Business

SHIELD Act: Congress Puts the Heat on “Patent Trolls”

A new bill, complete with bipartisan support in Congress and association backing, could help dissuade companies that file patent lawsuits but do not make products themselves.

A common saying online is “don’t feed the trolls,” but a new bill in Congress seeks to  dissuade them once and for all—at least in patent litigation.

More details below:

The backstory

In recent years, companies such as Microsoft, BlackBerry, Oracle, and Fark.com have found themselves targeted by patent infringement lawsuits filed by companies that owned valuable patents but otherwise were not active businesses.

These egregious lawsuits have spread to nearly every sector of the economy, costing billions of dollars and countless jobs.

It goes beyond just big companies. Last week, the libertarian-leaning political magazine Reason shared the story of Austin Meyer, the creator of a popular flight simulator, X-Plane, who recently found his business targeted by a so-called patent troll:

The Atlantic’s Rebecca J. Rosen last year reported on the results of a 2012 study that found that such lawsuits cost U.S. companies as much as $29 billion in legal expenses in 2011. And the cases are not limited to high-tech disputes. In one particularly controversial case, companies were sued for their usage of common office scanners, and in another, a Luxembourg-based company has been suing public transit agencies across the U.S.

“Loser Pays”

On Wednesday, Rep. Peter DeFazio (D-OR) and Rep. Jason Chaffetz (R-UT) introduced a bill that would institute a “loser pays” rule in certain patent lawsuits. The rule would require an unsuccessful plaintiff in such a case to pay the legal fees of the defendant—not the norm in U.S. civil litigation.

The SHIELD Act of 2013 would apply to patent infringement plaintiffs who did not invent the products protected by the patents, those who aren’t using the patents, and those who aren’t classified as universities.

DeFazio said in a statement that such companies “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 law does have a potential loophole, however, according to Ars Technica. Companies that have ties to the original inventor–such as ArrivalStar, the firm that has gained scrutiny for suing public transit agencies–could be exempted.

Associations React

Associations and tech companies alike—including organizations such as the Consumer Electronics Association, the Computer & Communications Industry Association, and the Business Software Alliance—largely commended the bill, though some found fault in the specifics.

For example, the Application Developers Alliance, which represents smaller developers like Meyer, said the bill doesn’t go far enough.

“Unfortunately, many small companies cannot afford to pay lawyers through the course of a litigation, so they need more relief than the SHIELD Act offers,” the group wrote in a statement. “A quicker and cheaper program for challenging trolls’ patents in the Patent and Trademark Office (PTO) is needed as an alternative to litigation. The Covered Business Method Program, as set out in the American Invents Act for financial services patents, is a good model.”

No similar bill has yet been introduced in the Senate, Reuters reported.

(iStockphoto/Thinkstock)

Ernie Smith

By Ernie Smith

Ernie Smith is the social media journalist for Associations Now, a former newspaper guy, and a man who is dangerous when armed with a good pun. MORE

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