoid infringement litigation. “Although the amount of money extracted from each company is small, the number of potential defendants makes this strategy potentially profitable overall.”

Patent trolls “significantly retard innovation in the United States and result in economic ‘dead weight loss’ in the form of reduced innovation, income, and jobs for the American economy.” Thus, they have commanded the attention of both federal and state authorities. The FTC has invited public comments concerning their practices as part of a recently launched Commission review of PAEs. Senators John Cornyn and Patrick Leahy have introduced separate bills designed to address perceived abuses by PAEs. President Obama himself has weighed in: “[They] don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack someone else’s idea to see if they can extort some money out of them.”

Nothing has yet been done at the federal level, however. And like nature itself, State Attorneys General abhor a vacuum. The “first-movers”—the AGs in Nebraska, Minnesota, Vermont, and New York—have each attempted to curb the ability of patent trolls to issue cease and desist or demand letters to businesses within their States. Can they do it—inasmuch as patent law is itself constitutionally based and, therefore, potentially preemptive of state enforcement? The answer is, predictably, an unequivocal “maybe.” We chart the path to maybe-land below. We first describe recent state activity, and then discuss the case law on federal patent preemption. We conclude by revisiting state efforts to curb patent troll abuse against the backdrop of preemption case law.