TECHNOLOGY

New York's Attorney General Puts Patent Trolls on Notice

Attorney General Eric Schneiderman lays the groundwork to rein in patent troll abuse and fraud in New York.
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Tuesday morning, New York Attorney General Eric Schneiderman announced a settlement with alleged patent troll MPHJ Technology, which resolves hundreds of law suits MPHJ has threatened to file against the state's small and mid-sized businesses.

The settlement imposes strict new requirements on MPHJ, a Delaware-based patent company claiming rights to email and scanner technology, should it file future patent suits in New York state. While the settlement only applies to MPHJ, which counts patent licensing fees as a key source of revenue, Schneiderman plans to apply those terms to other firms that similarly buy up patents and require licensing fees or litigating against use of patents.

The settlement could pose implications for businesses beyond NY's borders, as similar actions are being brought across the country and regulators are attempting to resolve them. 

"So-called 'patent trolls' exploit loopholes in the patent system and have become a scourge on the business community," Attorney General Schneiderman said in a statement. "They drain critical resources from small and medium-sized businesses that would otherwise be available for reinvestment and job creation, which are sorely needed across New York."

The new rules serve as minimum standard for other patent trolls, the attorney general's office said. They're also meant to stave off abusive and deceptive practices at the heart of the action against MPHJ.

Going forward, NY-patent holders must make a serious good-faith effort to determine if a targeted business has engaged in infringement, which would prevent mass-mailings of accusations to businesses. The new guidelines also require patent holders to explain in detail the basis of their claims, and they prevent non-practicing entities (NPEs)--or, companies that enforce patent rights to extract licensing fees--from misleading businesses about potential licensing fees.

Patent trolls may no longer use attorneys to make threatening claims for which they have no basis. Finally, the new guidelines prohibit patent trolls from hiding their identities, so that businesses can get information about who's suing them.

"State law enforcement can't cure all the ills of the federal patent system, but the guidelines established in today's settlement will put an end to some of the most abusive tactics by placing the industry on notice that these deceptive practices will not be tolerated in New York," Schneiderman said in his statement.

New York follows Minnesotta, whose Attorney General Lori Swanson, settled with MPHJ in August. Vermont and Nebraska's attorney generals are also involved in enforcement actions with MPHJ.

New York's settlement follows yesterday's decision by the Supreme Court not to hear an appeal from alleged patent troll Soverain Software. A separate decision by a federal district court overturned an award settlement it had won at the state level for $2.5 million against online retailer Newegg.

Congress is also considering legislation that would make it more difficult for trolls to sue, including making them pay for court costs.

Patent trolls cost U.S. businesses about $29 billion in 2011, according to research by Boston University.

IMAGE: Flickr/iPhil Photos
Last updated: Jan 14, 2014

JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and Inc.com

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.




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