SHIELD Act Introduced in House

Innovators and the patent community are still recovering from the significant changes wrought on the patent system by the America Invents Act enacted by Congress last year.  We also brace for the implementation of various parts of the Act that go into effect in September and March.

Those changes weren’t enough, however, for certain members of Congress.

Congressmen Jason Chaffetz (R-UT) and Peter DeFazio (D-OR) introduced the Saving High Tech Innovators from Egregious Legal Disputes (SHIELD) Act.  The Act would create a special rule for patents involving computer hardware or software. 

With limited exceptions, US law provides that all parties to litigation to cover their own attorneys’ fees and costs, whether they win or lose.  This is said to encourage parties to bring legal disputes without fear of a huge fee and cost judgment in the event that they lose the case.  Under other systems, such as the English system, the loser of a lawsuit pays.

Under current patent law, the normal US rules apply, except for “exceptional cases” under 35 U.S.C. § 285.  Exceptional cases are rare and are usually limited to cases where a party has brought the lawsuit in bad faith, has engaged in litigation misconduct, or has engaged in inequitable conduct.  Even in such cases, the court has discretion as to whether to award attorneys’ fees.

Under the SHIELD Act:

Notwithstanding section 285, in an action disputing the validity or alleging the infringement of a computer hardware or software patent, upon making a determination that the party alleging the infringement of the patent did not have a reasonable likelihood of succeeding, the court may award the recovery of full costs to the prevailing party, including reasonable attorney’s fees, other than the United States.

This bill is clearly geared toward so-called patent trolls, entities that hold patents but don’t actually market products or services.  Don’t get me wrong, if a party brings a lawsuit that does not have a reasonable likelihood of succeeding, I am in favor of sanctions against that party.  There are, however, several problems with this bill.

First, there shouldn’t be special laws or sections of the Patent Act geared toward certain technology areas that don’t apply to others.  This includes the special post-grant review provisions under the AIA directed to the financial services industry.  The Patent Act should not become a mishmash of various provisions favored by lobbyists from certain industries.  The same rules should apply to all.

Second, this bill is completely unnecessary.  As noted above, the power to award attorneys’ fees to the prevailing party already exists under § 285.  Perhaps this section should be applied with more frequency than it currently is.  This would be a simpler fix than that proposed by the SHIELD Act.

Another option, of course, is to award fees to the losing party in all patent lawsuits.  This is not a good idea because patent suits are too unpredictable.  The reversal rate by the Federal Circuit on issues of claim construction is too high.  Parties bringing or defending suits in good faith would often end up the losing party and be required to pay large fee awards.

In either case, the litigation must progress to final judgment before fees can be awarded.  This does not stop companies from bringing frivolous suits in the hope of extorting a quick settlement to avoid the high cost of litigation.  Having the potential for getting a fee award, however, will aid defendants in settlement negotiations.

Weeding out frivolous lawsuits, not just in patent law but in all areas of the law, is an admirable idea.  The SHIELD Act, however, does not appear to be the answer.

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3 Responses to “SHIELD Act Introduced in House”

  1. Global Week in Review 8 August 2012 from IP Think Tank Says:

    [...] Innovators from Egregious Legal Disputes Act (SHIELD Act) introduced in House of Representatives (Inventive Step) (Patentology) (EFF) (Ars Technica) [...]

  2. Inventive step | Platformblog Says:

    [...] SHIELD Act Introduced in House « INVENTIVE STEP [...]

  3. New SHIELD Bill Introduced in House | INVENTIVE STEP Says:

    [...] year, several members of Congress sought to limit patent infringement suits concerning computer hardware a….  If the suit did not have a “reasonable likelihood of succeeding,” the losing party [...]

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