Ohio may become the next state — after Virginia, Georgia, and thirteen other states — to take on the fight against patent trolls. A bill pending in Ohio’s General Assembly, H.B. 573, would provide additional tools to thwart abusive tactics by patent trolls. But how useful those tools may prove in the battle against the problems they are intended to remedy is yet to be seen.
“Patent troll” is a pejorative term without a well-defined meaning. It is widely used to describe an entity that does not make or sell any products or services, but acquires patents from others and then seeks to exact licensing fees through abusive tactics, including meritless assertions of patent infringement. Because defending against patent infringement claims can be an expensive endeavor, those targeted by meritless lawsuits often opt to pay patent trolls’ relatively low demands rather than aggressively defend against the claims in court. It is a decision that can leave business leaders steaming because, in their view, their companies are essentially being subjected to a shake-down by the threat of a meritless lawsuit.
In addition to frustrating business leaders, abusive practices in enforcing patents can stymie the economy. When companies are forced to settle meritless claims of infringement, they have less to spend on payroll, research and development, and other expenses that add value to the company and make it more likely to contribute to a thriving economy. Thus, patent trolls (as defined above) harm their targets, but they also negatively impact society more generally.
In light of the harm that patent trolls cause, federal and state governments have sought to act to protect businesses and the public. Unfortunately, correcting the problem is not as easy as it sounds. It is difficult to restrict the ability of patent trolls without also restricting the rights of patent holders legitimately seeking to protect their patent rights. This is particularly true of small independent inventors and universities who often do not produce products. Given the difficulty of creating reforms that specifically target patent trolls without also restricting the rights of other patent holders, it is not surprising that the federal response to patent trolls has been slow.
Though the U.S. House of Representatives passed a bill to address patent trolls in December with overwhelming bipartisan support, the Senate’s anti-patent-troll bill was recently dropped unceremoniously. Senator Patrick Leahy, the chair of the Senate Judiciary Committee, said that he was essentially forced to drop the bill as Senate Majority Leader Harry Reid would not allow the bill to come to the Senate floor because groups opposed to the bill — including the bio-pharmaceutical industry, universities, and trial lawyers — could persuade other senators to filibuster the bill. Although Senator Leahy says that the Senate will revisit the anti-patent-troll bill later this year, others are less optimistic about the future of the federal legislation.
With Congress’s effort apparently stalled, states are doing what they can to protect businesses from patent trolls. Several states have passed anti-patent-troll laws, and a greater number are considering such bills now. Many states penalize bad faith patent infringement claims asserted in demand letters sent into the state. Ohio may be the next state to do so.
If H.B. 573 is enacted, Ohio would prohibit a person from making “a bad faith assertion of patent infringement.” To determine whether a patent infringement claim was asserted in bad faith, the bill directs courts to considers several factors, including whether the demand letter is vague or detailed, whether information regarding the patent is provided to the recipient of the demand letter upon request, whether the demand letter imposes an unreasonably short period of time for the recipient to pay the amount demanded, and whether the demand exceeds a reasonable estimate of the value of a license on the patent.
If a court determines that there is a reasonable likelihood that a patent infringement claim has been asserted in bad faith, the court can require an alleged patent troll to post a bond to cover the targeted alleged infringer’s expected cost to litigate the case. If the target ultimately prevails and proves bad faith assertion of patent infringement, it can ask the court for a host of remedies, including injunctive relief, compensatory damages, costs, attorneys’ fees, and punitive damages.
H.B. 573 would also authorize the Ohio Attorney General to commence a civil action against patent trolls who violate the statute.
H.B. 573 provides several new remedies, but it is far from certain to what extent H.B. 573 and similar laws in other states would actually provide protection from patent trolls. First, it is not clear to what extent states have the power to condition the ability of patent holders to enforce their rights in a federal court. Additionally, though states may have good intentions, legislation such as H.B. 573 might negatively impact the legitimate rights of non-troll patent holders to protect themselves against infringement of their patented inventions.
Apparently recognizing the limitations of state anti-patent-troll legislation, the attorneys general of 42 states wrote to Senator Leahy and three other senators in February, urging the Senate to pass patent reform. In their letter, the attorneys general recognized the importance of pending Congressional patent troll legislation, and they supported “structural federal patent litigation reform, which would create an environment in which abusers of the patent enforcement system cannot thrive.” However, with Senator Leahy being forced to drop the Senate’s anti-patent-troll bill only few months after receiving the AGs’ letter, Ohio may wait for some time for federal legislation to complement H.B. 573.
