Beware Pitfalls In North Carolina’s Patent ‘Troll’ Law

By Daniel Walker Cole

Suppose you are a small company in California asserting a patent against a North Carolina-based company. You gathered finances, hired a lawyer, and filed a complaint. Now you are ready to start litigating your patent infringement case, but you receive a summons for violating NC 75 Article 8. This may seem utterly fantastical, but under North Carolina’s anti “patent troll” legislation it is not.

Next to issues surrounding 35 USC section 101, the supposed abusive litigation by “patent trolls” is one of the most discussed issues in patent law. North Carolina, along with several other states, has enacted laws aimed at curbing this practice. The law, however, suffers from several potential pitfalls. It gives North Carolina courts personal jurisdiction over anyone who sues a North Carolina based entity for patent infringement, even if the patent infringement suit takes place in another state. Lack of contacts, other than serving a North Carolina based entity, are irrelevant. Accordingly, a discussion on the likelihood of federal preemption follows.

Preemption can be express, field, or conflict. Express preemption exists when congress explicitly withdraws powers from the states. Field preemption is a variation of implied preemption where the federal government has fully occupied the field leaving no space for supplemental state regulation. Conflict preemption exists when the state law conflicts with federal law. It would seem obvious then under express, field, and conflict preemption that states cannot set up their own patenting schemes. The Supreme Court said as much in Bonito Boats v. Thunder Craft Boats where a state law that would have provided patent-like protection for unpatentable boat designs was deemed unconstitutional.

It can of course be argued, as in Patent Trolls and Preemption by Paul R. Guggliuzza, that the laws are not regulating patentability but by patent enforcement. However, federal courts may already require that losing plaintiffs must pay the defendants’ legal fees. This would certainly seem to be regulation of patent enforcement.

Furthermore, similar to the law in other states, the law in North Carolina includes “pursuing a meritless claim of patent infringement” as an example of an abusive patent assertion. It also allows the court to include anything else it deems relevant. It seems unlikely that following these aspects of the law without at least considering the validity of the patent is possible. This, of course, would impinge on the federal government’s exclusive right to determine patentability. However, the major remedy is posting a bond. Any fees the defendant is ordered to pay by another court “related to” patent infringement may be paid out of the bond. A patent owner who prevails in their federal infringement case would presumably have any bond money posted returned. How this might affect preemption is unknown.

Ultimately, it is uncertain if federal law preempts this new rash of state laws. It may be that the Federal Circuit’s reliance on the Noerr-Pennington doctrine when it held that states could only outlaw objectively baseless patent suits is misplaced. If so, state courts may not have to infringe on the federal government’s authority. Or, the objectively baseless requirement may only allow removal to federal court rather than preemption of the law. Consequently, a defendant accused of violating one of these state anti “patent troll” laws would be wise to raise the issue discussed herein.