North Carolina says "no" to patent trolls

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North Carolina became the latest state to take a stand against patent trolls when NC Governor Pat McCrory signed a new law last week aimed at preventing bad faith assertions of patent infringement. Patent trolls (more officially called "patent assertion entities" or "non-practicing entities") are known for sending very vague letters, with often meritless claims, to other businesses in the hopes of extorting a settlement to avoid the nuisance of a lawsuit.

Patent trolling, long the bane of the technology industry, has been the subject of discussions at the federal level for some time. However, in recent years, patent trolls started targeting small and medium businesses in all industries, particularly in the retail and banking sectors. The practice of sending vague demand letters to hundreds of businesses at a time prompted increasing scrutiny by state governments, leading to enactment of similar legislation in Georgia, Idaho, Maine, Maryland, Oregon, South Dakota, Tennessee, Utah, Vermont, Virginia, and Wisconsin. Thirteen other states are also considering similar bills.

Vermont Attorney General (AG) Bill Sorrell made headlines last year when he filed a suit under his state's existing consumer protection law against MPHJ Technology, Inc. for sending demand letters to at least 75 small businesses in Vermont alleging infringement of patents related to scanning documents and sending them via email. It was the first known effort by an attorney general to use state consumer protection law in the realm of patent litigation, and a few attorneys general in other states have filed similar suits or opened investigations against patent trolls since then.

While Attorneys General already had authority to investigate or sue patent trolls under existing consumer protection laws, many bills in this new wave of state legislation provide a private right of action to the target companies receiving demand letter shakedowns. A company alleging patent infringement must comply with certain requirements in their demand letter, such as the patent number, and factual and specific allegations regarding the alleged infringement, and more timely responses to clarification requests from the target. Failure to comply allows a target to bring an action against the patent troll in state court and could result in the troll having to pay the target company damages, equitable relief, attorney's fees, and exemplary damages.

We may never see a target company or State AG actually sue a patent troll under one of these laws. States are hoping that by putting the threat of suit in place, it might deter some patent trolls from sending meritless demand letters in the first place. The bigger message that I take away from this latest action by the states is that it reflects the growing frustration with lack of legislative action at the Federal level. For the moment, that effort is on hold. Even if these new state laws work fully, there is still need for meaningful legislative reforms from Congress—sooner rather than later.

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Melanie Chernoff | As Public Policy Manager for Red Hat, Inc., Melanie monitors, evaluates, and works to influence U.S. and international legislation and government regulations affecting open source technologies and open standards. She also serves as chair of the company's Corporate Citizenship committee, coordinating Red Hat's charitable activities.


It is very unlikely that this legislation against Patent Trolls will have any effect what-so-ever in North Carolina, given for example that one of the largest and most potent patent trolls - Rockstar Group, started by Microsoft and with membership support of Apple, Sony, Blackberry and other nefarious characters would be sanctioned for unsavory and even proven illegal patent litigation against an innocent defendant, when Noth Caroline is in a technology business agreement for the entire "State" schools systems to use and endorse Microsoft Office for their Computer Science programs.

None of the officials in several national science institutes or any other National or regional Technology or Education/academia organization questioned on this matter could rationalize how an "Office productivity suite" software application could be classified as part of Computer Science.

Earlier efforts to introduce Free/Open Source Software (FOSS) like RedHat Linux (originating in the State) and OpenOffice/LibreOffice into th N.C. Schools systems were summarily quashed by companies like Microsoft with the help of State officials.

A huge problem with this type of legislation, regardless of which side of the argument one favors, is that it merely prevents the patentee and accused infringer from communication before a lawsuit is filed. In reality, it requires the patentee to file a lawsuit, making reasonable discussion difficult or impossible since emotions flare after a suit is filed. The law forces a patentee to file a lawsuit because the information required to be communicated, namely "[f]actual allegations concerning the specific areas in which the target's products, services, and technology infringe the patent or are covered by specific, identified claims in the patent" could be used by the accused infringer to file a preemptive lawsuit. Such a lawsuit allows the accused infringer to pick the court and possibly present its case first at trial -- both significant advantages. That is, in order to communicate their case without severe penalty, the patentee is now forced to file a lawsuit. This is neither useful, nor efficient.

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