A Message to the Montana Legislature: Conjunctions Matter|
On April 2, 2015, Governor Steve Bullock signed Senate Bill 39, which was a bill (now a law) intended to protect Montana businesses from being targeted by patent trolls. The phrase "patent troll" is a nebulous term that is subject to numerous (and conflicting) definitions. The best one I have found is on Wikipedia, which defines a patent troll as follows: "A patent troll is a pejorative term used to describe a person or company that attempts to enforce patent rights against accused infringers far beyond the patent's actual value or contribution to the prior art." (This definition is attributed to former Chief Judge Rader of the U.S. Court of Appeals for the Federal Circuit.) As Wikipedia goes on to explain, patent trolls usually do not make the products or provide the services covered by the patents they enforce; however, the term "non-practicing entity" (which generally refers to a company that owns a patent without practicing the technology covered by the patent) is broader than the term "patent troll." In other words, not all non-practicing entities are considered patent trolls. Companies that are active participants in an industry should never be considered patent trolls with regard to any patents they own that are pertinent to that industry. For example, a company may patent something but not practice the technology right away, for a variety of reasons. Similarly, a company might acquire a patent from a competitor and have a legitimate interest in enforcing that patent against an infringer in the same industry. In neither of these situations should the patent-owning company be considered a "patent troll."
We have to be careful in throwing around the term "patent troll"—and particularly in enacting legislation—not to include non-practicing entities that do not engage in the tactics typically attributed to patent trolls. These tactics include sending cease and desist letters under false or misleading company names, demanding outrageous license fees, misrepresenting the scope of a patent, etc. In the past (this practice has been outlawed by recent legislation), patent trolls would name literally dozens (and, in some cases, hundreds) of defendants in a single patent infringement suit in an attempt to harass and intimidate the parties into settling. Another tactic typically engaged in by patent trolls is to sue the smaller market players (who cannot afford significant legal fees and are more inclined to settle) rather than naming as defendants the larger market players who might have the financial resources to challenge infringement and/or invalidate the patent. A full discussion of the litigation tactics engaged in by patent trolls is beyond the scope of this article, but suffice it to say that such egregious conduct eventually caught the attention of various state legislatures, some of which have enacted legislation in an effort to curb the anti-competitive conduct of patent trolls.
As of the writing of this article, more than a dozen states (including Montana) have enacted anti-patent troll legislation. Although the Montana law was well-intentioned, the unfortunate use of the conjunction "or" rather than "and" literally outlaws sending a cease and desist letter on behalf of a company that owns a patent and practices the patented technology. In other words, the recently enacted Montana law would make it illegal for a patent holder to send a letter to an infringer threatening litigation (which is what cease and desist letters do) if a settlement is not reached. The statute also prohibits making certain false statements in a cease and desist letter, and I think we can all agree that no one should be allowed to make false statements about a patent in a written communication with an infringer; however, the problem is that the statute prohibits sending a cease and desist letter or making false statements. A simple fix would have been to include the word "and" between these two subsections of the statute. It was clearly the intent—but not the effect—of the law to prevent the sending of false and misleading communications, not to prohibit the right of a legitimate patent holder to enforce its patent.
Our firm has represented recipients of demand letters from patent trolls, and in every case, the matter was dropped after we responded in writing to the demand letter. There is only one instance in which one of our clients was literally litigated into bankruptcy by a patent troll, and federal legislation now prohibits those types of suits from being brought. I was invited by proponents of Senate Bill 39 to testify before the Montana Senate Business, Labor and Economic Affairs Committee before the committee vote was taken. As the only person at the hearing with any patent prosecution experience to testify either in favor of or against the bill, I was grateful that my input was solicited. In my opinion, however, the committee made an egregious error in approving a draft bill that did not use the appropriate conjunction. (We did call it to the attention of the committee during the hearing and the bill sponsor, Attorney General and Governor's office after the hearing.) Not only does the legislation as currently enacted make it more difficult—I would argue, virtually impossible—for non-practicing entities to enforce their patents, but it also hampers the ability of practicing entities—companies that make and sell the products they have patented—to enforce their legitimate patent rights. I would urge the Montana legislature to make a single amendment to the statute: change "or" to "and." This simple fix would effectuate the original intent of the legislature, which was to prohibit sending a cease and desist letter that contains false statements.