Point of View

NC must take on patent-abusing trolls

May 26, 2014 

During the North Carolina legislature’s 2014 session, its members will consider an important issue affecting North Carolina businesses: patent claims brought by companies that do not produce anything of value or provide a service to the community. The sole goal of a patent-holding company, also known as a “patent troll,” is to bully North Carolina companies by claiming a patent violation when none actually exists.

The two industry groups we represent, the North Carolina Technology Association and the North Carolina Retail Merchants Association, are joined by the associations representing the banks, credit unions, restaurants and lodging, and Realtors in support of efforts to meaningfully address the patent troll problem.

Many patent trolls are shell entities with no assets other than patents and few to no personnel other than lawyers seeking to profit from the patents. North Carolina companies are experiencing an increase in the number of aggressive and sometimes abusive claims by patent trolls, who threaten legal action if a company does not pay a license fee for a patent the troll claims relates to the company’s business.

Small and large businesses across the state have experienced this “shake down” by patent trolls. Retailers, restaurants and hotels have even received patent demand letters based on their use of off-the-shelf office equipment such as fax machines and wi-fi.

Numerous North Carolina companies are spending thousands, and in some cases millions, of dollars to defend themselves against abusive assertions of patent infringement. When these North Carolina companies protect their interests and successfully defend their patents in court, in many cases they cannot recover any expenses from a patent troll. Sadly, money that would otherwise support job creation and additional innovative research in North Carolina is used to pay exorbitant legal expenses, all to the detriment of the economy and people of the state.

The financial and technology sectors, two pillars of the North Carolina economy, have seen a dramatic increase in demands from patent trolls over the past several years. These companies have to choose between paying an extortive settlement or devoting significant resources to defending themselves in court against meritless claims. For example, many financial institutions have been targeted by patent troll demands based on the everyday use of ATMs by their customers!

When a company mounts a successful defense against a patent troll, there is no clear path to recoup expenses. To make matters worse, patent trolls often incorporate themselves and bring their lawsuits in jurisdictions with patent-troll friendly courts, requiring North Carolina companies to travel to places like East Texas and hire additional counsel in Texas law firms for a proper legal defense.

A legislative committee recently recommended a bill that is intended to send a strong message to patent troll companies that they should think twice about bringing a deceptive patent infringement claim in North Carolina.

To address this growing issue, the legislature should amend the state’s Unfair and Deceptive Trade Practices Act to prevent patent trolls from making abusive patent assertions against North Carolina companies. This goal can be accomplished by giving state courts the ability to punish abusive practices and to provide monetary relief to companies targeted by such abusive practices.

The patent troll problem is by no means limited to North Carolina. In fact, 24 other states are considering similar legislation in 2014, nine states thus far have passed legislation and countless state attorneys general, including North Carolina’s, support patent troll reform to defend the businesses in their respective states by curtailing these alarming practices.

We strongly urge our General Assembly to put protections for North Carolina in place to stop such abusive practices.

Brooks Raiford is president and CEO of the North Carolina Technology Association. Andy Ellen is president of the North Carolina Retail Merchants Association.

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