May 22, 2013 | By Adi Kamdar and Daniel Nazer

Vermont Is Mad as Hell at Patent Trolls and Is Not Going to Take It Anymore

There is exciting news out of the Green Mountain State this week: folks in Vermont are so fed up with patent troll abuse that they are taking matters into their own hands. With trolls filing thousands of lawsuits every year and blanketing the country in threat letters, states are looking for ways to protect victims—especially small entities that lack the resources to defend against a patent suit. Vermont is tackling trolls on two separate fronts.

First, the State Attorney General has filed a groundbreaking complaint against the infamous scanner troll MPHJ Technology, alleging unfair and deceptive acts under Vermont's Consumer Protection Act (PDF of the complaint). The tale of the scanner troll is one of the most outrageous patent stories of the year. This troll hides behind an alphabet soup of shell companies and sends demand letters to small businesses all over the country demanding $1,000 per employee for the privilege of using scanners and email.

The Attorney General has zeroed in on letters the scanner troll sent to nonprofits that assist developmentally disabled Vermonters. The AG alleges that the scanner troll did not conduct due diligence before sending these letters and made deceptive statements about its threats of suit and whether other companies had taken a license. At its heart, the complaint alleges that the scanner troll is sending these demand letters in bad faith. To our knowledge, this is the first time a state attorney general has taken action like this against a patent troll. We will watch this case with interest.

Not content to strike back against a single troll, Vermont is also poised to pass a bill dealing with the problem as a whole. The Vermont House and Senate recently passed a bill to combat "bad faith assertions of patent infringement" (H.299, PDF). And the latest word is that Vermont's governor is about to sign it into law.

This bill requires patent demand letters to be specific about the claim being violated, to be particular about how the target is violating the patent, and to give targets a reasonable estimate of the damage costs coupled with a reasonable time to respond. (It's funny: patent trolls usually have broad demands, are vague about violations, and pressure their targets to respond hastily with their purses open.) If a court finds a demand to be meritless or deceptive, they can swing down with full force and lay heavy fines on the bad actors, who are more than likely patent trolls.

This bill could solve some of the patent troll problems in Vermont. Unfortunately, it raises some serious constitutional questions around preemption (the doctrine that federal law invalidates state law when they are in conflict) and federal due process (which generally protects the right to take cases to court or make demands when they're sent in good faith). Vermont lawyer Justin McCabe at Green Mountain IP has a good analysis of the bill's pros and cons.

Apart from important constitutional considerations, passage of the Vermont bill demonstrates just how much patent reform is in the spotlight. Fixes on the national level are popping up like daisies, and—not surprisingly at all—they all attempt to tackle the troll problem from completely different angles. While we admire these bills' creativity, the obvious takeaway from this fact is that there are a lot of areas of the patent system that are very, very broken. So let's take a step back and push for real, comprehensive change.


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