On June 1, 2014, a new law went into effect in Maryland. Section 11-1605 of the Maryland Commercial Law Annotated, “Bad Faith Assertions of Patent Infringement” is a frontal assault on so-called “patent trolls.”
The law prohibits making an assertion of patent infringement against another in bad faith. It then sets forth various criteria for a court to consider in determining whether an assertion of patent infringement is made in good or bad faith. First among these considerations is whether the demand letter provides basic information such as the patent number, contact information of the patent owner, and facts relating to the areas in which the target’s products or services infringe the patent.
Other considerations include:
· whether the patent owner conducted an analysis comparing the patent claims to the target’s products or services,
· whether the demand letter required a response or payment within an unreasonably short period of time,
· whether the license offered was based on a reasonable estimate of the value of the license,
· whether the assertion of infringement is without merit,
· whether the patent owner has filed or threatened lawsuits based on the same or similar assertion of patent infringement that a court found to be without merit
· whether the patent owner has successfully enforced a patent through litigation, and
· notably, whether the patent owner “has made a substantial investment in the use of the patent or in the production or sale of a product covered by the patent.”
This last consideration highlights the fact that this new law is designed to disfavor non-practicing entities, particularly patent trolls. The question, though, is whether legitimate patent owners, acting in good faith will be collateral damage in this attack. The standards in this law are fuzzy, at best. There are several references to certain actions being undertaken in a “reasonable amount of time” without any guidance as to what amount of time is reasonable.
Worse, the law requires that offers to license the patent be based on a “reasonable estimate of the value of the license.” In a typical patent litigation, both sides will hire experts who will advocate grossly disparate values of the patent license. How then, will a court determine whether a pre-litigation offer of a license is based on a reasonable estimate of the value of the license? Must the patent holder obtain a written valuation of the patent before sending a demand letter?
Courts are accustomed to interpreting laws with standards that are not clearly defined. Surely, courts can interpret this law and determine on the facts of a given case whether the parties acted reasonably. But, with non-compliance of this law holding the threat of an award of treble damages up to $50,000 plus court costs and attorneys’ fees, one has to wonder whether patent holders will risk sending a demand letter or simply file a lawsuit. While Maryland’s desire to slay the patent trolls is certainly understandable, the real victim may be out-of-court negotiation of patent disputes.
See the text of the new law, below:
The law prohibits making an assertion of patent infringement against another in bad faith. It then sets forth various criteria for a court to consider in determining whether an assertion of patent infringement is made in good or bad faith. First among these considerations is whether the demand letter provides basic information such as the patent number, contact information of the patent owner, and facts relating to the areas in which the target’s products or services infringe the patent.
Other considerations include:
· whether the patent owner conducted an analysis comparing the patent claims to the target’s products or services,
· whether the demand letter required a response or payment within an unreasonably short period of time,
· whether the license offered was based on a reasonable estimate of the value of the license,
· whether the assertion of infringement is without merit,
· whether the patent owner has filed or threatened lawsuits based on the same or similar assertion of patent infringement that a court found to be without merit
· whether the patent owner has successfully enforced a patent through litigation, and
· notably, whether the patent owner “has made a substantial investment in the use of the patent or in the production or sale of a product covered by the patent.”
This last consideration highlights the fact that this new law is designed to disfavor non-practicing entities, particularly patent trolls. The question, though, is whether legitimate patent owners, acting in good faith will be collateral damage in this attack. The standards in this law are fuzzy, at best. There are several references to certain actions being undertaken in a “reasonable amount of time” without any guidance as to what amount of time is reasonable.
Worse, the law requires that offers to license the patent be based on a “reasonable estimate of the value of the license.” In a typical patent litigation, both sides will hire experts who will advocate grossly disparate values of the patent license. How then, will a court determine whether a pre-litigation offer of a license is based on a reasonable estimate of the value of the license? Must the patent holder obtain a written valuation of the patent before sending a demand letter?
Courts are accustomed to interpreting laws with standards that are not clearly defined. Surely, courts can interpret this law and determine on the facts of a given case whether the parties acted reasonably. But, with non-compliance of this law holding the threat of an award of treble damages up to $50,000 plus court costs and attorneys’ fees, one has to wonder whether patent holders will risk sending a demand letter or simply file a lawsuit. While Maryland’s desire to slay the patent trolls is certainly understandable, the real victim may be out-of-court negotiation of patent disputes.
See the text of the new law, below:
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