A New Weapon In The War Against Frivolous Patent Litigation?

On May 22, 2013, Vermont became the first state in the US to pass legislation specifically directed towards curbing the abuse of frivolous patent enforcement actions. The new law, "Bad Faith Assertions of Patent Infringement" (H.299 §§ 4195-4199), gives individuals, businesses and nonprofits targeted by patent infringement threats the means to sue a patent enforcer who engages in dubious patent enforcement actions or licensing activities. If the law survives preemption challenges, it may be a powerful new weapon for companies that can claim to have "Vermont person" status to challenge meritless patent infringement claims.1

The Vermont Statute Takes Aim at Bad Faith Patent Claims The new law outlines several factors which may be deemed "bad faith assertions of patent infringement." These include the following:

Failing to provide proper notice of the owners and assignees of the patent in demand letters Demanding unreasonable royalties Asking for licensing fees within an unreasonably short period of time from demand Failing to conduct a proper analysis of the claims against the target's products, services and technology before sending a demand letter Failing to identify "specific areas in which the products, services and technology are covered by the claims in the patent" "Deceptive" and "meritless" infringement assertions All in all, the statute outlines higher standards for would-be patent plaintiffs than are imposed under Federal Rule of Civil Procedure 11 which has been used by defendants as a means of seeking sanctions against plaintiffs who have brought frivolous patent infringement claims without proper due diligence. The Vermont statute is unique in that it provides a cause of action not only for targets based on "demand" or "cease and desist" letters, but also for companies that have already been sued for patent infringement. If the target establishes that there is a reasonable likelihood that a person has made a bad faith assertion of patent infringement, it can force the patent enforcer to post a bond in an amount equal to the target's estimated cost of defense (not to exceed $250,000). If successful in proving a violation under the statute, the target may obtain equitable relief, damages, costs and attorneys fees and exemplary damages in an amount equal to $50,000 or three times the total damages, costs and fees, whichever is greater.

Also the statute provides the attorney general of Vermont authority to bring civil investigations...