Vermont versus varmint? Troll tackled with unfair practices suit

From the practised pen of guest blogger Miri Frankel comes news of a remarkable development in the fight against so-called patent trolls in the United States -- the launch of an unfair and deceptive practices suit under state law. Miri explains:

Vermont:  Small US State, Big Fighter of Patent Trolls 

Vermont is generally known for its sweet maple syrup, delicious ice cream, cute teddy bears, and hand-carved, one-of-a-kind, maddeningly difficult wooden puzzles that are enjoyed by fans including Bill Gates, Queen Elizabeth II, and the author of this post.  But this week, Vermont also became known for taking a tough stand against patent trolls.  

According to a report from Ars Technica, a mysterious company called MPHJ Technology, along with more than forty equally mysterious subsidiaries, claims that it holds patents on the process of scanning a document and attaching it to an email over a network.  MPHJ and its subsidiaries have sent letters to small businesses across the United States, including many in Vermont, threatening to file a patent infringement suit against the letter recipient if the recipient company fails to pay MPHJ (or the relevant subsidiary) a licensing fee of about $1,000 per employee.  

It is probable that at least some small businesses, lacking expert knowledge of patent law and fearing costly litigation, paid the fees to MPHJ.  But two non-profits that assist disabled Vermont residents fought back by engaging Vermont’s Attorney General.  

A press release distributed by the Office of the Attorney General of Vermont stated

“In an effort to protect Vermont’s small businesses and non-profit organizations, Attorney General Bill Sorrell filed a first-of-its-kind lawsuit today against MPHJ Technology Investments, LLC. It marks the first time that a state attorney general has filed suit against a so-called “patent troll.”

The complaint alleges that MPHJ Technology has engaged in unfair and deceptive acts under Vermont’s Consumer Protection Act. 

MPHJ Technology claims to have a patent on the process of scanning documents and attaching them to email via a network. The Attorney General’s complaint alleges that the company has sent letters containing multiple deceptive statements and demanding about $1,000 per employee, to many Vermont small businesses as part of a nationwide campaign. At least two of those businesses are non-profits that assist developmentally disabled Vermonters. 

Patent trolling is a national problem. A recent major study out of Boston University estimated the cost of patent trolling on the US economy at $29 billion in 2011 alone. Representative Peter Welch recently co-sponsored the Saving High-Tech Innovators from Egregious Legal Disputes (“SHIELD”) Act of 2013 in Congress (previously described here) to address the problem and the Federal Trade Commission held a workshop to address patent trolling in December 2012. 

The Vermont Legislature passed first-in-the-nation legislation creating a new tool for targets of patent trolling and for the Attorney General to address the issue. Governor Peter Shumlin is expected to sign the bill into law today.”  

VT Attorney General to patent trolls: “I will crush you!” 

The Vermont investigation found that MPHJ conducted little to no due diligence regarding whether a letter recipient actually violated its patents and falsely claimed that most other letter recipients happily paid the requested licensing fees.  The Vermont Attorney General’s suit claims that MPHJ, knowingly and in bad faith, made these deceptive statements with the intention of inducing recipients to pay the demanded sums in violation of the Vermont Consumer Protection Act.   

Could consumer protection laws be used as be a new tactic to fight patent trolls?  Possibly.  In other instances, patent trolls are not quite as egregious as MPHJ, so their activities may not trigger violations of states’ consumer protection laws.  However, if Vermont Attorney General Bill Sorrell is successful in his lawsuit against MPHJ, other state Attorneys General could follow with similar investigations and, where appropriate, suits against unscrupulous patent trolls.  Such action against a patent troll would be dependent on a governmental investigation.  On the other hand, if the federal SHIELD Act is passed into law, it would give the victims (er… defendants) a tool that they can use directly to fight patent trolls.  

Copy of the Complaint here.