N.H. Senate bill aims to nip false patent claims
Lawmakers are considering making it harder for companies with false patent claims – known as patent trolls – to demand that businesses pay licensing fees or be sued.
State Sen. Sharon Carson is sponsoring legislation she hopes will identify false claims so businesses don’t feel their only recourse is to pay up to avoid costly litigation rather than test the validity of the patents in federal court. She said her bill, which passed the Senate last month, attempts to identify companies that buy up patents of questionable validity and use them to demand licensing fees from other companies.
Vermont passed the nation’s first law last year to make it harder for patent trolls to operate. Now, other states and Congress are considering laws.
The measures are in response to a growing trend of a product’s end-user being sent letters demanding license payments for using equipment like an ATM or scanners that convert a document into an email.
The U.S. patent system is designed to protect inventors and allow them to profit from their ideas, but some now question whether the system fosters abuse. Litigation can cost millions of dollars even when the business being sued wins.
Carson’s bill would treat the issue as a deceptive practice and authorize New Hampshire’s attorney general to seek to block patent holders’ demands in state court. She would require letters demanding payment to contain more information showing the patent holder has analyzed the targeted business’s operation to identify specific violations. Demand letters often require the recipient to respond within two weeks, but Carson’s bill would allow a state court to consider unreasonably short response times in judging whether a claim was made in bad faith.
If the state court found a claim was made in bad faith, it could order the patent holder to post a bond of up to $250,000 to cover the business’s litigation costs.
Curtis Barry, lobbyist for the Retail Merchants Association of New Hampshire, said something must be done to stop patent holders from squeezing small businesses that don’t have the resources to defend themselves.
Carson’s bill “is a sincere attempt at preventing abusive demands for money when an individual business has purchased something with the understanding it can plug it in and use it,” he said.
University of New Hampshire School of Law professor Chris Frerking said for state courts to determine whether a claim was made in bad faith, they would have to “get into the business of determining patent validity and infringement.”
“That’s something I suspect the state courts can’t do,” said Frerking, who is director of the school’s patent procedure program.
Over the past three years, New Hampshire banks and credit unions – with one exception so far – have paid license fees when accused of patent infringement for dispensing cash through their ATMs.
Two years ago, Mascoma Savings Bank joined 96 other banks and credit unions in challenging the claim in court.
“It’s outright blackmail, and we’re not going to be a party to it,” said Mascoma President Steve Christy.
Christy paid a lawyer a fee that was less than the roughly $40,000 demanded by patent holder Automated Transaction LLC.
The banks have argued they use closed circuits to handle cash transactions and aren’t infringing on the patented process of transactions involving the internet.
Automated Transaction says a separate service provider uses the internet to complete the ATM transactions, a process covered by the patent.
“I think there are some companies that are patent trolls. They go out and buy up patents. My client isn’t one of them,” said Albert Jacobs, lawyer for Automated Transactions.
Marc Sedam, executive director of UNH Innovation, worries efforts to stop inventors from asserting their rights will stifle innovation. A patent is property that can be rented or sold regardless of whether the patent holder uses it, he said.
“The original definition of a troll is a nonpracticing entity,” he said. “The university is also a patent troll by that definition. We invent things. We don’t use them. We license them to other people for money.”