Patent Trolls and Preemption

Abstract

Patent law is usually thought to be the domain of the federal government, not state governments. Yet over half the states have recently passed statutes outlawing unfair or deceptive assertions of patent infringement. The statutes are aimed at fighting so-called patent trolls, particularly those who send letters to users of allegedly infringing technology — as opposed to the manufacturers of that technology — demanding that each user purchase a license for a few thousand dollars or else face an infringement suit. The Federal Circuit, however, has held that state law claims challenging acts of patent enforcement are preempted by the federal Patent Act unless the patent holder made infringement allegations with knowledge that the allegations were objectively baseless. No court has yet applied this rule to the new state statutes, but it will likely provide patent holders with nearly absolute immunity from liability under the new laws. Although the Federal Circuit has called this immunity a matter of “preemption,” a close examination of the court’s decisions reveals that the rule is not grounded in the Supremacy Clause but in the First Amendment right to petition the government. Unlike the Supremacy Clause, the First Amendment limits the power of the federal government, not just state governments, so patent holders will also be able to invoke this immunity to thwart impending federal initiatives to fight abusive patent enforcement, such as unfair competition proceedings brought by the Federal Trade Commission and proposals in Congress to outlaw false or misleading statements made in patent demand letters. This article argues that the broad immunity the Federal Circuit has conferred on patent holders is wrong as a matter of doctrine, misguided as a matter of policy, and inconsistent with a long history of courts enjoining unfair and deceptive acts of patent enforcement. Accordingly, the article suggests a reimagined immunity standard that would not shield extortionate schemes of patent enforcement but would still respect a patent holder’s right to make legitimate allegations of infringement.