State lawmakers might have been a little bit perplexed last fall to see bankers testifying in favor of legislation that will result in more regulation, but Massachusetts’ bankers are taking on the trolls to protect their customers and their own bottom line.

“I think the members of the [Joint Committee on Consumer Protection and Professional Licensure] were a little surprised that someone from the banking industry was testifying on a patent bill,” Jon Skarin, senior vice president of the Massachusetts Bankers Association, said of his testimony last fall on Senate bill 178, or “An Act Protecting Massachusetts Businesses from Abusive Patent Infringement Claims.”

That bill would clamp down on abusive patent infringement claims and seeks to put an end to “bad faith patent assertions.” It’s modeled after similar legislation passed in Vermont in 2013. New England is hardly alone in this effort. More than 20 states have passed, or at least considered, anti-patent troll legislation, said Robin Feldman, a professor of law at the University of California Hastings.

Feldman, who has done extensive research into patent trolling, said the banking industry is an attractive target for patent trolls. She calls it “the demand holdup value.”

“Patent trolls claim damage based on the size of the target’s business. Banks are end users of other people’s software. They aren’t going to know much about that software or the patents related to it, but they’re users of it, which makes them a target,” she said. “If a troll goes after a software company, the troll can only claim a certain percentage of its business, but if the troll goes after the bank, the demand holdup value is much bigger.”

Patent reform has stalled in Congress for myriad reasons, and Feldman expects those state laws will be the next battleground.

“The federal circuit and other lower courts have taken a very restrictive view of what states are permitted to do in this area,” she said. “I predict that issue will get to the Supreme Court and that court may take a different view.”

All For One, One For All

In the absence of any meaningful legislative salve to the problem, small businesses under attack by patent trolls might take a page from community financial institutions’ playbook.

Around 2012, a notable patent troll started targeting community banks. This particular saga involved one patent troll known as Automated Transactions LLC, or ATL. Essentially, ATL asserted the right to a patent that involved the transfer of ATM information over the Internet.

Because ATL only sent out a few letters at first, it was difficult to mobilize the industry, said W. John Funk, a banking lawyer with the New Hampshire-based Gallagher, Callahan and Gartrell. Banks that hadn’t gotten the letter yet didn’t feel threatened, and the range in size and number of ATMs of those banks that had been contacted made it difficult to allocate the costs.

“At the beginning, nothing happened,” Funk said. “The banks that were left on their own were smaller banks that certainly didn’t have the resources to fight a patent claim, so they asked me to cut them the best deal that I could.”

Patent infringement claims are typically uncharted territory for community banks and credit unions. After all, bankers are in the business of, well, banking. Their area of expertise generally doesn’t involve fighting bogus patent claims – or even determining whether those claims are bogus in the first place.

Concern mounted over time as more and more banks, and then credit unions, began receiving the same threat from ATL: Pay up, or we’ll sue. Funk estimated that he eventually worked with upwards of 200 community financial institutions who wanted to take the path of least resistance, coughing up some amount of cash for a master sub-license that would get ATL to drop its threats.

But a smaller number of banks felt differently and pooled their resources to fight the troll. The banks and ATL duked it out, with a lower court deciding in favor of the bankers. ATL appealed all the way to the U.S. Supreme Court and ultimately got shot down.

David Wiese, a banking lawyer with Hinckley Allen, summed up, “The dilemma that’s faced by the industry with the patent trolls is that they’re using the leverage of the cost of defense as the extortionate practice, that it’s just too expensive to deal with defending a patent case. Collective opposition is one way to allocate and share the expense, but also to send a message that we’re not going to settle, that this is not a hospitable industry or state to ply your trade.”

Or as Funk put it, “It’s like taking on bullies. You’ve gotta smack ’em back.”