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“Slapdown” of Patent Troll Shows Companies Should Be Prepared to Deal With All Types of Trolls

Intellectual Property Litigation Law Alert Josephine K. Benkers

Non-practicing non-academic entities, often called patent trolls, are businesses that make money simply by holding and licensing patents. Often trolls form by investors or groups of investors buying patents from small inventors, or buying patents that are sitting idle. Then, the troll tries to monetize those patents by licensing them to others. Generally, trolls are not practicing the patents by making or attempting to make or sell any product or service covered by the patents themselves.

Trolls come in all shapes and sizes and some are more legitimate than others. Sometimes they hold patents that are valid and enforceable, and businesses do need a license to practice in that area. Other times, the patents are not valid, and the troll's accusations of infringement stretch the credible boundaries of what the patents cover. Those weaknesses do not stop such patent trolls from trolling, however, as often they can make a tidy profit with license fees that are less than what it would cost to litigate a patent case.

The questionable trolls are undisputedly a plague on businesses, costing United States businesses billions a year on aggregate. Because there are so many active trolls right now, there have been a number of recent initiatives to curb abuse, at both the state and federal level. For example, proposals have been made to make it easier for courts to shift fees to defendants who are successful in defeating trolls.

Recently, several states have taken action aimed directly at a particularly bad troll. Tired of businesses in their states receiving harassing letters accusing those businesses of patent infringement for simply being the end user of document scanners, several states have recently taken action against the entity and law firm sending those letters. Minnesota became the latest state to take such action, reaching a settlement with MPHJ, the entity that owns the patents. That settlement forbids MPHJ from threatening to sue businesses in Minnesota without the attorney general's permission.

MPHJ is a troll that has over approximately the past year, through a variety of shell LLCs, sent hundreds if not thousands of form letters to businesses threatening litigation, asserting that those businesses are likely infringing its patents if they use document scanners. The patents include U.S. Patent numbers 6,185,590, 6,771,381, 7,477,410 and 7,986,426. Also owned by MPHJ is U.S. Patent No. 8,488,173, which issued on July 16, 2013 from U.S. Patent Application 13/182,857. Along with letters sent directly from the LLCs, letters have also been sent by the law firm Farney Daniels. Sometimes, a draft complaint is attached. MPHJ demands in the letters license fees of around $1,000 per employee.

Several states in addition to Minnesota have taken action to curb the abusive practices of this troll. In May, Vermont filed suit against MPHJ under the Vermont Consumer Protection Act alleging that the letters being sent were false, misleading and deceptive, and that MPHJ had not done due diligence to ascertain whether any entity was actually infringing its patents before sending the letters. In July, Nebraska sent a letter to Farney Daniels initiating an investigation into its practices in the state, and demanding that the firm "cease and desist the initiation of any and all new patent infringement enforcement efforts" in Nebraska.

The scanner industry has also taken action recently. In May, Ricoh and Xerox filed a joint request for Inter Partes review of the '426 patent, and HP filed a request for Inter Partes review of the '381 Patent asserting that these patents are invalid. Recently, many recipients of letters from the various LLCs have received letters informing them that MPHJ is suspending its enforcement program for now, and also noting that Canon had entered into a covenant not to sue with MPHJ.

While some states have stepped up with respect to MPHJ, businesses targeted by trolls should not count on that in every case, and the troll business model will go on. The most important thing to do when contacted by a troll is to not just ignore them. The steps you should take if contacted by a troll are:

  1. Do not panic.
  2. Do not just respond to the troll on your own. The contact by the troll should be immediately forwarded to legal counsel. Often threat letters claim that if a response is not received in a certain timeframe, a lawsuit will be filed.
  3. Work with counsel to do an investigation to see who else may have been contacted. Sometimes joint defense efforts can be very fruitful.
  4. Devise and implement the best strategy to respond to the troll after gathering all relevant facts.

Quarles advises clients about patent trolls daily in both the formal litigation context (i.e. the troll filed suit) and non-litigation (i.e. threatening letter) context. Often we will have knowledge about the troll your received a contact from, or if we do not, we will have dealt with similar trolls and can "size up" the troll pestering you. Experienced patent litigation counsel can help you deal with trolls effectively and in a cost efficient manner.

The proper approach to dealing with a patent troll is not a "one-size fits all" solution because patent trolls come in all shapes and sizes. Some are more legitimate than others, and some are more litigious than others. Sometimes the maximum damages they could ever seek are no more than nuisance value, but sometimes it's millions of dollars. Sometimes there is an easy way to avoid or "design around" the patents; sometimes not. And of course, businesses receiving such threats have different needs. They have different tolerances for the risks and disruption of patent troll litigation, and they have different tolerances for a "shake down" for license fees. Accordingly, if you receive a threat or are sued by a troll, contact us to "size up" the threat and develop the appropriate course of action to address the threat to meet your business needs.

If you have questions about this alert, this patent troll, or others, please contact Josie Benkers at (608) 283-2675 / [email protected], or your Quarles & Brady attorney.

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