A bill introduced last July in Michigan referred to as the “Bad-Faith
Patent Infringement Claims Act,” House Bill No. 5701. The bill is intended “to
prohibit the bad-faith assertion of patent infringements” and to protect small
and medium size companies and nonprofit organizations that may succumb to
meritless demands and enter into licensing agreements simply because they do
not have the funds to engage in a costly and complex patent infringement
action.
The bill recognizes that “[p]atents are essential to
encouraging innovation, especially in information technology and
knowledge-based fields,” that “[t]he protections afforded by the federal patent
system create an incentive to invest in research and innovation, which spurs economic
growth,” that “[p]atent holders have every right to enforce their patents when
they are infringed,” and finally, that “patent enforcement litigation is
necessary to protect intellectual property.”
The bill, however, balances these interests against the State’s
“striv[e] to build an entrepreneurial and knowledge-based economy,” in relation
to which, “[a]ttracting and nurturing small- and medium-sized knowledge-based
companies is an important part of th[e] effort and will be beneficial to this state’s
future.” The bill also recognizes that patent litigation “can be technical,
complex, and expensive,” costing “hundreds of thousands of dollars or more”
which can be “a significant burden on small- and medium-sized companies.”
According to the bill, “[a]busive patent litigation, and especially the
assertion of bad-faith infringement claims, can harm companies in this state.”
Small or medium size businesses, or a non-profit, that receive a letter
asserting an infringement claim faces the “threat of expensive and protracted
litigation and may feel that it has no choice but to settle and to pay a
licensing fee, even if the claim is meritless” simply because they lack the
resources to investigate and litigate such claims.
Recognizing that it cannot pass any law that conflicts with
Federal patent law, but wishing to help small- and medium-sized businesses
avoid patent litigation costs “by encouraging the most efficient resolution of
patent infringement claims without conflicting with federal law,” the bill “seeks
to facilitate the efficient and prompt resolution of patent infringement claims,
protect businesses in this state from abusive and bad-faith assertions of
patent infringement, and build this state’s economy, while at the same time
respecting federal law and being careful not to interfere with legitimate
patent enforcement actions.” To combat bad-faith patent infringement claims,
the bill provides that a person, defined as “an individual, partnership,
corporation, association, governmental agency, or other legal entity” “shall
not make a bad-faith assertion of patent infringement.”
The “Bad Faith
Inquiry”
Factors a court can consider under the bill in determining
bad faith include:
- That the demand letter did
not include: the patent number, the name and address of the patent owner
or owners and assignee or assignees, if any, and “factual allegations
concerning the specific areas in which the target’s products, services,
and technology infringed the patent or were covered by the claims in the
patent” and/or that such information was not provided within a reasonable
time when requested by the target;
- The person “failed to
conduct an analysis comparing the claims in the patent to the target’s
products, services, and technology” prior to sending a demand letter;
- The demand letter “demanded
payment of a license fee or response within an unreasonably short period
of time”;
- “The person offered to
license the patent for an amount that was not based on a reasonable
estimate of the value of the license”;
- “The claim or assertion of
patent infringement was meritless, and the person knew, or should have
known, that the claim or assertion was meritless”;
- “The claim or assertion of
patent infringement was deceptive”; and
- The personal history of
threatening or filing lawsuits “based on the same or similar claim of
patent infringement” that lacked the necessary information set forth in
the bill or that a court found to be meritless.
- That the demand letter
contained all of the required information or that the information was
provided within a reasonable time of request by the target;
- “The person engaged in a
good-faith effort to establish that the target infringed the patent and to
negotiate an appropriate remedy”;
- “The person made a
substantial investment in the use of the patent or in the production or
sale of a product or item covered by the patent”;
- The person making the
claim is an inventor or joint inventor of the patent or an original assignee,
or [a]n institution of higher education or a technology transfer
organization owned or affiliated with an institution of higher education”;
and
- The person making the
claim has “[d]emonstrated good-faith business practices in previous
efforts to enforce the patent, or a substantially similar patent” or
[s]uccessfully enforced the patent, or a substantially similar patent,
through litigation.”
If the court determines on a motion by a target that there
is a “reasonable likelihood that a person has made a bad-faith assertion of
patent infringement,” the court “shall require the person to post a bond in an
amount equal to a good-faith estimate of the target’s costs to litigate the
claim,” not to exceed $250,000. Although the bond requirement can be waived
upon a showing that the person has “assets equal to the amount of the proposed
bond or for other good cause shown.”
In addition to authorizing the attorney general to make
rules, conduct civil investigations, and bring civil actions, the bill provides
for a private cause of action in the circuit court by a target, in which the
court may award any of the following remedies:
- Equitable relief;
- Damages;
- Costs and fees, including reasonable
attorney fees;
- Exemplary damages in an
amount equal to $50,000 or 3 times the total of actual damages, costs, and
fees, whichever is greater.
A Level Playing
Field?
Although intended to level the playing field and provide
small and medium size companies and nonprofits a mechanism by which to fight
patent infringement claims asserted in bad faith, I question whether the bill,
if enacted, will really have such an impact. If small and medium size companies
and nonprofits are without sufficient resources to fight a bad faith
infringement claim, will they have the resources, or desire even, to engage in
a separate action under the bill to fight such claims? Moreover, the bad faith
inquiry appears to be very fact intensive, likely making it ill-suited for
early resolution by means of a motion for summary determination, which may mean
that by bringing an action under the bill, the target is simply determination,
which may mean that by bringing an action under the bill, the target is simply
signing up for another long, complex battle. If successful, the target may be
awarded costs and fees, including reasonable attorney fees, but of course, that
award would not come until after a trial on the merits. The target would still
be required to front the costs and attorney fees, or find another way to fund
the action. And what exactly is meant by “costs and fees, including reasonable
attorney fees?” Does this include costs and fees incurred in relation to the
underlying bad faith infringement action, or would those be considered “damages”
under the Act?
These are just a few questions that the bill raises in my
mind. As other jurisdictions propose and enact similar statutes, it will be
interesting to see how similar the bills are to Michigan’s bill and how any
actions filed under similar statutes play out.
