Two U.S. Congressmen are once again taking on so-called “patent trolls” with the reintroduction of the SHIELD Act, a bill that would force non-practicing entities (NPEs) that sue for patent infringement to pay the defendant’s legal costs if they lose their lawsuit.
The resurrection of their bipartisan bill, first introduced last August, comes at a time when entrepreneurs and businesses have become increasingly vocal about the need for further patent reform. The final phase of the America Invents Act, a law that enacts the biggest changes in U.S. patent law in 60 years, will take effect on March 16 after years of negotiation and debate. But even President Barack Obama recently acknowledged that U.S. patent reform needs to go farther.
The proposed legislation, officially called the Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013 [PDF], has been refined slightly since Reps. Peter DeFazio (D-Oregon) and Jason Chaffetz (R-Utah) first introduced it last summer, but it has essentially the same effect: It would force patent trolls—entities that buy broad patents and sue companies for alleged infringement—to pay if they sue unsuccessfully. NPEs often have thin evidence to back their lawsuits, but companies often settle because it’s cheaper to pay to make the suit go away. Defending a patent infringement suit can cost millions of dollars in legal fees.
“Patent trolls are proliferating and morphing in ways that are extraordinary,” DeFazio said at a press conference in Washington, where he described how NPEs have expanded their targets, moving from their original focus on software producers to applications makers, and most recently even to retailers—suing small businesses that use routine technologies such as scanning documents to email. “The burgeoning nature of this unproductive practice needs to be addressed.”
Studies have estimated that U.S. companies and inventors paid about $29 billion to patent trolls in 2011. In addition, lawsuits filed by NPEs now constitute the majority of U.S. patent lawsuits, according to a study by patent expert and Santa Clara University law professor Colleen Chien. “Patent trolls add no economic benefit to our nation,” Chaffetz said at the press conference. “They have captured part of the system, and they’re exploiting it for their own financial gain.”
While last year’s SHIELD Act focused solely on software patents, the new five-page bill applies to all types of patents. Congressmen DeFazio and Chaffetz noted that in the past, technology companies were the most heavily targeted by trolls, but now retailers, manufactures, podcasters, and even municipalities have been hit by NPE lawsuits.
Patent lawyers were skeptical last year about the SHIELD Act going anywhere, but the new bill has received widespread support from a variety of industries, organizations, and individuals, including the Consumer Electronics Association, the Consumer and Communications Industry Association, Microsoft Corp., the National Retail Federation, the National Association of Manufacturers, the online travel industry, and the Coalition for Patent Fairness—a group of companies that includes Adobe, Cisco Systems, Google Inc., Intel Corporation, Oracle, and Verizon Communications Inc.
In addition, a coalition of entrepreneurs, investors, and innovators, including entrepreneur and Dallas Mavericks owner Mark Cuban and Reddit co-founder Alexis Ohanian, joined the Electronic Frontier Foundation and sent an open letter to House Judiciary Committee Chairman Bob Goodlatte (R-Virginia), urging that Congress schedule hearings on patent trolls and the SHIELD Act. Chaffetz, who sits on the Judiciary Committee’s Subcommittee on Intellectual Property, Competition, and the Internet, said he expected a hearing to be held soon.
Patent attorneys said Congress wouldn’t be anxious to address the NPE issue because the legislative body is suffering from “patent fatigue” after decades of debating the America Invents Act. But DeFazio said the bill is targeted, simple, and aimed at a preventable problem—and is legislation “that we can pass.”
Defining who is a patent troll isn’t simple, but the new bill attempts to ensure that independent inventors, businesses that produce patented items, and universities are not lumped in with NPEs.
Despite enactment of the American Invents Act, momentum is growing to further change and improve the U.S. patent system. President Obama said in a recent Google+ Hangout hosted on YouTube that we need “smarter patent laws” so startups have an incentive to keep innovating. He also said patent trolls try to “leverage and hijack” someone else’s idea and then attempt to “extort” money from them.
Software patents in particular have come under attack, with prominent judges, company executives, and engineers saying they stifle innovation and calling for change. Just last week, executives from software companies were in Washington defending the value of software patents at a briefing on Capitol Hill.
The U.S. Patent and Trademark Office, which grants software patents, has been attempting to address the controversy surrounding overly broad software patents by holding public meetings to seek advice on how the system can be improved.
In fact, at the same time the SHIELD Act was being introduced in Washington, the PTO was holding a public roundtable in New York City on how to improve the quality of software patents. Attorneys, entrepreneurs, software engineers, and corporate executives, including Suzanne Michel, the senior patent counsel for Google Inc., and Patrick McBride, director and patent attorney for Red Hat, Inc., presented their ideas on how the system could change.
Many of the speakers called for continuing education and training of patent examiners so they can keep up with the rapid pace of technology. They also suggested the agency reject broadly written patents. Some also demanded a better—and less costly—process for PTO reexamination so small developers can afford to fight infringement claims without spending the millions it costs to go to court.
“There’s a continued push to improve the patent system,” said Drew Hirshfeld, the PTO’s deputy commissioner for patent examination policy. “This is the case throughout patent law and we’re always looking to see how the system can improve.”
