Testing the Limits of State ‘Anti-Troll’ Laws

The U.S. Court of Appeals for the Federal Circuit on Monday heard oral argument in Micron Technology v. Longhorn IP, a test of state “anti-troll” statutes’ interplay with federal patent law. As inter partes review (IPR) becomes more and more difficult to obtain, those state statutes could play an important role in discouraging abusive patent enforcement—provided they are deemed to be constitutional.

Idaho’s Statute

Over 30 states have enacted laws prohibiting “bad faith” assertions of patent infringement. The laws were designed to discourage and punish the sorts of aggressive and dubious patent demands often associated with so-called patent trolls.

The anti-troll statute at issue in Micron, adopted in Idaho, makes it unlawful to assert patent infringement in bad faith, whether in a demand letter, a complaint filed in court, or any other communication. As remedies, the Act authorizes the targets of bad faith assertions to recover treble damages, litigation costs, and attorneys’ fees.

Importantly for the case pending at the Federal Circuit, the Idaho statute also empowers courts to require alleged trolls to post a bond. It states:

“Upon motion by a target and a finding by the court that a target has established a reasonable likelihood that a person has made a bad faith assertion of patent infringement . . . , the court shall require the person to post a bond in an amount equal to a good faith estimate of the target’s costs to litigate the claim and amounts reasonably likely to be recovered under this chapter, conditioned upon payment of any amounts finally determined to be due to the target.”

Idaho Stat. § 48-1707.

The Dispute

In 2022, after being sued in federal district court in Texas for infringing three expired patents, Micron countersued Katana Silicon Technologies and Longhorn under Idaho’s anti-troll law. Micron also sued Longhorn in Idaho state court.

After the cases were consolidated in federal district court in Idaho, Judge David Nye ordered Katana and Longhorn to post an $8 million bond before their infringement case could proceed and rejected their argument that federal patent law preempted the Idaho statute.

Katana and Longhorn appealed that order to the Federal Circuit. (For the rest of this post I’ll refer to Katana and Longhorn collectively as “Longhorn”).

‘Preemption’ and Federalism

At the heart of the appeal is a constitutional question: Do state laws punishing bad faith patent assertions improperly interfere with federal patent law? The Federal Circuit has in some decisions offered patentees broad immunity from civil liability for their patent assertion activity, holding that accused infringers must show, by clear and convincing evidence, that the patentee’s infringement claims were both objectively baseless and made in subjective bad faith.

I’ve argued at length that that immunity standard is wrong as a matter of history, doctrine, and policy. The objective baselessness requirement in particular lets patentees engage in misleading and abusive enforcement activities so long as their underlying infringement allegations are not utterly implausible on the merits.

(I’ve also argued that that the Federal Circuit is wrong to say that this immunity is a matter of “preemption” under the Constitution’s Supremacy Clause; it’s really about the right to petition under the First Amendment. But understanding that error isn’t essential to understanding this post).

If the Federal Circuit were to approve of states outlawing bad faith assertions of federal patents, it would, in my view, be consistent with a long history of federal courts—including the Federal Circuit itself (sometimes)—imposing civil liability on patentees who assert their patents in, to use the very term used by the courts—including the Federal Circuit itself (sometimes)—“bad faith.”

That flexible, equity-based standard considers both the objective merit of the infringement allegations and the subjective intent of the patentee as judged by, among other things, its enforcement tactics. Embracing “bad faith” as the relevant “preemption” rule would allow state statutes outlawing bad faith assertions of infringement to coexist with federal patent law.

The Practical Stakes

In disputes involving nonpracticing patentees in particular, state statutes outlawing patent assertions made in bad faith help level the economic playing field. Some nonpracticing  patentees—those who Mark Lemley and Doug Melamed have labeled “bottom feeder” trolls—rely on the anticipated cost of litigation to obtain settlements for less than it would cost to hire a lawyer to investigate or defend against the infringement allegations. And, unlike a competitor patentee, who can be countersued for infringement (think: Apple v. Samsung), an nonpracticing plaintiff can’t be countersued because they don’t make or sell anything.

This economic recalibration—under which a nonpracticing patentee will have to consider the threat of a countersuit for bad faith assertion—has taken on new importance with the Director of the U.S. Patent and Trademark Office (USPTO) seemingly intent on dismantling IPR—which, over the past decade plus, has served as a relatively low cost way to invalidate patents that never should have issued—precisely the sort of patents often asserted by “bottom feeders.”

As I argue in a draft article, making IPR more difficult or even impossible to obtain will lead to a resurgence of large-scale enforcement campaigns involving patents that are probably invalid. In a patent system without IPR, state statutes prohibiting bad faith patent assertions will provide a crucial check on abusive behavior—if those statutes are constitutional.

Federal Circuit Jurisdiction

Despite the high stakes in Micron v. Longhorn, the Federal Circuit may not reach the merits. It’s possible the Federal Circuit will dismiss the appeal as premature because the district court’s order requiring Longhorn to post a bond was not a final, case-ending judgment.

In the first minutes of oral argument, Judge Lourie raised precisely that point; Judge Stoll returned to it later on. Longhorn’s attorney, Scott Breedlove of Carter Arnett, responded by arguing that the bond order is essentially an injunction since, under the district court’s order, the infringement case can’t continue until Longhorn posts the bond. And injunctions are immediately appealable.

That argument, however, might be stymied by Longhorn’s admission during oral argument that the record contains no evidence that Longhorn is unable to pay to obtain a bond or even how much the bond would cost.

Other Observations from Oral Argument

On the merits of its preemption argument, Longhorn leaned heavily on what it viewed to be the anomalous nature of Idaho statute, including that it governs not just statements made in demand letters but also allegations made in complaints filed in federal court, as well as the bond requirement.

In response, Micron’s attorney, Andrew Dufresne of Perkins Coie, noted simply that many states’ anti-troll statutes apply to complaints in addition to assertions made outside of court. And many of those statutes also impose bond requirements.

It was only on rebuttal that Longhorn reached the most classically appealing policy argument in favor of finding Idaho’s statute, or at least parts of it, to be preempted: the inconsistency that could result from different states adopting different laws governing the enforcement of a federal patent.

Looking Ahead

It’s dangerous to predict the outcome of a Federal Circuit appeal. But it seems a good bet that any ruling will be narrow. My cautious and quite possibly wrong prediction is that the Federal Circuit will hold the appeal to be premature. If the Federal Circuit does reach the merits, it will probably focus on discrete questions about the bond requirement or the Idaho statute’s explicit reference to “complaint[s]” for patent infringement.

It seems unlikely the Federal Circuit will opine on the constitutionality of state anti-troll statutes more broadly. In fact, throughout the argument, the judges and lawyers—on both sides—played fast and loose about what, exactly, the constitutional “preemption” standard is, sometimes emphasizing case law that requires clear and convincing evidence of objective baselessness and subjective bad intent but at other times acknowledging that “bad faith” can be enough.

Whether or not the Federal Circuit reaches a merits decision in Micron v. Longhorn, the case foreshadows an emerging tension between state efforts to curb patent abuse and the federal government’s power over patent law—a tension that’s sure to grow as low-cost agency review of patentability, in the form of IPR, becomes more difficult to obtain.