Attorney General Bill Sorrell has a strong message for people who file baseless patent-infringement lawsuits against Vermont businesses:
“You are going to have a fight on your hands,” Sorrell said.
Gov. Peter Shumlin signed the nation’s first patent abuse protections bill into law Wednesday at the Vermont Chamber Business and Industry EXPO in South Burlington.
By amending the consumer protection law to include Vermont businesses targeted by illegitimate claims of patent infringement, the law will provide businesses with legal tools to defend against so-called “patent trolls.”
H.299, which takes effect July 1, will increase the cost and risk of pressing a baseless claim of patent infringement against Vermont companies.
“What this bill will do is protect Vermont businesses from unscrupulous people who take advantage of our businesses here in Vermont based on bad faith claims of patent infringement,” Shumlin said.
Trolls often file baseless claims hoping to force companies to pay a licensing fee to settle the claim out of court.
Shumlin said that patent trolls have targeted several Vermont businesses, such as MyWebGrocer, a provider of digital solutions for the grocery industry.
“We don’t want those businesses to be the victims of unscrupulous people who file bogus suits and then hope that our companies would rather settle out of court to get this bogus claim behind them than actually go through the expensive and lengthy process of winning the case under merits, which they would,” he said.
He added that this is a pioneering piece of state legislation.
“After I sign this law, we’ll be the first state in the country that makes this a violation of state law,” he said.
Rep. Bill Botzow, D-Bennington, who co-sponsored the bill, said that he and other members of the Committee on Commerce and Economic Development received testimony from Vermont companies frustrated by patent trolls.
“They basically say, ‘We will go away if you pay us a certain amount of money,’” Botzow said. “It’s like fishing on steroids.”
Though the law will still allow for legitimate claims of patent infringement in accordance with federal law, it will require a more detailed allegation in the licensing demand letter and increases the potential cost of making a baseless claim.
“We have put up some significant hurdles,” Botzow said.
Under the law, demand letters must include detailed information about how the Vermont product, service or technology infringes on an existing patent. The demand letter must also allow for a reasonable amount of time for the licensing fee to be paid.
The penalty for a bad faith claim is a bond equal to the cost of litigating the claim for the Vermont company.
Trolls also risk being brought into court in violation of state law. The attorney general can now file suit against patent trolls who target Vermont companies with illegitimate claims.
Sorrell said the law gives the state a valuable tool to protect businesses in addition to the state’s existing Consumer Protection Act.
“This will give us another arrow in the quiver, if you will, to fight those patent trolls who prey on Vermont businesses and organizations,” Sorrell said.
In fact, the Attorney General’s Office has been quick to use this tool. Tuesday, it filed suit against MPHJ Technology Investments, LLC, a Delaware corporation, which allegedly sent bad faith demand letters to at least two Vermont businesses, demanding a payment of $1,000 per employee, Sorrell said.
Sorrell said that he hopes the law will send a strong message to patent trolls around the country.
“To our knowledge, this is the first lawsuit of this sort filed anywhere in the country,” he said. “We are proud to have filed it.”
Rep. Paul Ralston, D-Middlebury, who spearheaded the bill, said Vermont is one of the most innovative states in the country, issuing more patents per capita than any other state.
Ralston said that the law will protect startup businesses that are often fearful of receiving abusive and bad faith assertions of patent infringement.
“Those businesses have been under threat,” he said. “And now, people can come to Vermont, they can innovate in Vermont and they can know that their government has their back.”
Ralston said businesses should be confident in their new security.
“This practice won’t happen in Vermont,” he said. “That’s how simple this is.”
Correction: An earlier version of this story said the patent troll law is under Vermont’s Consumer Protection Act. It is not. The story was updated to reflect that change.