United States: New Georgia Statute On Bad Faith Patent Cases May Discourage Both Weak And Strong Cases From Being Brought In Georgia

Plaintiff Walter Farmer ("Farmer") initiated suit in September 2014 asserting infringement of claim 1 of his U.S. Patent No. 7,362,007 (the "'007 Patent"), issued April 22, 2008, and covering uninterruptable power supply technology ("UPS") products against Alpha Technologies, Inc. ("Alpha").  Alpha moved pursuant to a relatively new Georgia statute, O.C.G.A. §10-1-772 et seq., for an order requiring Farmer to post a $250,000 bond because of Farmer's alleged bad faith patent assertion.  The motion was addressed by Special Master James L. Ewing, IV in a 29-page Recommendation and Opinion that was adopted by Judge Leigh Martin May on December 9, 2015.

Special Master Ewing detailed a series of communications over several months beginning in April 2014 between the parties whereby Farmer informed Alpha of the perceived infringement by providing a claim chart and Alpha requested time to investigate the matter.  After Alpha missed its own September deadline, Farmer initiated action but held off service in a further effort to resolve the matter.  Alpha requested that Farmer hold off service until December 5 by which time it would substantively respond. Alpha submitted a response on December 5 denying infringement and asserting invalidity (without providing a claim chart).  Alpha further asserted that it appeared "that Mr. Farmer failed to conduct an adequate investigation and analysis" though no reasoning was provided for this conclusion.

Farmer filed a return of service on January 29, 2015.  The Special Master then considered O.C.G.A. §10-1-772 in connection with Alpha's motion.  That statute sets for nine factors that may be considered tending to support the requirement of bond and seven that may be considered in denying bond. 

The nine factors potentially favoring requirement of a bond are:

(1)  The demand letter fails to include the patent number, the name and address of the owners or any assignees, and fails to show specifically how the recipient's products are covered by claims of the patent;

(2)  Prior to sending the demand letter no analysis comparing the claims to the accused products was done or the analysis failed to identify specific areas in which the accused products were covered by claims;

(3)  The recipient requested information omitted from the demand letter (as specified in 1) and that information is not provided;

(4)  The demand letter demands a license fee or response within an unreasonably short time;

(5)  A license is offered for an amount not reasonably based on a reasonable estimate of the value of the patent;

(6)  The asserted claim is meritless or should have been known to be so;

(7)  The claim or assertion is deceptive;

(8)  Other similar claims of patent infringement have been asserted and information listed in these factors was not provided or a count has found those similar claims to be meritless; or

(9)  Any other factor the court finds relevant.

The seven factors which may be considered in support of a finding that there was no bad faith assertion are:

(1)  The demand letter included the patent number, name of owners and assignees, if any, and showed specifically how the accused product was covered by the claims;

(2)  The author of the demand letter provided any undisclosed information within a reasonable time after request;

(3)  The author of the demand letter engaged in a good faith effort to establish infringement and to negotiate an appropriate remedy;

(4)  The author of the demand letter has made a substantial investment in using or producing the patent or selling an item covered by its claims;

(5)  The author of the demand letter is an inventor or original assignee, or is affiliated with an institution of higher education;

(6)  The author has demonstrated good faith business practices in prior efforts to enforce the patent (or a substantially similar patent) or successfully enforced the patent (or a substantially similar patent); or

(7)  any other factor the court finds relevant.

The Special Master addressed the factors in detail over 11 pages of his Recommendation and Report.  The comprehensive analysis found that the factors in each and every instance addressed favored denial of the motion.  Nevertheless, there was no sua sponte criticism of Alpha for bringing the motion.  Although the statute may require a plaintiff to defend a motion with little basis, neither the statute nor the Special Master, in this instance, portend any risk to a defendant for pursuing motion that does not satisfy any of the statute factors (much less a majority of them).

In providing his analysis, the Special Master found it unnecessary to address whether or not the Georgia statute had been preempted by federal law.  The Special Master found no reasonable likelihood that Farmer made a bad faith assertion of patent infringement, and with respect to each factor he found the position of Farmer superior to the position of Alpha.  The Special Master's Recommendation and Opinion was adopted by Judge May in full without objection by the parties.

O.C.G.A. § 10-1-772 should serve as a road map to all counsel prior to filing a patent infringement action in Georgia.  There are two areas where it may have particular impact.   

First, non-practicing entities may be less inclined to initiate patent suits in Georgia as they may be subjected to motions and potential bond requirements that can be avoided elsewhere, and this statute makes it at least appear that the state is less receptive to NPE suits.  

Second, companies that want to assert patents in Georgia need to be mindful of the interplay between this new statute and the First-to-File rule, which strongly favors the choice of forum of the party first filing a patent infringement suit or suit for declaratory judgment on the patent.  See Michael A. Cicero, "First-to-file and Choice-of-Forum Roots Run too Deep for Micron to Curb Most Races to the Courthouse," Journal of the Patent and Trademark Office Society, August 2008, Vol. 90, No. 8, at 541-614.  See also Electronics for Imaging, Inc. v. Coyle, 394 F.3d 1341, 1347-1348 (Fed. Cir. 2005) (discussing anticipation alone insufficient to overcome First-to-File Rule being favored). 

A party seeking to send a demand letter in keeping the statute will usually want to avoid jurisdiction preemption by an infringing party (with a suit for declaratory judgment).  The statute, therefore, may require adoption of a strategy that takes the First-to-File rule into account.  For example, a conservative approach might involve sending a demand letter showing conformance with the statute and allowing a reasonable time for response.  The letter could be carefully drafted to satisfy an exception to the First-to-File Rule as discussed in T2 Products, LLC v. Advantus Corp., 2014 WL 4181932 at 2-4 (W.D.N.C.), and in Nutrition & Fitness, Inc. v. Blue Stuff, Inc., 264 F.Supp.2d 357, 360-362 (W.D.N.C. 2003).  Under this approach, the recipient could be given an opportunity to further assist in expanding or clarifying the results of the infringement investigation (as described in the letter) and to respond to a claim chart.  Yet, in addition, the letter could inform the recipient that litigation was imminent if contrary facts, opinions, and other information were not provided within a reasonable time.  The letter could propose thirty days as a reasonable time to respond, but might wisely indicate receptiveness to a longer period based on a reasonable request.  The letter could assert an objective of ensuring a full and fair decision on infringement was made before litigation commenced, but that, absent timely additional information, litigation was imminent and would be promptly commenced upon expiration of recipient's period to respond.  The paragraph could conclude with a statement that the letter was further intended to reasonably notify recipient of the status of the investigation and dispute, so as to avoid any necessity (or reasonableness) of anticipatory litigation on the part of recipient.  There are a number of factual specific considerations that must be taken into account in connection with this approach (for example, if a patent holder has a history of making unfulfilled threats, uncertainty remains - weighing against the exception).  

The First-to-File Rule has not lost its vitality and allows for a great deal of judicial discretion.  Therefore, no matter how good the strategy, there can be no guarantee of success to the patent holder in ultimately moving forward in the desired forum.  

In the final analysis, O.C.G.A. § 10-1-772 will likely discourage NPEs from pursuing claims with little merit in Georgia as designed, but the statute also complicates the strategic approach of Praciticing Entities and NPEs with stronger claims who desire to pursue a patent infringement claim in the state.  A number of patent holders may elect to pursue claims in other jurisdictions where there is less risk (or cost) in ensuring that jursidiction can be obtained and retained in the forum preferred by the patent holder.

For more information on the new statute, we recommend the detailed article by Jeffrey R. Kuester and Michael A Cicero entitled "Georgia's New Patent Law:  Bad Faith Threats of Infringement Create New Liabilities," Georgia Bar Journal, Vol. 20, Number 4, December 2014, at 12.

Walter Farmer v. Alpha Technologies, Inc., Dkt. No. 62, Case No. 1:14-cv-2958-LMM (N.D. Ga. Dec. 9, 2015), adopting the Recommendation and Opinion of Special Master James L. Ewing, IV, Dkt. No. 61, filed November 18, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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