The debate regarding what to do about “Patent Trolls” has lately been gaining steam and has been brought to the public attention in various ways. The term “Patent Trolls” usually refers to a person or company that attempts to enforce patent rights against accused infringers, despite the fact that the person or company being labeled a “Patent Troll” does not practice the invention by manufacturing products or supplying services. Thus, many “Patent Trolls” are considered non-practicing entities.
Many complaints regarding “Patent Trolls” focus in on the practice of “Patent Trolls” filing lawsuits in an attempt to pressure a settlement and/or a licensing deal because the accused infringer has to face the prospect of incurring significant legal fees to defend the lawsuit, even though the basis for the lawsuit may be weak or even lacking merit. Such lawsuits are often filed in the Eastern District of Texas, which is known for its expertise in patent suits. This can cause additional expenses, such as contesting the venue of the lawsuit and/or travel time. Further, if the “Patent Troll” is a non-practicing entity, then it will be difficult in most cases for an accused infringer to file a counter-claim for patent infringement against the “Patent Troll,” because the “Patent Troll” does not practice the invention.
It appears that the debate regarding “Patent Trolls” has even made its way to the movie screen and will be addressed in an upcoming Independent film. In addition, some states, such as Florida, have proposed legislation to address “Patent Trolls.” In Florida, the Patent Troll Prevention Act has been passed. This legislation is codified in Florida Statutes §§ 501.991-997. We have previously addressed the issue of this legislation in a prior blog article as well as Patent Trolls and the Innovation Act of 2015.
Regardless of what side of this issue you fall, the debate regarding “Patent Trolls” does not appear to be going away in the near future.
Please contact our office if you have any questions regarding the information in this article.
Daniel Devine, Esq.
Santucci Priore, P.L.
Unlike some of the neutral and unbiased articles published on this blog, this article is purely my opinion. Florida’s new Patent Troll Prevention Act, Florida Statutes §§ 501.991-997, will be a disaster. Similar to the “tort reform” trend of the prior decade, this Act is another overcompensation by the Florida Legislature to accommodate accused wrongdoers with large lobbying budgets who are in need of far less protection than other segments of the public and business community.
Problematic Provisions of the Act
The Act states that it prohibits plaintiffs from making “a bad faith assertion of patent infringement.” § 501.993, Fla. Stat. The Act creates a private right of action for violations, entitling accused patent infringers to awards of equitable relief, actual damages, punitive damages and awards of attorneys’ fees. That sounds like a worthwhile goal on its face. However, as with any statute, the possibility for various interpretations will create problems and lead to additional litigation of new issues and to abuse. For example, what constitutes a “bad faith assertion” of infringement? The statute does provide some guidance, however, the guidance is problematic in several respects.
The statute says that one of the factors the Court may consider in determining whether the claim was asserted in bad faith is whether the claimant “offered to license the patent for an amount that is not based on a reasonable estimate of the value of the license,” and whether claimant “negotiated an appropriate remedy.” See, § 501.993(1)(e) and (2)(c), Fla. Stat. It is very common for patent license agreements and awards of damages or settlement in patent cases to be based, in some way, on the profits of the infringers. Those financial records are usually in the exclusive possession of the infringer, and cannot be obtained without filing a lawsuit and using the power of the court to force the infringer to produce the records. Therefore, an innocent patent owner will be deterred by this Act from trying to resolve the matter amicably before filing a federal lawsuit. If the patent owner makes a rough estimate of the infringer’s revenues in an attempt to resolve the matter outside of the courts, (s)he risks a counterclaim for asserting a claim in “bad faith.” In this way, the new Florida statute will actually encourage litigation instead of deter it.
Another problematic provision gives the courts the authority to consider “[a]ny other factor the court finds relevant” when determining whether the patent owner has acted in bad faith. See 501.993(2)(g). This will insure that many, if not most, defendants accused of patent infringement will assert a counterclaim against the patent owner for violation of the new Florida Act.
Am I in Danger of the Act Being Applied Retroactively?
The Florida Patent Troll Prevention Act went into effect on July 1, 2015. However, at least one U.S. district court judge in Florida has recently opened the door to the Act being applied retroactively. (I practice in front of this particular judge so I will not name the judge or the case).
Is the Act Preempted by the Patent Act?
This Act may also lead to litigation to resolve the question of whether, and to what extent, the Act is preempted by the United States Patent Act. Section 501.991 of the Florida statute explicitly raises the issue of preemption and states: “The Legislature recognizes that it is preempted from passing any law that conflicts with federal patent law.” See § 501.991(1), Fla. Stat.
The Act Unfairly Favors Accused Patent Infringers
The remedies are also unfair and skewed in favor of accused infringers (which are often enormous, multi-national corporations who get sued often for infringement). The Patent Act does not permit an award of punitive damages to a Plaintiff, per se, yet this new Florida Act permits such an award to an accused infringer.
Despite providing duplicative protection of questionable need, the actual provisions of the Florida Act expressly favor accused infringers. The right of an accused infringer to request a monetary bond be posted by the patent owner under section 501.994 is not reciprocal. The Act permits the accused to demand a separate evidentiary bond hearing, costing the patent owner additional litigation expenses, time and effort, for purposes of providing security to the defendant in the event plaintiff is ordered to pay its attorneys’ fees. However, the plaintiff/patent owner has no such right to secure its ability to collect an award of damages, attorneys’ fees or costs. How is that fair? Plaintiffs have always had to weigh the risk of not collecting on a money judgment when deciding whether to assert their rights in court. Defendants are spared much of that risk now, and can be assured of collection of up to $250,000 under the Florida Act.
The Act is also one-sided in that it permits only a “prevailing plaintiff” an award of attorneys’ fees. There is no provision in the Act to prevent its abuse by accused patent infringers. To my knowledge, the issue of whether such a seemingly one-sided provision would violate Florida’s mutuality of remedy principle has not yet been decided.
Overcompensation – Overkill – Intimidation
The State of Florida should stay out of the domain of federal law and litigation. The Federal Rules of Civil Procedure already give the federal courts broad powers to sanction litigants and their attorneys, on both sides, for frivolous claims and defenses under Rule 11, Fed.R.Civ.P. Federal law also provides for monetary sanctions against litigants and their attorneys who “unreasonably and vexatiously” cause the multiplication of the proceedings. The sanctions include litigation expenses and attorneys’ fees. See, 28 U.S.C. § 1927. I don’t think patent owners or their attorneys need yet another deterrent, and potentially devastating risk, when asserting their rights in the courts.
Rule 11 and § 1927 are already abused by defendants and, at times, used by large companies to intimidate smaller patent owners. It is not uncommon for a large defendant to claim they pay their attorneys $650+ per hour for patent litigation, and over a million dollars in legal fees for a single patent infringement case. Therefore, a small business or single inventor who holds a patent has to weigh the risk of bankruptcy. Financial devastation is a very real result if the patent owner cannot withstand the expense of litigation through trial and appeal. This risk is now compounded by the new potential of a seven-figure judgment for the defendant’s legal fees and punitive damages if the business owner or inventor does not successfully overcome the infringer’s newly-created counterclaim. This is true even after a plaintiff gives up and voluntarily drops her own infringement claims.
The U.S. Patent Act itself also provides for an award of attorneys’ fees in “exceptional” cases. See 35 U.S.C. § 285. Cases have routinely been found to be exceptional in cases of willful infringement and for claims and defenses alleged in bad faith. These three separate protections afforded to accused infringers are more than sufficient, and even duplicative and overlapping in some ways.
Yet, now, under Florida law, these accused infringers have two new bombs to drop. The first is a counterclaim under the new Florida Patent Troll Prevention Act for actual damages, punitive damages and attorneys’ fees, and the possible requirement to post a $250,000 bond as a prerequisite to having its case heard at trial. §§ 501.993, 501.994.
The Legislature also piles on more penalties, risk and deterrence by also making the same finding of a “bad faith assertion” of infringement to also constitute a violation of Florida’s Unfair and Deceptive Trade Practices Act, §§ 501.201-213 which provides for an additional award of attorneys’ fees and damages. See §§ 501.996, 501.2105 and 501.211(2). This is overkill. How much protection do companies like Montsano, Hewlett Packard, Disney and Microsoft really need from individual inventors and small companies – the primary targets of the over-used label “patent trolls?”
What Are Our Lawmakers Thinking?
Is our Florida Legislature really kept up at night worrying about the plight of accused patent infringers? Why do they believe such corporations need two new bases to crush and stifle patent owners? Don’t our leaders have more pressing problems to solve? Apparently, this was high on the list of priorities of our elected officials. …or did big corporate donors have something to do with this Act?
Is the Act Unconstitutional?
In my opinion, this statute, and especially the bond requirement, is unconstitutional as it violates a patent owner’s rights under the Due Process clause of the Fourteenth Amendment to the United States Constitution by denying equal access to the courts.
Help is Here
If you or your company has been accused of violating, or has already been found liable under Florida’s Patent Troll Prevention Act, and are still within your permissible time period for appeal, the attorneys at Santucci Priore, P.L. will evaluate the merits of your defense or appeal, and the possibility of having this Act struck down – free of charge.