Gone are the days of being up against the wall dealing with an unreasonable NPE (non-practicing entity) making unsupported claims of patent infringement. A bill has been introduced in the state of Michigan that could level the playing field for those accused of patent infringement. The bill, labeled the "Bad Faith Patent Infringement Claims Act” (Michigan HB 5701), aims to prevent Michigan businesses from being held hostage to unreasonable ransom demands by NPEs, for fear of incurring high litigation defense expenses. The reality is that patent litigation is expensive - even when you have to defend against infringement claims wholly lacking in merit. Due to the high cost of patent litigation, some companies have been forced to settle and/or pay licensing fees, even where it was likely that they did not infringe or the patent was invalid. This new bill contemporaneously follows a national trend of backlash against baseless infringement claims and aims to remedy this unfortunate reality. The bill, introduced by Rep. Mike Carlton in July 2014, provides a new state law claim against bad faith patent infringement accusations. In this Michigan proposal, bad faith may be determined by weighing several enumerated factors, but basically boils down to a sending a bad demand letter.
A demand letter is "bad" if it fails to provide the patent number or identity of the patent holder. A demand letter is bad if it is lacking in factual support for how the accused product or service meets the patent claim limitations. A demand letter may be deemed bad if the patent holder failed to perform a detailed infringement analysis prior to launching the letter. A patent infringement accusation may be made in bad faith if the demand letter lacks this information, the accused infringer requests it, and the patent holder fails to provide it within a reasonable time. A demand letter may be bad if it demands a response or payment of a licensing fee within an unreasonably short period of time. It may be bad if the license fee demanded is not based on a reasonable estimate of the value of the license. The infringement accusation may be deemed to be made in bad faith if the patent holder has a history of making meritless demands to others or a court has found the patent infringement claim to be meritless in a past litigation. Basically, this bill aims to eliminate the type of demand letter that baldly asserts infringement without specifying how the accused product meets any specific claim limitation of the patent, demands a response within days, or seeks an unreasonably high licensing fee. The "licensing opportunity" programs that send form threat letters without first doing work to back up infringement accusations would hopefully be deterred from bothering Michigan companies if this becomes law.
The bill further outlines that evidence that a claim is NOT bad includes that the demand letter contains the information discussed above, the patent holder has made a substantial investment in using the patent or in the production or sale of a product made under the patent, the patent holder has enforced the patent or a similar patent in previous litigation showing that the claim had merit, or the patent holder is the inventor, an original assignee connected to the inventor, or an institution of higher education. Notably, NPEs and patent trolls are not listed.
Under the Bad Faith bill, an accused infringer could bring a state court action against the patent holder seeking damages including exemplary damages in an amount of $50,000 or three times actual damages (whichever is greater) and including their attorneys' fees in bringing the action.
Similar legislation aimed to prevent abusive patent litigation has been signed into law in 15 other states and like bills are pending in 12 others. Anti-abusive patent litigation laws could be one of the biggest changes to impact patent infringement demand letters and patent assertion programs since the U.S. Supreme Court held that receipt of an infringement accusation demand letter gave the accused infringer the ability to file suit against the patent holder in federal court, seeking a declaration of non-infringement and/or that the patent is invalid. It is possible that the state law claim could be added to a federal court declaratory judgment action brought to invalidate the patent or find non-infringement or made in response to an infringement suit filed by the patent holder. In this sense it could act to balance a claim of willful infringement, for which treble damages may be awarded. In the least, this proposed legislation gives Michigan companies a new defense to baseless patent infringement allegations, which could in turn attract businesses to Michigan to avoid business costs of dealing with unreasonable NPEs.
The Michigan bill has been referred to the Committee on Michigan Competitiveness, and will undergo committee fact gathering and subsequent hearings. Though its content could change during this process, it is uncertain whether it will be signed into law, and questions remain as to whether this type of state remedy inappropriately steps on the federal patent laws, the Michigan bill follows the spreading trend of offering an interesting new offensive action to combat baseless accusations of patent infringement. And the bottom line is that if you are a patent holder, do your homework on infringement analysis before approaching an infringer. If you are interested in assistance with performing an infringement analysis for patent assertion, Traverse Legal PLC patent attorneys are ready to help. If you believe that you have been the victim of a bad faith patent infringement claim, contact us for advice on your options.