SHIELD: "Saving High-Tech Innovators from Egregious Legal Disputes"

PatLit is delighted to host this post from Miri Frankel (Associate General Counsel, Aegis Media Americas), who is making a welcome return to the blogosphere (Miri has recently guested for the IPKat and will shortly be doing so for the 1709 Blog too).  Miri has picked as her subject here a topic in which both the problem and the solution seem to many of us to have the words "made in America" stamped all over them: the so-called patent troll.  Writes Miri:

Saving High-Tech Innovators from Egregious Legal Disputes 

US Congressmen Peter DeFazio and Jason Chaffetz, on February 27, introduced a new bill for consideration by the US House of Representatives.  Known as the Saving High-Tech Innovators from Egregious Legal Disputes, or the SHIELD Act (we all wonder whose job it is to create acronym-friendly bill names…), the bill makes it much more costly for a patent troll to maintain lawsuits against active innovators.  

In a press release, the Congressmen explained:

“Patent trolls drained an estimated $29 billion from American innovators and companies in 2011,” said DeFazio. “They pad their pockets by buying patents on products they didn’t create and then suing companies from every industry for infringement. These egregious lawsuits have spread to nearly every sector of the economy, costing billions of dollars and countless jobs. The bipartisan SHIELD Act is a targeted reform that will force patent trolls to take financial responsibility for their frivolous lawsuits.” 

“Patent trolls contribute nothing to the economy. No industry is immune to these attacks. Instead of creating jobs and growing the economy, businesses are wasting resources to fight off frivolous lawsuits. This bipartisan legislation will curb future abuse by requiring trolls to bear the financial responsibility for failed claims,” said Chaffetz.

Indeed, the barrier to entry for patent trolls to file a complaint in federal court in the US is quite low, essentially just filing fees and court costs, plus legal services fees.  If a case goes to trial, the litigation costs for each party can easily skyrocket to millions of Dollars.  But, generally, the goal of a patent troll is to extract a settlement fee prior to trial.  Because of the high cost of litigating, defendants often do settle rather than take on the cost and time burden of litigation.  

Congressman DeFazio

If enacted, the SHIELD Act would make the legal system “pay to play” for patent trolls.  A defendant asserting invalidity or non-infringement may move for judgment that the plaintiff does not meet certain conditions of the SHIELD Act, namely that the plaintiff is either (a) the original inventor, (b) a legitimate exploiter of the patent (or that substantial investment has been made in attempt to exploit the patent), or (c) a university or a technology transfer organization connected to an institution of higher education.  Essentially, if a plaintiff is found not to meet any of the conditions, it is officially considered a patent troll (keen-eyed readers will note that the bill doesn’t even identify them as patent trolls; it uses the more genteel phrase, ‘party that fails to meet at least one of the conditions’”). 

A troll

Once a party is called out as a troll, the landscape of the litigation changes.  For one, a prevailing defendant is entitled to an award of recovery of full costs, including reasonable attorney’s fees.  Even better, the patent troll will be required to post a bond “in an amount determined by the court to cover the recovery of full costs”.  Thus, a patent troll would need to make a significant investment in a claim early on in the litigation process in order to avail itself of the US legal system.  By driving up a patent troll’s initial costs of litigation, SHIELD Act supporters hope that trolls will forgo filing dubious claims that they are likely to lose if forced to continue through trial.  They also hope that this process will empower more innovators to defend claims rather than feel trapped into paying extortionate settlements.  

There is reason to believe that SHIELD will truly have a measurable impact on the legal activities of patent trolls.  According to this report in The Atlantic, 

“The fact is that when [patent troll-initiated] cases do go to trial, trolls overwhelmingly lose. The Texas-Stanford study found that when suits don't settle, trolls win just 9 percent of the time. A PricewaterhouseCooper study found that they prevail about 24 percent of the time -- somewhat more impressive, but still not great odds. These companies are essentially betting that they won't have to justify their junk demands in court.”

While other bills aimed at patent trolls have previously failed to be passed into law, the SHIELD Act currently has broad bipartisan support in Congress.  It is also supported by President Barack Obama, who considers patent trolls a drain on the economy, and has recently stated that the America Invents Act, which he signed into law in 2011, only gets the US halfway to solving the problems with the current patent system.  And there is also broad support among the American public.  Could this be the beginning of the end for the patent trolls? 

Full Press Release Statement from Congressman DeFazio here
Round up of responses to the bill here