When the United States Constitution was adopted, it included a provision for preserving intellectual property, done as a means to protect those who invent new products and develop new methods useful to society. Recently, that protection has been morphed into a tool at the hands of people hoping to make what many argue as an undeserved profit. These non-practicing entities (“NPEs”) have come to be infamously known as “patent trolls.” As patent troll litigation heads towards an all-time high, many companies, especially small business, are worried about being targeted by these NPEs, who are getting away with large profits. The actions of the NPEs can also be seen as hindering the advancement of innovation, the very thing the patent system was put in place to promote.
To put it shortly, a patent troll is a person or an entity that owns patents but does not produce the patented product or method. These entities primarily exist for the sole purpose of obtaining numerous patents in order to threaten litigation and collect licensing fees from businesses they claim to be infringing the NPE’s patent. NPEs are getting away with making these assertions by hiding behind vague names and aggressively enforcing its patent’s broad claim sets.
A patent troll’s primary tool for aggressively asserting their patent is accomplished by sending a targeted company a vaguely written demand letter stating that the company is infringing the NPE’s patent. In the demand letter, the NPE will typically demand a licensing fee to be paid by the targeted company to avoid any future legal action. This fee is often times substantially cheaper than the cost of litigation, and larger companies often pay the fee as a cost of doing business. However, these demand letters are very threatening to small business and sole proprietors who are not as savvy or do not have the resources to respond to the NPEs.
To combat this strategy, earlier this year Indiana adopted new legislation (Indiana Code 24-11) as a means to make it more difficult for non-practicing entities to extort people or companies through these demand letters. The legislation aims to target against these demand letter attacks in a number of ways:
- Providing a cause of action for a targeted company if a party asserts a claim of patent infringement in bad faith in a demand letter that excludes specific information regarding the patent that is allegedly being infringed;
- Providing a factor based test for the courts to consider when determining if the party claiming infringement acted in bad faith. These factors focus on the details provided in the demand letter with regards to the accuser identifying the patent number and the claims being infringed, the name and address of the patent owner, and providing specific factual allegations where the target’s product infringes the covered patent among other factors;
- Requiring the NPE to post a bond of up to $250,000 if the defendant person/company establishes a reasonable likelihood that the NPE made an assertion of patent infringement in bad faith; and
- Establishing punitive damages of up to $50,000 or treble actual damages. These damages are non-exclusive of any other judgments the prevailing party may receive and also allows the court to award attorney’s fees to the prevailing party of the suit.
The Indiana legislation does have some carve outs and does not apply to postsecondary educational institutions, technology transfer organizations affiliated with a postsecondary educational institution, pharmaceuticals or medical devices. The hopes for the new legislation is to act as a deterrent to NPEs from pursuing infringement actions with companies in the State of Indiana. There has yet to be any statistics to the effectiveness of the legislation, but the state is hoping to track its use by requiring the targeted company to file the claim with the Attorney General’s office within 30 days of filing a complaint with a court.
Think you may have been targeted by a NPE? Check out Gutwein Law's Intellectual Property Protection Plan, and make sure to check in again next week for the launch of Informed IP.
ABOUT THE AUTHOR – Tyler droste
Tyler Droste is an attorney at Gutwein Law. Prior to receiving his JD from Indiana University, Tyler earned both his Bachelors and Masters in Biotechnology from Indiana University-Bloomington. He focuses primarily on patent law.