By Beverly A. Marsh, Partner, Standley Law Group LLP

In an effort to address patent reform at the state level, the 130th General Assembly of the State of Ohio has introduced House Bill No. 573. 1 The asserted purpose of Bill 573 is to: 1) prohibit "bad faith" assertions of patent infringement, 2) allow tort actions to be brought against those making bad faith assertions of patent infringement in the Ohio Courts of Common Pleas, and 3) allow the Attorney General to investigate and bring suit against those it believes are making bad faith assertions of patent infringement. Patent holders who are unsuccessful in defending against such a suit may be required to pay the other side’s costs and attorney’s fees, compensatory damages, and possible trebling of costs, fees, and damages. This bill has no doubt been introduced to lessen the harsh impact that a growing number of patent infringement suits have caused Ohio businesses.

Reprinted from the Winter 2015 issue of Intellectual Property News originally published by the Ohio State Bar Association Intellectual Property Section.

Although Bill 573 does not identify what exactly constitutes a "bad faith" assertion of patent infringement, it does effectively create requirements for demand letters and the actions a patent owner must take prior to and after sending a demand letter. According to the bill, a demand letter is a "letter, email, or other communication asserting or claiming that the target has engaged in patent infringement." Subject to a few exceptions, to avoid being evidence of bad faith, demand letters must contain certain information about the patent, patent owners, and contain specific allegations of infringement that compare the accused products, services, or technology to the asserted claims. An offer to license the patent must be based on a "reasonable estimate" of the value of the license. Also, a demand cannot request a response within an unreasonably short time period. If a patent holder has previously threatened patent infringement based on the same or similar claims of patent infringement and their prior efforts were found to constitute bad faith, or otherwise meritless, then a later assertion of patent infringement may also be found to be evidence of bad faith. Evidence that an assertion is not made in bad faith includes when a patent holder is actually making or has a "substantial investment" in the patented invention (no doubt meant to distinguish them from patent trolls of the "non-practicing entity" variety) or when the patent owner is an institute of higher education.

By making it risky to enforce a patent or seek licensing revenues, this bill could potentially make patents less desirable, weakening the patent system and possibly hindering innovation in Ohio.

While some of the requirements set forth in Bill 573 appear to be reasonable (such as identifying the owner of a patent in a demand letter), the bill is, in this writers opinion, reaching too far in certain areas. For example, as mentioned above, the bill sets forth that bad faith may be found where a "person offers to license the patent for an amount that is not based on a reasonable estimate of the value of the license." However, what constitutes a reasonable estimate is certainly subjective, and in many instances there may not be an established royalty scheme available. Furthermore, this provision violates a patent owner’s freedom to contract with others.

Another concern is that Bill 573 improperly gives the state courts jurisdiction over federal subject matter. Issues concerning patent infringement and patent validity will certainly result from the analysis of whether a patent infringement claim or assertion is meritless or deceptive. In addition to lacking jurisdiction, the Courts of Common Pleas also do not have the experience or expertise necessary to handle such complex issues. Although many patent holders would likely counterclaim for patent infringement and seek to have their case removed to federal court, if this bill becomes law a slew of "bad faith" cases will be filed and further burden the state court dockets.

Who will this legislation really help? Bill 573 is written to prohibit stereotypical "patent trolls" from coercing settlements by threatening expensive litigation. However, this bill could have a detrimental effect on all patent holders, as it makes it risky to seek a license from another party, or to notify another party of suspected infringement. A patent holder could find himself or herself hauled into court to argue whether or not their assertions were made in bad faith, and even if successful they would nevertheless incur expenses. By making it risky to enforce a patent or seek licensing revenues, this bill could potentially make patents less desirable, weakening the patent system and possibly hindering innovation in Ohio.

It remains to be seen whether Bill 573 will be enacted into law as it is still pending before the House of Representatives. However, if this bill does become law, Ohio will join the ranks of approximately 15 states that have already enacted similar patent reform laws. Notably, those states that have the largest amounts of patent infringement suits filed (Texas, Delaware, and California) do not have any such laws or even any pending legislation.

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Ohio lawmakers take a stab at patent reform by Beverly A. Marsh is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.