The Indiana legislature recently passed legislation that attempts to discourage parties from bringing frivolous patent infringement claims within Indiana. The amendment to Indiana House Bill 1102 – Bad Faith Assertions of Patent Infringement will go into effect on July 1, 2015.

The bill prohibits a person from asserting a claim of patent infringement in bad faith. It provides that a court may, upon motion, require a person to post a bond of up to $250,000 if the target establishes a reasonable likelihood that the person has made an assertion of patent infringement in bad faith. It also establishes remedies and damages.

The bill does not apply to any of the following:

• Approved postsecondary educational institutions.
• Technology transfer organizations owned by or affiliated with approved postsecondary educational institutions.
• Licensees holding patents from postsecondary educational institutions or technology transfer organizations owned by or affiliated with postsecondary educational institutions.

A person affected by a violation of the bill may bring an action in a court with jurisdiction. A court may award attorney fees, litigation expenses and costs to a person who prevails in an action as established by the bill.

Furthermore, a court may award at least $5,000 for each demand letter that a complainant may have received and at least $50,000 in punitive damages. The bill also requires that a person who files a complaint with a court must mail or deliver a copy of the complaint to the Office of the Indiana Attorney General.

Indiana is on the edge of a new wave of state sentiment that looks to state laws to discourage and punish parties for sending demand letters for patent infringement with little if any factual justification. Currently, around 20 other states, including Illinois, have either enacted similar statutes or have them working through the legislative process.

There are legitimate questions as to whether all patent-related litigation is preempted by the federal Patent Act. However, there does appear to be a growing line of cases supporting that where an action is brought to enforce consumer protection statutes, or state statues similar to HB 1102, the actions will not be preempted. In 2013, the Vermont state attorney general brought suit against a defendant for sending demand letters to 75 companies related to claims of patent infringement for scanning and emailing documents. The defendant immediately moved to remove the case to federal court. In that case Federal District Judge William K. Sessions III determined that it had no jurisdiction and remanded the case to state court, opining that "the state is targeting bad faith conduct irrespective of whether the letter recipients were patent infringers or not, on the basis that [defendant]'s bad faith conduct would be unlawful even if [defendant]'s patents were valid and the conduct was directed toward actual patent infringers." The federal circuit subsequently denied appeal, stating it had no jurisdiction in light of the remand.

While statutes similar to Indiana’s are unlikely to resolve many of the current problems with the patent litigation system, Indiana’s statute may result in more specificity being included in patent infringement demand letters and perhaps a reduction in clearly frivolous infringement litigation. Indiana HB 1102 should be watched closely, as the inevitable litigation it will generate will surely color the patent litigation landscape over the next few years.