Federal Circuit Gets First Crack at State ‘Patent Troll’ Laws

An appeals court will hear the first constitutional challenge of a state law designed to curb abusive practices by companies derisively called “patent trolls,” with implications for dozens of states with similar laws.

A three-judge panel on the patent-focused US Court of Appeals for the Federal Circuit will hear oral argument Nov. 10 in an appeal from Dallas-based Longhorn IP LLC and its patent-assertion unit Katana Silicon Technologies LLC. The companies argue a federal judge abridged their First Amendment rights by improperly invoking Idaho’s bad-faith patent assertion statute to require them to post an $8 million bond before they could press their patent suit against Boise-based semiconductor maker Micron Technology Inc.

Thirty-four states, including Idaho, have enacted statutes targeting allegedly abusive patent owner practices since Vermont became the first in 2013. Alternatively titled as “bad-faith assertion” or “patent troll prevention” laws, the statutes were a response to concerns about the proliferation of “non-practicing entities,” which don’t make products embodying the inventions but aggressively assert patents through litigation and demand letters for payment from companies that do.

The case “presents the Federal Circuit’s first opportunity to engage both with the substances of these state anti-troll laws as well as the potential federal constitutional limits on them,” said Paul Gugliuzza, a law professor at the University of Texas who has written about the laws and whether they’re preempted or can co-exist with federal patent statutes.

Escape Hatches

Idaho’s 2014 law makes it “unlawful for a person to make a bad faith assertion of patent infringement in a demand letter, a complaint or any other communication.” Under that law, an accused infringer can force a patent owner to post a bond to cover the target’s potential legal costs if it can show it’s likely the patent owner is acting in bad faith.

Longhorn contends Idaho’s law “is arguably the most extreme” bad-faith assertion law in the country, arguing in its opening brief the entire law “and particularly its bond provision are unconstitutional and preempted.”

Micron responded that Idaho’s law is hardly an outlier and instead “fits squarely within the norm and readily passes constitutional muster.”

Whether the Federal Circuit will bless or rein in the state laws is difficult to predict, Gugliuzza. Prior opinions that might bear on that question point in both directions, he said—some where the court policed state-law encroachment on patent-assertion activity and others that would let state and federal laws co-exist.

What’s more, the as-yet-unannounced panel could sidestep the thorniest questions altogether because the district court decision under review isn’t a final judgment and may not be ripe for an appeal.

The court could also focus narrowly on the particulars of the bond requirement and dodge the broader constitutional questions, Gugliuzza said, since that isn’t a common feature among similar state laws.

“There are a lot of escape hatches for the Federal Circuit” if the judges don’t have an appetite to get to the ultimate question of constitutionality, he said.

Newer Approach

Suits invoking these state laws are rare but have increased in the past four or five years, said Josh Landau, senior counsel at the Computer & Communications Industry Association, which filed an amicus brief urging the Federal Circuit to side with Micron and uphold the law. He said companies bringing those claims have to meet a “high standard.”

“Bad faith has a pretty stringent meaning,” he said.

The laws have an important role to play, CCIA argued, because deceptive patent demand letters and assertion campaigns remain prevalent even after the state laws were introduced as a deterrent.

“When such abusive assertions do occur these laws frequently provide the best—and often the only economically feasible—means to address those assertions,” its brief said.

Claims under bad-faith assertion laws are used sparingly in part because they’re still a new approach within patent law, said Lionel Lavenue, a patent litigator at Finnegan, Henderson, Farabow, Garrett & Dunner.

Lavenue said he doesn’t expect the Federal Circuit to make a sweeping ruling either rendering the laws preempted or constitutionally sound.

“If I were the judge,” he said, “I might be willing to look at the specific issues with the bond requirement and see if there’s some fine tuning they can do.”

Carter Arnett PLLC is arguing the case for Longhorn and Katana. Micron is represented by Perkins Coie. The state of Idaho is represented by its Office of Attorney General.

The case is Micron Tech. Inc. v. Longhorn IP LLC, Fed. Cir., 23-2007; 23-2095, oral argument.