States target bad faith over patent-infringement claims

JEFFERSON CITY, Mo. -- Companies accused of abusing patent claims to seek fees and settlements are themselves becoming a target as states across the U.S. take aim against what some call "patent trolls."

Missouri lawmakers are the latest to address the issue, recently approving legislation barring letters and emails that claim in bad faith a patent has been infringed. The measure would allow those who have been targeted to sue.

"It is a scam," bill sponsor Sen. Mike Cunningham, a Republican from southern Missouri, said.

Banks, restaurants, hotels and other businesses have received letters threatening them for use of technology, such as scanners and Wi-Fi networks. Letters can seek payments -- in some cases $900 or $1,200 -- per employee, a White House report said last year.

The White House report, prepared by the President's Council of Economic Advisers, the National Economic Council and the Office of Science and Technology Policy, estimated at least 60,000 and potentially more than 100,000 threats had been lodged in the past year.

Since Vermont enacted a law in 2013 similar to what awaits Gov. Jay Nixon's decision in Missouri, state capitals increasingly have waded into the issue. In all, nine states now have enacted laws, according to the National Conference of State Legislatures, and lawmakers have passed bills in four states other than Missouri.

Congress also is considering patent legislation, and a letter signed by 42 state attorneys general -- including Missouri's Chris Koster -- indicated support for congressional action while also seeking to ensure states have authority to act.

Patents are granted by the federal government to inventors and prevent others from making, using or selling an invention, process or application.

The American Intellectual Property Law Association reported that a survey of its members indicated the median cost for litigating a patent can range from $650,000 where less than $1 million is at risk to $5 million when more than $25 million is at risk.

A leading supporter of Missouri's legislation has been the state bankers' association, which says money is being drained out of businesses. The industry group says Missouri's legislation focuses on the demand letters.

Under Missouri's bill, factors that courts could consider as evidence of a bad-faith assertion include: demand letters that lack a patent number, the name and address of the patent owner or allegations about how the target infringes the patent. They also could consider whether it demands a license fee or a response within an unreasonably short time.

Evidence an assertion was not in bad faith would include engaging in good-faith efforts to establish an infringement and negotiate a remedy, the bill says.

Chuck Pierce, a lobbyist for the Missouri Society of Certified Public Accountants, said the legislation "sets up a state cause of action that we hope makes Missouri and Missouri businesses a much less attractive target for these patent-trolling companies than a state that doesn't have this law."