Business

Mass. lawmakers consider a new tool against ‘patent trolls’

State Senator Eric Lesser.

Matthew Cavanaugh for The Boston Globe

State Senator Eric Lesser.

The demands can come out of nowhere, warning companies that their products violate a patent developed by someone else. You could settle, the notices say, or you could fight us in court — a move that often carries a price tag so high that it’s not worth the risk of losing.

Now, Massachusetts lawmakers are taking a hard look at offering businesses a new tool against “patent trolls” — people and businesses that abuse intellectual property laws — potentially giving affected companies the right to sue those who make patent infringement assertions in bad faith.

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A trio of bills before the Legislature take various approaches to the issue, which has been particularly concerning to software companies and startups.

State Senator Eric P. Lesser, an East Longmeadow Democrat who sponsored one of the proposals, called the activity of patent trolls “a silent tax” on innovation. Patent trolls often exist purely to file lawsuits, and a report by RPX Corp. — which provides patent risk-management services — estimated that claims by “non-practicing entities” cost companies $7.4 billion in 2015.

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“Where this really becomes very dramatic and hurts Massachusetts is the kid in the dorm room who’s tinkering, or the very small company,” Lesser said. “It’s a shakedown operation, so what ends up happening is the young entrepreneur, they either get scared and they stop, or they give up the [intellectual property], or they pay the money.”

Following Vermont’s lead in 2013, 31 other states have taken action to combat patent abuse.

Though patent law is determined at the federal level, state lawmakers across the country have decided not to wait for reform, which was a priority of President Obama’s that fizzled in Congress. The Massachusetts proposals would fall under the state’s consumer protection law.

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But businesses here are divided over who should hold the power to sue.

Startups, bankers, and venture capitalists are throwing their weight behind the more aggressive proposals, which like most other recent laws would allow the targets of bad patent claims to take action in state court.

The influential trade group Associated Industries of Massachusetts, however, wants to keep the power with the state attorney general.

During a June 20 consumer protection committee hearing on two of the bills, AIM vice president Bradley A. MacDougall told lawmakers that he fears opening the process up to additional private litigation could disrupt the normal give-and-take over patent assertions.

“State attorneys general are in the best position to distinguish between cases that involve truly deceptive and abusive practices that harm consumers and small businesses, and those cases that are a normal business dispute between private parties,” he said, according to his prepared remarks.

Those pushing for a broader approach include the Massachusetts Bankers Association, the New England Venture Capital Association, the mobile payment startup LevelUp, and the cloud storage backup company Carbonite Inc..

Maia Heymann, cofounder and general partner of the venture firm Converge, said she believes restricting authority to the attorney general’s office “guts the efficacy of the legislation” by denying power to those who need it to defend themselves.

‘Where this really becomes very dramatic and hurts Massachusetts is the kid in the dorm room who’s tinkering, or the very small company . . . It’s a shakedown operation, so what ends up happening is the young entrepreneur, they either get scared and they stop, or they give up . . . or they pay the money.’

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“You’ve got to give these companies the ability to protect themselves,” Heymann said.

Attorney General Maura Healey’s office has not taken a public position on the measures.

Martha Coakley, Healey’s predecessor and now a partner at the law firm Foley Hoag, said she sees a place for both private and state actions to fight patent trolls.

“I would think that there’s nothing mutually exclusive about giving the authority to people who feel victimized by this,” Coakley said.

Many entities seek to make money by licensing intellectual property, even when they are not actively using it. Universities and large companies sometimes make claims of infringement that their targets decry as over-the-top.

But the organizations in the crosshairs of the bill are those that specialize in using broad or vague claims and threats of lawsuits in an effort to get quick payoffs. Lesser’s bill focuses on serial accusers — those who fail to give specifics about the patent and how the targeted company is violating it.

The bills seek to carve out various exceptions — including for academic institutions, manufacturers, inventors, and companies that are actively using their intellectual property.

Leah Chan Grinvald, a Suffolk Law School professor who specializes in studying intellectual property, said the measures being debated in Massachusetts could help ward off the most egregious abuses.

“They’re saying if you’re going to assert your patent, you need to do it in a better manner, in a fully open manner, and in a manner that is not going to be abusive,” she said.

State law can also come into play during patent litigation in federal courts, and a recent US Supreme Court decision made it more likely that patent suits will be lodged where companies are incorporated.

Though similar bills have stalled in previous sessions, Lesser said he’s confident this year is the right time for his bill. It is tentatively scheduled to be heard next month before the Joint Committee on Economic Development and Emerging Technologies, of which he is the Senate chair.

Those in favor of the bill said they’ve detected increased interest in the subject following — of all things — a recent episode of the HBO show “Silicon Valley,” in which the protagonist faces down an absurd patent claim made by a small-time lawyer with no technical background.

Eric Paley, managing partner at the Founder Collective, said the episode was closer to reality than viewers might have realized.

“This is the stuff that’s going on every day,” he said. “It’s literally insane.”

Andy Rosen can be reached at andrew.rosen@globe.com. Follow him on Twitter at @andyrosen.
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