Legal Counsel: Oklahoma law fights bad faith patent demand letters

David M. Sullivan: Like the mythical green creature guarding a bridge and demanding fees from travelers, “patent trolls” are individuals or companies who seek to enforce patent rights against accused infringers in an attempt to collect license fees or royalties.
By David M. Sullivan, For The Oklahoman Modified: July 28, 2014 at 11:00 am •  Published: July 27, 2014
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On May 16, Gov. Mary Fallin signed into law an act that is designed to discourage bad faith allegations of patent infringement. Traditionally, patent infringement litigation was primarily fought between marketplace competitors — often large companies with competing products and patent portfolios. Unwary consumers were rarely involved in patent litigation.

Over the past several decades, however, a new business model has developed around the threatened enforcement of patents. Like the mythical green creature guarding a bridge and demanding fees from travelers, “patent trolls” are individuals or companies who seek to enforce patent rights against accused infringers in an attempt to collect license fees or royalties.

Patent trolls (sometimes referred to as a “non-practicing entity”) do not manufacture products covered by the asserted patent and are usually disconnected from the scientific development that led to the patent. In many cases the patent at issue was obtained by the patent troll through the auction of an intellectual property portfolio following the collapse of a high-tech company.

The standard patent troll runs a high-volume business that relies on the complicated and expensive nature of patent infringement litigation. It may take an experienced attorney many hours just to perform a preliminary evaluation of the merits of an infringement claim. Recognizing that many businesses and individuals do not have the capacity to investigate and sustain a prolonged patent infringement defense, the patent troll sends lots of demand letters to unsuspecting recipients who were unaware of the asserted patent. These demand letters often include a subtle suggestion that infringement may have occurred and advise the recipient of the opportunity to license the asserted patent.

Successful patent trolls have priced the license at an amount that is less than the cost to investigate and defend the lawsuit. Faced with the certain costs of defending a patent infringement case and the uncertain outcome of complicated litigation, many accused infringers fall victim to the troll and pay the demanded ransom to be released from the claim.

This isn’t a small problem. President Barack Obama recently weighed in on the subject, and a commonly cited study by Boston University professors James Bessen and Michael Meurer estimates that the direct costs to defendants from patent troll claims totaled about $29 billion in 2011.

Although patent litigation remains within the exclusive province of the federal courts, the new Oklahoma law follows other consumer protection initiatives and creates causes of action based on the bad faith assertion of a patent infringement claim.

Generally, the Oklahoma law prohibits sending an infringement notice that falsely states that litigation has been filed against the recipient, that presents a pattern of threatened litigation with no litigation actually filed, or that makes assertions that lack a reasonable basis in fact or law.

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