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An Indecent Proposal: AGs, GCs and NPEs

“A life without risk is no life at all.”

A special partner was needed to provide a special solution. If you can get beyond the idea that the underlying bargain in that movie was illegal, an argument can be made that there is a bargain that should be crafted between state attorneys general and general counsel—to come together to rein in NPE abuses.

Over the last 10 years, the relationship between state attorney generals and general counsel in Fortune 500 companies has been acrimonious (perhaps this is the understatement of the century). The acrimony is the result of litigation and disputes filed by state AGs, which have resulted in fines and penalties that may well exceed $50 billion. For instance, the largest settlement ever in which, “The nation’s five largest mortgage servicers have agreed to a landmark $25 billion settlement with a coalition of state attorneys general and federal agencies. The settlement addresses past mortgage loan servicing and foreclosure abuses and fraud, provides substantial financial relief to borrowers harmed by bank fraud, and establishes significant new homeowner protections for the future,” according to the National Association of Attorneys General (NAAG) website.

Most companies recognize that their competitors in one market segment may be strategic partners in another. Should general counsel start looking at state AGs as their so-called frienemies? In a recent conversation with Pam Bondi, attorney general of Florida, she stated that the answer is a resounding “yes.” More specifically, she says, in 90 out of 100 instances, the interests and goals of the state attorneys general and the Fortune 500 companies located in that state are aligned. It is the other 10 instances that result in fines/settlements like the one referenced above. Bondi offers the notion that the more focus on the 10 percent where there is common ground the easier it may be to work through the acrimonious 90 percent.

So, the question is: Is the focus going to be on the acrimonious 90 percent or the harmonious 10 percent? Few could argue with the idea that the proliferation of non-practicing entities are have overwhelming and in many instances negative consequences on innovation generally and the bottom lines of too many companies in the Fortune 1000.

Traditional policy and legislative solutions like those that are currently being contemplated are unlikely to come to fruition. One of the most likely groups to drive this issue are state attorneys general; more specifically, the state attorneys general from Vermont, Nebraska and Missouri, to name a few.

Vermont has the distinction of being the first state to really tackle the issue of patent trolls head on. Vermont Attorney General William Sorrell targeted a well-known and active NPE, MPHJ Technology Investments, LLC, accusing the company of engaging in “unfair and deceptive acts” by sending a series of letters to many small business and non-profit organizations in Vermont.

InsideCounsel’s Rich Steeves explores this burgeoning issue in “State of the trolls” (p. 45). For the most part, the three AGs’ views on patent trolls are similar and one distinct message is clear: the AGs we interviewed want the federal government to stand up and amend the law to make it more difficult for this business model to succeed.

Taking this matter one step further, in the January issue, InsideCounsel will continue to investigate the subject of patent trolls by speaking with some of the industry’s most formidable general counsel who will provide unprecedented insight and discuss why AGs are galvanizing around this issue.

Is there risk if and when general counsel work to build a national coalition of attorney generals to combat NPE abuses? Yes. My favorite line from “Indecent Proposal” is, “A life without risk is no life at all.” Although the daily routine of a general counsel is certainly not a life without risk, some new risks must be encountered to master the complexities of the current times.

Lloyd M. Johnson Jr.

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