Wednesday, February 27, 2013

SHIELD Act of 2013 - A Problematic Solution to Patent Trolls

I thought the effort to pass the SHIELD Act died last year, but read Joe Mullin's article tonight: Peeved politicians want "loser pays" rule for patent trolls - SHIELD Act would target patent shell companies, exempt inventors, universities. I was wrong, it's repackaged as the SHIELD Act of 2013! It's changed a bit, but still not a good idea.

Part of the problem is it's a huge departure from centuries of America law. The America rule requires each party in litigation bear its own expenses, including attorney fees. In 1946, the U.S. patent statute was amended to "discourage infringement of a patent by anyone thinking all he would be required to pay if he loses the suit would be a royalty." The Senate Committee at that time noted, "it is not contemplated that the recovery of attorney fees will become an ordinary thing in the patent suits." In 1952, the U.S. patent statute was amended to add that attorney fees would only be recoverable in "exceptional cases." Even then attorney fees are intended to compensate the "good party" for its expenses and not punish the "bad party." So despite the rhetoric U.S. patent law already has a mechanism to tackle patent trolls.

This Act's proposed fee shifting ignores that plus opens a can of worms when parties have vastly different financial resources. For example, if a small company becomes aware a large company is infringing its patent, offers a license, which is ignored, it may need to go to court to seek redress. This bill would encourage defendants to engage a large law firms (many attorneys are assigned to the case) to quickly run up a huge legal bill, which is not difficult if you bill at $600-$1,000/hour, generate a "victory," and hand the entire legal bill (which should belong to the defendant for not exercising any judgment and ignoring the relatively low cost inter partes review in the USPTO) to punish the small company for having the audacity to want to license its patent. Ultimately if passed, the SHIELD Act may just shield large companies who want to freely infringe small companies patented inventions.

The SHIELD Act definitions of a patent troll is also problematic. A company or individual risks being held a patent troll by defendant's motion if (1) it doesn't practice the invention; (2) it doesn't have at least one inventor in its employ; or (3) it is not the original patent owner. Assigning so much importance on practicing the invention has no basis in US patent law. Wouldn't the bill's definition of patent troll be met by companies none of us consider to be patent trolls? For example, is Google forced to litigate as a patent troll under this bill if it seeks to enforce the Motorola Mobility patents? Better not lay off the affected Motorola inventors then. How about Facebook's purchase of AOL and IBM patents? How much practice of the invention suffices to defeat the patent troll label? Could a company avoid the patent troll label by building and selling a prototype? Couldn't someone be exempt from the Act simply by hiring one of the inventors? Maybe plaintiff and defendant could bid for the inventor. Does exempting an original owner but not any subsequent assignee discourage transfer of patents? Congress may mean well, but these types of consequences make the bill worse than the problem.

Copyright © 2013 Robert Moll. All rights reserved.