By: Schuyler Abbott
Patent Trolls have taken a big hit when a North Carolina federal judge shot down a constitutional challenge to a law in the state[1]. The challenged law is one of many recent statutes aimed at stopping “Patent Trolls,” specifically by prohibiting a person from making a “bad faith assertion of patent infringement.”[2] Patent trolls are generally non-producing entities who purchase patents from bankrupt companies.[3] Rather than produce goods themselves, trolls attempt to seek out companies who have integrated their patent into products on the market.[4] Should the troll find a target, they threaten to sue unless a license agreement is signed, normally at a significantly higher than average rate.[5]
The central claim made in the North Carolina case was that the law designed to stop trolls violated the First and Fourteenth Amendment as well as the Commerce Clause.[6] The defendant claimed that the First Amendment was violated as the act not only puts a content-based restriction on speech, but also compels it.[7] The court determined that the North Carolina Act properly contemplated this issue by specifically targeting “bad actors” who are seeking out quick pay-days and therefore strict scrutiny does not apply.[8] The court further determined that the Act does not compel speech, but “provides a number of factors a court may consider before making a finding of bad faith.”[9] In fact, the Court points out that neither the defendant nor the Court itself could find any case in which “a statute’s discretionary factors have been construed as compelling speech.”[10]
The defendant further claims the North Carolina act violates the Due Process Clause of the Fourteenth Amendment by “irrationally policing bad faith” while providing exemptions for other non-operating companies.[11] To be successful on this claim the defendant attempted to persuade the Court to use a strict scrutiny test, as the act was about speech, a fundamental right. However, the Court had previously struck down the speech argument and therefore the rational basis test was utilized, resulting in the denial of the motion to dismiss.[12]
While this challenge has been successful for the government, as cases concerning similar laws are just starting to be heard after being implemented in over 30 different states.[13] Another lawsuit out of Oregon, concerning the same defendant and similar law, was also shot down by a federal judge, protecting the anti-trolling statute there.[14] The continued challenge of these laws is inevitable, as the patent trolls are highly profitable.[15] The precedent set by the Oregon court as well as the North Carolina court is a good sign for those in opposition of the trolls. These laws give patent trolls something to lose, which could make them think twice before attempting to litigate in bad faith for a quick buck.[16]
[1] Ryan Davis, NC ‘Patent Troll” Law Survives Constitutional Challenge, Law360 (Aug. 19, 2021, 7:04 PM), https://www.law360.com/technology/articles/1414519/nc-patent-troll-law-survives-constitutional-challenge.
[2] Napco, Inc. v. Landmark Tech. A., LLC, No. 1:21-CV-00025, 2021 U.S. Dist. LEXIS 156605, at 4, 5 (M.D.N.C. Aug. 19, 2021).
[3] Anna Mayergoyz, Symposium: Process and Procedure in WTO Dispute Settlement: Note: Lessons from Europe on How to Tame U.S. Patent Trolls, 42 Cornell Int’l L.J. 241 (2009).
[4] Id.
[5] Id.
[6] Napco, 2021 LEXIS 156605, at 2
[7] Id. at 40.
[8] Id. at 44-45
[9] Id. at 48.
[10] Id. 48.
[11] Id.
[12] Id. at 49-50, 62.
[13] Davis, supra note 1.
[14] Id.
[15] Mayergoyz, supra note 3
[16] Id.