ASKED & ANSWERED: Monte Falcoff on the Bad-Faith Patent Infringement Claims Act


By Steve Thorpe
Legal News

Michigan Gov. Rick Snyder recently signed into law a bill that prohibits “bad-faith” assertion of patent infringement claims and provides for remedies. It provides for a person or entity that is the target of a bad-faith assertion of patent infringement to bring an action in state court against those asserting the patent infringement claims. The bill also authorizes the attorney general to bring civil actions against them. Monte Falcoff, a registered patent attorney and principal of the Detroit office of Harness Dickey, represents some of the most prominent organizations driving IP related commerce today. His patent and trademark clients include multi-national corporations, universities, foreign and domestic privately owned companies, and small U.S. based ventures.

Thorpe: What was the genesis of this bill? Are these sorts of “bad faith” attempts common?

Falcoff: The new Michigan Bad-Faith Patent Infringement Claims Act is one of the rare situations where states become involved with patent issues, which is typically the exclusive domain of the federal courts and U.S. Patent and Trademark Office. Federal law preempts state law in light of the U.S. Patent Act, 35 U.S.C., however, state courts and state contract law are occasionally employed to resolve patent licensing or ownership disputes.

There have been some notorious situations where such patent trolls mass-mailed patent infringement assertion letters to thousands of companies threatening to sue if a royalty was not paid for all products sold. This was done without the patent trolls having a good faith basis, in other words, without having seriously compared the accused products with the patent claims as is typically done.

Not only are significant attorney fees and time incurred to investigate whether there actually is infringement or not, but then to hire litigation counsel, have that firm get up to speed on the facts and then prepare the necessary motions, incurs even greater fees and costs. Essentially, it was a force of extortion.

Thorpe: More than half the states already have some sort of law addressing bad faith assertions of patent infringement. Are so-called “patent trolls” more prevalent in one area – or industry – than another?

Falcoff: Most common in the computer software industry but there have been a few well known situations where entire industries were targeted including all of the automotive OEMs and all Tier 1 suppliers. The phrase “patent troll” refers to non-practicing entities that typically own many patents, do not manufacture or sell anything and their sole business model is to generate revenue through patent licensing. This has been a somewhat recent development that started about 20 years ago.

Thorpe: Does this dovetail with the federal America Invents Act (AIA) passed in 2011?

Falcoff: Not so much. However, the new AIA makes it much easier to invalidate patents using the Inter Partes Review (IPR) procedures in the Patent Office. My firm has worked on more than 40 of these for both patent owners and accused infringers.

Thorpe: What sort of enforcement powers and penalties does the law provide?

Falcoff: The Act allows either the Michigan Attorney General or private individuals/companies to bring a civil action in the state courts to obtain an injunction, costs and fees, actual damages, and exemplary damages. Civil fines and misdemeanor imprisonments are also available for the Attorney General initiated actions.

Thorpe: Here in the Detroit area, things seem to always circle back to the auto companies and their suppliers. Any implications for them?

Falcoff: While there are certainly benefits to automotive OEMs and large suppliers, the greatest benefits are to medium sized and smaller companies. Most large companies have in-house patent staff and are very patent savvy. But the costs are much more significant as compared to profit for a medium sized or smaller company – this gives them more leverage in handling these types of situations.

Thorpe: The U.S. patent system tries to strike a balance that both encourages patent rights and prevents patent abuse. Does this law help or hurt?

Falcoff: That is the tension as discussed above. I am not aware of this type of state anti-trolling law being used against the independent inventor but I can foresee such occurring. If the independent inventor sends out 20 patent introductory letters without doing as much up-front homework or merely as a means to open a conversation with a company in the industry, will he or she be targeted under this Act? That would be unfortunate but I can foresee such occurring in some situations, whether rightly or wrongly so.

Thus, there are some takeaways for Michigan attorneys and companies:

First, attorneys representing patent owners should make sure they do their patent infringement homework or detailed claim chart comparisons before sending cease and desist, or licensing letters to target companies. The revised Federal Rules of Civil Procedure and recent federal court decisions have required much more detail in Complaints asserting patents, however, this now applies to mere enforcement letters too. It was always a good practice for such claim chart comparisons to be prepared beforehand anyway, but not all attorneys and patent owners were so careful and thorough.

Second, mass-mailing letters of large quantity are likely to trigger the new Michigan and other states’ anti-trolling acts.

Third, targeted companies now have a new defense to consider if they receive such mass-mailed patent assertion letters.