A legal filing from Nebraska Attorney General Jon Bruning (R) this week provides the first detailed arguments that practices commonly described as "patent trolling" violate Nebraska's unfair competition law. Bruning describes letters sent by the law firm Farney Daniels to Nebraska businesses demanding patent-licensing fees as deceptive, unfair and coercive. A representative from the law firm disputes these charges.
I first reported on Bruning's anti-troll campaign last month. Bruning sent a letter to Farney Daniels, a Texas law firm that has sent patent-related legal threats to Nebraska businesses. Bruning's letter warned that some of those threats appeared to lack legal merit, and that sending frivolous licensing demands to Nebraska businesses may violate the state's laws against unfair and deceptive business practices.
But the firm wasn't intimidated. To the contrary, Farney Daniels added Bruning as a defendant to a pending patent lawsuit filed by one of its clients, Activision TV, against a Nebraska bank. Activision argues that it hasn't violated Nebraska law. Even worse, Activision says, Bruning's letter violated Activision's constitutional rights, including the right to the counsel of its choice.
"We will not be deterred from protecting Nebraska consumers and businesses by the bully tactics of patent trolling law firms or their clients," Bruning's office said the week the amended lawsuit was filed.
In a Tuesday filing, Bruning says Activision's lawsuit misses the point. Activision doesn't seem to fit the conventional definition of a patent troll; its Web site says it "designs, manufactures, licenses and markets digital flat panel display systems." Bruning says he has no quarrel with the company. Rather, his dispute is with other Farney Daniels clients that don't practice the technologies covered by their patents. Of particular concern: a firm called MPHJ that demands that businesses pay $1000 per worker for using scanners connected to a network.
MPHJ has crossed swords with state attorneys general before. Vermont Attorney General William Sorrell sued the firm earlier this year. And last month, the firm reached a settlement with Minnesota Attorney General Lori Swanson.
Bruning's filing lays out his legal argument against firms like MPHJ that demand payments from many different firms. "The very nature of Farney Daniel's wide patent solicitation campaign depends on filing suits rarely, if ever," he argues. "Lawsuits risk the invalidity of the patent, which would collapse the entire scheme. Rather, Farney Daniels has a strong incentive not to sue, and if they do sue, not to serve summons or otherwise prosecute the case fully, always giving it the option of dismissing a complaint."
Threatening lawsuits against parties you have no intention of actually suing likely violates Nebraska law against deceptive business practices, Bruning argues. It also violates Nebraska law's separate prohibition on unfair practices, which include "coercive, high-pressure sales and collection tactics" and "taking advantage of a vulnerable group."
But Brett Johnson, an attorney with Farney Daniels, disputes these claims. "Those letters are lawful and appropriate," he said via e-mail. He says MPHJ generally can't tell if a business has infringed its clients' patents based on publicly available information, so "the letters are needed to confirm that a suspected infringer actually does infringe."
Moreover, Johnson says, MPHJ "gave very easy ways in which a recipient could determine if they did not infringe and accepted on faith any statement from a recipient that it did not infringe." Hence, Johnson says, these letters "simply were not deceptive, coercive or unfair" even if sent to those who didn't infringe.
Bruning disagrees. "The Farney Daniels' letters are definitely coercive," Tuesday's brief argues. "It is Farney Daniels' entire scheme, essentially, to take advantage of businesses'—and in at least one case, nonprofits'—lack of expertise in patent law and patent infringement."
He contends that Farney Daniels "put unnecessary and unreasonable pressure on the business to enter into agreements by threatening an expensive patent suit if the targeted businesses do not pay an undisclosed licensing fee within a short span of time."
Johnson denies these charges. And while he doesn't deny that MPHJ fits the conventional definition of a "troll," he suggests that Bruning and other critics' real problem with MPHJ and its scanner patents is that they "simply believe there should not be patents on this." But that, Johnson says, is an argument for changing patent law. It's not a reason for MPHJ to stop enforcing what Johnson contends are valid and widely-infringed patents.