Future charges filed under that law will not be prosecuted, Columbus city attorney Zach Klein wrote on Wednesday in a memo to the city's police chief. Klein also dismissed charges brought against two employees arrested with Daniels.
The 10-year-old law states dancers at "sexually oriented" businesses are prohibited from touching customers and vice versa.
Klein called the law "glaringly inequitable" because its applicability depends on how regularly the employee performs. He also said employees who touch police are not in violation because on-duty public officials are not legally considered patrons.
Daniels was arrested last week and was accused of illegally rubbing undercover police officers' faces against her bare breasts during a strip club performance. Prosecutors dropped charges hours later, saying the law applied only to those who regularly performed at the club. This was Daniels' debut at Sirens in Columbus.
Last week, Columbus police Chief Kim Jacobs said that she took full responsibility for the mistake made in Daniels' arrest and that the undercover officers' motivations will be reviewed internally.
Without providing details, Jacobs said unsubstantiated allegations about the officers' motivations were circulating on social media.
Daniels' lawyer Michael Avenatti said some of the officers had what appeared to be "very Pro-Trump" social media pages. Daniels, whose real name is Stephanie Clifford, claims to have had sex with Donald Trump before he became president, something Trump has denied.
Avenatti said Wednesday he applauds Klein's decision.
The lawyer representing the two employees arrested with Daniels said he was glad the situation was promptly addressed. But his clients' arrests still caused them lasting harm, including harassment and damage to their reputations, attorney Ed Hastie said.
Hastie added the undercover operation was a poor use of police resources.
"Vice teams should be stopping drug use instead of concerning themselves with the technicalities of what my clients were wearing," he said.
Messages seeking comment were left Wednesday for Columbus police.