The fight over a set of state laws punishing bad-faith patent assertion is heating up before the Federal Circuit. In June 2023, monetization firm Longhorn IP LLC and affiliate Katana Silicon Technologies LLC filed an appeal over one such law in Idaho, both seeking to overturn an $8M bond imposed against them under that statute in litigation with Micron—apparently the first time such a bond has been ordered—and to invalidate the statute as preempted by federal patent law. Now, as Micron and Idaho lay out their positions in response briefs, they have received additional support: 27 other states and the District of Columbia have sought leave to file an amicus brief in support of upholding Idaho’s law, as have two industry associations.
As detailed in RPX’s prior coverage, the Idaho statute at issue—Idaho Code § 48-1701, et seq.—provides a cause of action for companies that receive patent demands brought in “subjective bad faith” or where an asserter “would know or reasonably should know that such assertion is meritless”. The law allows an accused infringer to establish such a claim in part by showing a pattern of such meritless claims. In June 2022, Micron filed an Idaho state court complaint against Longhorn IP that invoked this law, arguing that Longhorn IP had displayed the requisite pattern of behavior in its litigation against the company through an adverse ruling on standing against Longhorn-controlled plaintiff Lone Star Silicon Innovations LLC, a set of losses before the Patent Trial and Appeal Board (PTAB), a “less-than-nuisance-value” settlement offer (a basis for a “bad faith” claim that the state law explicitly contemplates), and a series of subsequent negotiations with second plaintiff Katana in which the NPE pushed forward with “exceptionally weak” claims despite receiving Micron’s evidence on noninfringement and invalidity. The company sought a $15M bond from Longhorn IP, encompassing an estimated $3.75M in costs and fees stemming from the Katana litigation, including $3M for defending against Longhorn’s federal litigation asserting the three Katana patents and $250K per patent for inter partes reviews (IPRs), plus treble damages.
Longhorn removed the case to the federal District of Idaho in July 2022 (1:22-cv-00273), moving to dismiss later that month.
District Court Rules That the Idaho Law Is Not Preempted, Grants $8M Bond
In May 2023, Judge Nye denied Longhorn IP’s motion to dismiss along with a parallel motion to dismiss filed by Katana in a related declaratory judgment action against Micron, rejecting the defendants’ argument that the Idaho statute is unconstitutional as preempted by federal patent law. In particular, he determined that the statute is not expressly preempted because “federal patent law does not generally preempt state unfair competition law, which the Act could be read to be”.
With respect to implied preemption, Judge Nye ruled that the “fundamentally federal nature of patent rights”, as considered against the states’ police power to protect businesses, weighs against applying the presumption against implied preemption. Turning then to the merits, he then ruled that the law was not invalid due to implied preemption—including via field preemption, which applies where Congress has passed a statute intended to “occupy a field exclusively” (citations omitted). Here, Judge Nye observed that Congress had “neither passed legislation outlawing bad faith patent assertion nor established a standard for finding bad faith”, creating a policy vacuum properly filled by the states. The court thus found that Congress’s “continued silence” in the face of the more than 30 state laws targeting bad-faith patent assertion “constitutes acquiescence”.
Judge Nye additionally determined that the law was not invalid due to conflict preemption, which is where a law conflicts with a federal statute, on two overarching bases. For the first, impossibility preemption, he concluded that the Idaho law did not render it “impossible for courts to apply both state and federal standards”, determining that Idaho’s law actually “plays in close harmony with the federal standard”: Rather than supplanting the federal good-faith standard, the Idaho law’s factors “facilitate the application of the federal standard by illustrating what kinds of behavior could constitute bad faith”. Nor did he find that the law was invalid due to impossibility preemption for failing to require evidence of both objective and subjective bad faith as required by federal law, as asserted by the defendants. Judge Nye instead determined that a catch-all provision allowing courts to consider any relevant factor overcame a potentially problematic grammatical limitation that might have otherwise required either objective or subjective bad faith, but not both.
Second, Judge Nye held that the Idaho statute was not invalid due to obstacle preemption, which applies where a law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” (citation omitted). Rather than serving as such an obstacle by disrupting the balance of incentives set by the Patent Act, as alleged by the defendants, Judge Nye found that the Idaho law “strikes a similar balance to the one struck by Congress” by setting a policy against infringement, in part by allowing for quadruple damages upon a showing of bad-faith assertion. Though acknowledging that the Patent Act merely provides for treble damages, the court declined to find that this distinction upsets the balance set by Congress, explaining that while Congress has addressed the “tactical compromise” between the “risks and potential rewards of litigation” with respect to attorney fees (35 USC § 285), it has not done so “in the context of bonds and damages”, as there is “no federal statute on bad faith assertion of patent infringement”. Again, Judge Nye found the Congressional silence on this matter to be dispositive: “As discussed, this is an area where Congress has been content to let states do the legislating—and courts asked to review those state acts have upheld their constitutionality”.
Judge Nye also addressed the issue of immunity under the Noerr-Pennington doctrine, which has been applied by courts to bar claims that limit a party’s First Amendment right to petition the government to redress a grievance. Here, Judge Nye notes that the standard does not apply to “sham litigation”, which has been defined as a case that is “objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits”—i.e., a reasonableness standard. Judge Nye declined to resolve the Noerr-Pennington issue at this stage, holding that the question of whether Longhorn IP and Katana had engaged in “sham litigation”, which must be answered to determine whether the Idaho law unconstitutionally interferes with their right to petition the government, was too fact-intensive to resolve through a motion to dismiss.
After rejecting a timeliness argument and the defendants’ challenge to the adequacy of the pleadings, Judge Nye concluded that “Micron’s complaint pleads enough facts to allow a finding under the statutory factors that Longhorn and Katana acted in bad faith”, proceeding to set a bond. While he found no evidence that Micron’s bond amount—which began with an American Intellectual Property Law Association (AIPLA) estimate of the cost of defending against a single-patent infringement suit, and multiplied by three to account for the number of asserted patents—Judge Nye found that this failed to account for certain efficiencies, such as the fact that a deposition does not need to be held three times for a three-patent suit. As such, he adjusted downward and determined that $2M was a good-faith estimate of Micron’s costs, which plus treble damages resulted in an $8M bond amount. Judge Nye subsequently stayed the litigation pending the outcome of the defendants’ appeal and the outcome of IPRs against the patents asserted by Katana.
On Appeal, Parties and State of Idaho Spar over Preemption and Other Issues
In June 2023, Longhorn IP and Katana filed an interlocutory appeal to the Federal Circuit, challenging the constitutionality of the state statute as to obstacle preemption as well as the bond imposition (23-2007). There, Micron filed a quick motion to dismiss the appeal (principally, as premature), which was denied.
– Longhorn IP’s and Katana’s Opening Brief
In February 2024, Longhorn IP and Katana filed their opening brief, arguing that an interlocutory appeal is necessary and that the district court committed clear error by requiring the plaintiffs to post a multimillion-dollar bond, based solely on the complaint of “home-town juggernaut Micron”, before it can file an affirmative patent infringement suit. Longhorn IP and Katana also assert that Micron has failed to meet the required threshold of objective bad faith, characterizing the latter’s arguments as mere “disagreements with Katana’s infringement analysis and claim construction”.
More significantly, the two appellants again argued that the Idaho statute itself is preempted, asserting in part that the statute not only fails to establish a presumption of good faith as required under federal patent law, but also, by providing factors for establishing that an assertion is not made in bad faith, improperly presumes bad faith. The statute further contradicts the Patent Act, they contend, by allegedly discriminating against patent owners that do not make or use products based on their patents (through a factor contemplating as such). Moreover, Longhorn IP and Katana insist that the lower court was wrong to determine that Idaho’s law did not frustrate Congress’s intent by skewing the relevant incentives: Rather, they argue that Idaho’s law “goes too far” in giving accused infringers tools to block the enforcement of patents against them, and “badly distorts the balance of rights in patent litigation expressly, displacing Congress’s ‘chosen calculus of litigation incentives and disincentives’”—meaning, the balance between the prospect of enhanced damages against the defendant on one hand, and the potential for sanctions against a plaintiff on the other. The appellants also claim that the statute risks treading on their First Amendment right to petition the government for redress, essentially asking the Federal Circuit to resolve the question of Noerr-Pennington immunity in its favor. By regulating “federal petitioning activity”, they argue, the “threat of a punitive bond and substantial liability, including quadruple damages” (emphasis added) that the Idaho law imposes for activity allegedly permitted under federal patent law “risks chilling speech and blocking the federal courthouse doors, particularly for smaller patent owners”.
Longhorn IP and Katana also argue that the Idaho law is an “outlier” compared to other state bad-faith assertion statutes, asserting that it is “extreme” due to its “uncapped bond provision”, allowing a bond of an amount that is “quadruple the anticipated damages, costs, and attorney’s fees”; and because of its “express targeting of federal complaints” by including the filing of a lawsuit with bad-faith assertion claims as one manner of triggering liability under the law.
– Micron’s Response Brief
Micron pushed back on the appellants’ characterization of the Idaho law in its response brief, which it filed on May 17 (and refiled on May 28 with minor changes to comply with Federal Circuit briefing rules). In part, the company argues that the law follows a “similar design” to those in other states, countering that most of those other laws also allow a complaint to count as a covered “assertion” or otherwise contemplate the patent owner’s filing of litigation. Micron also offers policy context for the Idaho bond provision and others like it, which variously include caps, or just depend on a good-faith estimate of costs, but all provide that bonds are refundable. Whereas the appellants argued that the Idaho bond requirement disrupts a “balance” in incentives, Micron contends that these state laws all seek to “mitigate the lopsided risk profile that characterizes many bad faith assertions”—including the economic pressure of litigation costs, which pushes defendants to settle; and patent owners’ ability to shield themselves by litigating patents “through an undercapitalized, judgment-proof shell company”.
Micron also challenges the procedural basis for the appeal by Longhorn IP and Katana, arguing that the appellants have not justified an interlocutory appeal under 28 U.S.C. § 1292(a)(1) because neither the bond order nor the related stay is an injunction or injunction-like order as required under that statute. Mandamus review is also inappropriate, Micron asserts, because the appellants have “carefully avoid[ed] any direct assertion that they cannot pay”, because they “have not asked the district court to reduce or waive the bond”, and because they have not shown that relief is unavailable through the appeal of a final judgment or by prevailing on the merits.
Micron additionally contends that the lower court correctly determined that Idaho’s law is not preempted, arguing that “patent law does not preempt a state tort claim based on patent-assertion activity if ‘the claimant can show that the patent holder acted in bad faith’” (citation omitted). While acknowledging that First Amendment issues may arise when restricting a patent owner’s “reasonable” attempts to enforce its patent rights through “the courts and related communications”, it underscored that “those concerns fall away when it comes to bad faith or sham petitioning activity”. Though states may not interfere with the core incentives to invent established by federal patent law, which “protect parties asserting patent rights in good faith from state interference[,] . . . federal patent law has no interest in upholding wrongful, bad faith conduct”. To the contrary, Micron subsequently emphasized, “[t]he Idaho Act covers activity that federal patent law does not incentivize or protect”. By arguing otherwise, Micron asserts, Longhorn IP and Katana have improperly ignored the “longstanding constitutional framework” wherein courts have applied “the same preemption and First Amendment” principles in rejecting preemption challenges to other state tort laws.
Micron also seeks to rebut various arguments raised by the appellants’ opening brief. For instance, Micron contends that the appellants are wrong to assert that the Idaho law seeks to regulate “activity that is permitted and even incentivized by federal patent laws”, reiterating that only good-faith assertions are protected by federal patent law—and that bad-faith assertions “would undermine the key policies underlying the Patent Act”. Since federal law requires a defendant to prove objective bad faith to establish liability under the Idaho law, Micron continues, the appellants’ statement that it “‘creates the threat’ of damages for those ‘petitioning a federal court in good faith’ is not only speculative—it contradicts the law”. Longhorn IP and Katana are also wrong, per Micron, to argue that the Idaho statute “practically presumes bad-faith assertion”, countering that it merely places the burden to make such a showing on a party seeking relief under the statute and conditions relief on that showing.
Moreover, Micron states, the appellants “miss[] the point” by arguing that the law wrongly “does nothing to protect patentees from bad-faith infringement” (emphasis added), countering that such a remedy is not required for constitutionality. Nor was Idaho obligated to protect its citizens from “bad-faith infringement”, the company emphasizes—and at any rate, such conduct is already addressed by federal law on willful infringement. In contrast, while the appellants insist that the Idaho law goes too far because § 285 and Federal Rule of Civil Procedure 11 already address patent owner malfeasance, they do not do so “exclusively—and Congress has provided no indication it intended to occupy that field”.
Finally, Micron argues that the Federal Circuit should reject the appellants’ “undeveloped arguments” on First Amendment preemption. The company asserts that Longhorn IP and Katana have not—and cannot—show that “a substantial number of its applications are unconstitutional, judged in relation to the statute’s plainly legitimate sweep” (citation omitted), since the only prohibited “speech . . . is litigation that a court has determined was brought in bad faith”, which is not constitutionally protected. Nor is Idaho’s law unique in targeting bad-faith complaints, Micron alleges, since the statute actually places complaints within a “much broader genus of potentially actionable bad faith communications”—which can trigger liability under “nearly every other state law against bad faith assertion”.
– State of Idaho’s Response Brief
The State of Idaho, which intervened to defend its bad-faith assertion statute, filed its response brief, and then a corrected version, on May 17 and 28, respectively (the same days as Micron’s). Idaho begins by arguing that the Federal Circuit should apply a presumption against preemption, here based on respect for state sovereignty, and asserts that claims of obstacle preemption—as noted above, a subtype of conflict preemption, and the only type of preemption here at issue—face a “high threshold”. Mere “overlap” with a federal law is insufficient, the state underscores; the federal law must contain a “specific, contrary rule” that conflicts with the state statute. On this basis, the state argues, the Supreme Court has held that states may regulate intellectual property in any manner consistent with federal law, meaning that “conflict preemption applies only [w]here it is clear how the patent laws strike that balance in a particular circumstance’” (emphasis in brief, citation omitted).
On this basis, Idaho contends, its bad-faith assertion statute is not preempted: There is no conflict because the Patent Act “is entirely silent as to whether enforcement may be brought or threatened in bad faith, or what the consequences should be for bad-faith patent assertions” (emphasis in original). “That result should be unsurprising”, the state underscores, arguing—consistent with Judge Nye’s order denying the motion to dismiss—that the statute “regulates unfair competition”, an area of law that has “coexisted harmoniously with federal patent protection for almost 200 years” (citation omitted). These two “independent” areas of law protect different rights, Idaho explains: Unfair competition law “generally protects consumers and competitors from deceptive or unethical conduct in commerce”, whereas patent law “protects” a patent owner from unauthorized use “irrespective of whether deception or unfairness exists” (citation omitted). Courts applying these principles, the brief continues, have held that state law claims “can survive federal preemption” if they “are based on a showing of ‘bad faith’ action in asserting infringement” (citation omitted). “And that’s exactly what [Idaho’s statute] does”. It does not matter with regard to preemption that the statute does not “expressly require both objective and subjective faith as necessary elements of the claim” or that it does not require a bad-faith showing based on “clear and convincing evidence”, Idaho argues: Federal Circuit precedent merely requires that courts read those requirements into the statute when evaluating preemption.
The brief then addresses various positions taken by Longhorn IP and Katana, characterizing them as a “scattershot of lightly developed arguments divorced from governing preemption principles”—echoing Micron’s argument with regard to the statute’s allegedly disruptive effect on the balance of incentives established by federal patent law (that it does no such thing, as federal patent law does not encompass bad-faith infringement actions). Additionally, Idaho takes issue with the appellant’s concern that the “statute would deny nationwide uniformity to the country’s patent laws”: The state observes that the Supreme Court has only addressed uniformity as a purpose for the Patent Act in the context of the scope of patentable subject matter, an aspect not at issue here. Moreover, Idaho argues that this approach to uniformity “would prohibit any state law penalizing bad faith or regulating patents at all” (emphasis added), which would defy Federal Circuit precedent establishing that “penalizing bad faith does not conflict with the Patent Act’s broader ‘threefold’ purpose because it does not disincentivize invention, discourage public disclosure, or remove anything from the public domain”.
Also problematic, per Idaho, is the appellants’ position that the statute ignores the presumption that an infringement claim is made in good faith. Not so, the state counters, as the Federal Circuit “has already solved that problem by imposing a ‘clear and convincing evidence’ standard for proving bad faith”. The state also objects to the appellants’ assertion that the statute is preempted due to its “clear intent to regulate litigation in federal court”—arguing that it is “factually inaccurate” (as the statute is “entirely agnostic” to where a given assertion action is filed) and that the state’s “intent” is irrelevant under applicable Supreme Court precedent. Moreover, Idaho takes issue with their argument that because the statute provides a non-exhaustive list of factors for determining good faith that includes those making an investment in producing products, it would show bad faith if a patent owner did not make any products. “This logic is faulty”, it explains, as “the inverse of a proposition is not necessarily true”. Also curtly rejected by Idaho are the appellants’ various policy-based arguments (including those related to “willful patent infringers”), framing those as better directed to a state legislature; and its “last[-]gasp . . . references” to the “First Amendment, Supremacy Clause, and Patent Clause”, all of which are addressed by jurisprudence establishing that “[j]ust as there is no constitutional right to petition the government in bad faith, there is no statutory right under the Patent Act to sue in bad faith”.
Furthermore, Idaho argues that most of these same arguments also apply to the bond requirement at issue: “There is no reason why a refundable bond—whatever the size—would pose a greater obstacle to the operation of the Patent Act than a cause of action resulting in similarly-sized damages”. The only difference here is that the evidentiary standard for the bond is lower, which Idaho characterizes as posing no constitutional issue. Additionally, the state rejects the appellant’s contention that the bond requirement also fails under Erie, under which a federal court must apply federal procedural law but state substantive law. As to the first step of Erie, requiring the determination of whether a conflict exists, while Longhorn IP and Katana argue that the bond requirement “fatally” conflicts with Rule 11, Idaho counters that there is no such conflict: the bond requirement applies to prelitigation conduct, while Rule 11 does not; the former targets a party and the latter, attorneys; and the former requires a showing of objective and subjective bad faith, whereas the latter requires no showing of bad faith at all. While the “patent asserters” make no argument under the second step of Erie, which contemplates whether the application of the state requirement “would lead to different outcomes in state and federal court and result in inequitable administration of the laws or forum shopping”, Idaho argues that the bond requirement is an intrinsic part of the law’s enforceability, and that stripping it out would inevitably result in such a consequence.
States and Industry Orgs File Amicus Briefs Backing Idaho Statute
– Amicus Brief from 27 States and the District of Columbia
On May 21, 27 US states—North Carolina, Alaska, Arizona, Colorado, Hawaii, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New Mexico, New York, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, Washington, Wisconsin, and Wyoming (listed in that order), and the District of Columbia (collectively, the “state amici”), sought leave to file an amicus brief in support of the Idaho bad-faith assertion law, filing a corrected version on May 30. The state amici argue that “[s]tate unfair-competition law has ‘coexisted harmoniously with federal patent protection’ since the Founding” (citation omitted); detail the business model, economic impact, and litigation volume of file-and-settle NPEs; and note that more than 30 states have passed laws using their police powers to “bar the kind of unfair competition on which patent-trolling relies”, starting with Vermont in 2013.
The district court correctly held that Idaho’s law is not preempted by federal patent law, argue the state amici—contending that the statute “works in tandem, not in conflict, with federal law” and explaining the requirement that state tort claims may only target patent claims brought in objective and subjective bad faith, as detailed in the lower court’s order and appellate briefs. As in Judge Nye’s decision below, the state amici observe that “[m]any courts have reached a similar conclusion, construing state laws barring bad-faith patent assertions to comply with the federal bad-faith standard”. The brief then cites a variety of arguments also raised by the district court and/or the parties on appeal, including the aforementioned issues with Longhorn IP’s and Katana’s contention that the statute presumes bad faith, how the statute is not an “obstacle” to federal goals by providing greater protections, how the statute is consistent with the objectives of the patent system rather than distorting its incentives, how Congress’s silence on bad-faith assertion suggests no preemptive intent, and the appellants’ failure to meet the high standard for facial challenges.
– Industry Association Briefs
The appeal has also seen industry associations seek leave to file two additional briefs in support of the statute, both on May 24. One proposed brief has been filed by the Computer & Communications Industry Association (CCIA), which describes itself as representing “a broad cross section of communications and technology firms”; and the High Tech Inventors Alliance (HTIA), which describes its member companies as “global leaders in software, ecommerce, cloud computing, artificial intelligence, quantum computing, digital advertising and marketing, streaming, networking and telecommunications hardware, computers, smartphones, and semiconductors”. The other proposed brief was filed by ACT | The App Association, which describes its membership as comprised of “entrepreneurs, innovators, and independent developers within the global app ecosystem that engage with verticals across every industry”.
The CCIA-HTIA brief states that the organizations’ members “benefit from a properly balanced patent system”, which includes patent enforcement—“but only if conducted in good faith”. When patent assertion is conducted in bad faith, they argue, it is an appropriate target for state regulation. The brief then gives a high-level overview of the impact of bad-faith patent assertion to explain why the more than 30 state bad-faith assertion laws have been necessary and remain so, listing the prolific campaign of file-and-settle NPE MPHJ Technology Investments LLC, which through more than 80 affiliated entities sent more than 16,000 demand letters by late 2014, as a “representative example”. That campaign, the brief continues, led to the passage of the first bad-faith assertion by Vermont, spurring on further legislative action in other states. Those laws, argue the CCIA and HTIA, “have likely had prophylactic effects, raising the risk of an MPHJ-style business model and decreasing the expected returns”, deterring other entities from following the same approach. Yet they remain necessary, the organizations further contend, because of the inherent lack of transparency in demand letter campaigns, which only come to light when one of their targets “finally push[] back”. “Bad faith patent assertion laws provide those innovators—and the state executives charged with enforcing those laws—with the tools needed to push back when a plaintiff goes too far”, the brief underscores.
ACT’s brief similarly touts the value of a “balanced and well-functioning patent system” and also seeks to illustrate the impact of bad-faith patent assertion. However, the brief also lays out a series of arguments against preemption, again echoing those made by the district court and parties in this appeal—including that states may regulate bad-faith assertion due to the silence of Congress on that issue; that the Idaho statute has a distinct focus compared to § 285 and Rule 11, with which it is compatible; and that the Idaho statute, especially the bond requirement, “is not superseded by the First Amendment because it only impacts bad faith patent assertions”.
For details on another dispute involving the Idaho bad-faith assertion statute, this one in the multifront dispute between Micron and Netlist, see “Termination of Cross-License Agreement Set for March Trial as Filings under Idaho Bad-Faith Patent Assertion Statute Metastasize” (February 2024).
