As Vermont Goes, So Goes The Nation

June 3, 2014 at 8:53 am Leave a comment

While Washington dithers over what to do about patent trolls, the State of Vermont has provided a roadmap for Attorneys General across the country to at least cut back on those threatening letters so many credit unions have received alleging that they are in violation of a patent.

A classic Patent Troll is a company and/or law firm that buys patents and then seeks to make money off them by pressuring alleged patent violators to enter into licensing agreements for continuing to use the technology. New York State credit unions are familiar with this practice by virtue of letters received a couple of years ago, alleging that ATM technology they were using violated a patent and telling them to enter into a licensing agreement or face litigation.

While there is no law against aggressive enforcement of patents, the State of Vermont won an important legal victory in April providing a basis for taking action against these companies. Specifically, the State’s Attorney General is being allowed to sue a patent troll in that state by alleging that a series of letters alleging patent violations and demanding licensing agreements amounted to a violation of the State’s consumer protection law’s prohibition against deceptive practices. States across the country have similar statutes. The CFPB also has the right to sue over deceptive practices and I can’t see any reason why the same legal principles being applied in Vermont could not be used by the CFPB to crack down on patent trolls on a national scale.

The Vermont case involved several companies and one Texas law firm which sent a series of three increasingly aggressive letters to businesses throughout Vermont. These letters claimed, among other things, that most companies were interested in entering into lawful licensing agreements costing companies a mere $900 each; that a business’s failure to respond to a letter notifying them of the alleged violation amounted to evidence that the company knew it was violating the patent; and a threat that if it did not obtain a license it would be sued for the alleged patent violation.

Last year, Vermont sued the company making several claims ultimately questioning whether the defendant made truthful assertions in its letters and questioning the Troller’s due diligence in threatening to sue these Vermont companies. For example, the AG alleged that (1) defendant did no due diligence to confirm whether the recipients were likely infringers and (2) said that the Defendant targeted small businesses in commercial fields unrelated to patent law. Based upon these alleged misrepresentations and falsehoods, the State contends that Defendant sent the letters in bad faith. (Vermont v. MPHJ Tech. Investments, LLC, 2:13-CV-170, 2014 WL 1494009 (D. Vt. Apr. 15, 2014).

The patent troll moved to dismiss the case on jurisdictional grounds claiming that since the lawsuit involved federal patent questions it should be heard in federal court.  In addition, it claimed that the firm could not be sued under Vermont state law.

The good news is that the federal district court ruled the case could go forward in state court. This does not mean that Vermont will ultimately win the case but the patent troll model works only when attorneys can cost effectively get settlements in the form of licensing agreements. If taxpayer funded AG’s have the right to sue over their practices, that model goes out the window.

Hopefully we will see other states taking a look at the Vermont experience. If they follow its lead, credit unions will get some much needed relief from a patent system run amuck.

Entry filed under: Advocacy, Legal Watch, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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