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New Patent Reform Takes Swing at Patent Trolls


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: August 3, 2012 @ 7:25 am
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Congressmen DeFazio (left) and Chaffetz (right) take on the problem of Patent Trolls.

Yesterday Congressman Peter DeFazio (D-OR) and Congressman Jason Chaffetz (R-UT) introduced the Saving High-tech Innovators from Egregious Legal Disputes Act, or SHIELD Act for short.  If ever passed into law the SHIELD Act would ostensibly adopt a variation on the English Rule, where the losing patent owner pays the legal fees of the victorious patent defendant when there was no “reasonable likelihood” that the patentee would prevail in the litigation.

The SHIELD Act is very short and is only directed at computer and software patents, which makes absolutely no sense if you ask me.  The seminal provision of the Act states:

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.

What does Section 285 say?  That is the provision that deals with awarding attorneys fees in the typical patent infringement situation.  35 U.S.C. 285 says:

The court in exceptional cases may award reasonable attorney fees to the prevailing party.

So what is an exceptional case?  It is one that is extraordinarily rare, which is probably why Congressmen DeFazio and Chaffetz want to amend the Patent Laws.

Under current law, whether attorneys fees should be awarded requires a two-step inquiry. First, the district court must decide whether there is clear and convincing evidence that the case is exceptional. Second, the court must decide whether to award attorney fees to the prevailing party even if the case is deemed exceptional.

Yes, even a finding that a case is an “exceptional case” does not always mandate an award of attorney fees in all circumstances. The United States Court of Appeals for the Federal Circuit has acknowledged that ther are many factors which can impact upon a decision regarding whether an award of attorney fees is warranted in a particular case. The types of conduct that could support a showing of exceptional circumstances resulting in the award of attorneys fees include, but are not limited to, willful infringement, inequitable conduct before the Patent and Trademark Office, litigation misconduct, and vexatious or unjustified litigation or frivolous suit.

What this means is that obtaining attorneys fees in any patent litigation is rare. Furthermore, in order to obtain attorneys fees it is necessary to litigate the matter to a conclusion. Of course, even if the SHIELD Act were to become law the defendant would have to litigate to the end, which is not typically done.  Patent trolls use questionable patents and highly specious assertions of infringement to bully truly small businesses to pay what some federal courts have called “extortion-like” settlements.  Perhaps if there is a greater opportunity to obtain attorneys fees representation would be obtained by those facing truly specious claims.

I’m not sold on this idea, although I do very much like the idea and think it is coming from a good place and is a step in the right direction.  But what is the guarantee that the federal courts will actually grant the prevailing party attorneys fees when there is a finding that there was not a reasonable likelihood of succeeding?

There are several obvious flaws in the legislation, which if amended could become much better.  First, and most obvious, is what is a “reasonable likelihood of succeeding”?  The federal courts are virtually certain to interpret that very restrictively because they don’t want to punish those who bring a lawsuit and lose.  That is not the America Rule of paying for attorneys fees, and historically has been frowned upon in the U.S. because it could have a chilling effect.  We prefer to err on the side of allowing cases to be brought and not punishing those who have a legitimate claim but ultimately do not prevail.  So you can almost bet your last dollar that “reasonable likelihood of success” will not mean what you think it should mean, and it will be interpreted extremely narrowly.  Thus, the Act absolutely needs some definition of “reasonable likelihood of success,” or at the very least factors that a federal court must consider.

The other obvious flaw is that the statute only applies to the infringement of a “computer hardware or software patent.”  Why?  I mean I get it, sort of.

The best business in the world to be in right now is that of a patent troll, who I define as a nefarious actor and not merely any non-practicing entity (NPE).  The bad actors, and they can be those who acquire patents or are the originating innovator, get their hands on a patent and say that it relates generally to X and, well, you generally do X, so I want you to pay me.  If you don’t pay then the sue.  There is little, if any, attempt to ever determine whether there is actual infringement of one or more claims in the patent.  That is on its face legally absurd because only the claims define the exclusive rights give to the patent owner.

The problem with patent trolls is that that they have these patents, they don’t care whether they are really infringed, they sue and then threaten a long, drawn out proceeding unless you pay them a relatively meager sum, at least a meager sum compared to what it will cost you to even retain a competent attorney to defend and fight.  There is nothing you can do to turn up the heat on the patent troll unless you have at least several hundreds of thousands of dollars laying around to defend, and even then you will likely go through that money quicker than you might imagine.  Patent litigations are extremely time intensive and very costly.  But because the patent troll is not actually in the business of doing anything other than collecting royalties you have no effective counter-claim against them for anything.

It will be useful to have a law that more broadly awards attorneys fees to those sued by the bad actors in the industry who have no reasonable likelihood of success.  The patent troll market is overwhelmingly in the computer and software space because that is where you can acquire one or a few patents and legitimately conclude that many thousands of entities are doing something that is at least in the same technical area as the patent.  Thus, there is a target rich environment with lots of players so small that they cannot afford to mount a legitimate patent infringement defense.  It is like shooting fish in a barrel.

Having said this, why limit this provision to computer and software patents?  Why should anyone ever be able to bring a lawsuit when they objectively had no reasonable expectation that they would succeed?  It seems foolish to me to allow harassment lawsuits of any kind whatsoever.  That includes those the relate to computer and software patents, but why doesn’t the same logic and the same basic principles of fairness mandate that such a rule apply across the board for all patents?  Why shouldn’t the patent owner be required to do at least some reasonable due diligence to legitimately come to the belief that patent claims are actually being infringed before they file a naked complaint that does nothing more than offer speculation and conjecture?  Of course, the worst actors doen’t even offer speculation and conjecture.  They know full well those they are suing don’t infringe and they sue anyway.  The federal courts are complicit in the patent troll problem.  Something must be done!

If Congress really wants the SHIELD Act to have any teeth they would mandate that a claims chart must be provided in every complaint filed.  That claim chart will break down the patent claim being asserted and the accused infringing device or method, offering at least some reason to believe that there is a reasonable chance that the patent owner can prevail.

If the SHIELD Act required a claim chart upon filing, applied across the board to all those who would seek to manipulate the patent system and not just computer/software patents and defined “reasonable likelihood of success” I would be on board with both feet.  As it is, I am on board with one foot and hopefully that improvements can be made to this important piece of legislation.

The bad actors — those patent trolls who sue without caring whether there is really infringement — are an unacceptable tax on business, mostly small business.  That is unconscionable.  I applaud Congressmen DeFazio and   Chaffetz for identifying a problem and offering a solution that actually has a chance to solve the problem that they seem to want to address.

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Posted in: Congress, Gene Quinn, IP News, IPWatchdog.com Articles, Patent Litigation, Patent Troll Basics, Patent Trolls, Patents

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

10 comments
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  1. Gene –

    This (along with the PARTS act that you’ve also mentioned) is particularly harmful to small businesses and inventors. The “SHIELD” name is not appropriate, since a shield is something that could be used by anybody for defensive purposes. This is a one-sided bill that only accused infringers can use as a weapon against patent owners.

    Large companies can threaten and bully inventors and small competitors by trying to convince them that they will convince the court their claims had no “reasonable likelihood of success.” Even worse, the provision would apply even if the accused infringer filed the first shot, so a patent owner who tries to open up a dialogue could end up facing a DJ and threatened with attorney’s fees if they don’t offer up a fully-paid license for a bag of peanuts! I’m afraid this bill really only discourages pursuit of meritorious claims out of fear.

    Why not make it bilateral? If an accused infringer tenders a legal defense that has no “reasonable likelihood of success,” why shouldn’t the infringer pay the patent-owner’s attorney fees incurred to disprove the defense?

    Finally, you mentioned these so-called “bad actors.” Personally, I think there are fewer of them than most people believe, but you and I may just agree to disagree about that particular point. The more important point is that very few patent suits are filed pro se, which means for every frivolous lawsuit, there is a lawyer who signed a pleading certifying that the claims are made in good faith. If you want to stop those that you describe as trolls, get their lawyers! Any attorney who doesn’t review the patent, specification and file history and come to a conclusion that a good faith interpretation of at least one claim provides a good faith argument for infringement by at least one product, should absolutely suffer the consequences.

  2. The immediate consequence that I perceive is to settlement negotiations between practicing entities, particularly the defendants ability to defensively assert its own patent portfolio. Why would a plaintiff not simply sit back and wait for the defamed ant to allege, in court, infringement of the defensive patents before even taking them into account in settlement negotiations?

  3. Your be$t voice in action.

  4. So, you’re for this legislation and don’t believe it will hurt small innovative companies and independent inventors??

    Gene, in another blog post you wrote:
    “One thing is crystal clear. Rep. Jackson-Lee is absolutely correct to be concerned about those 30,000 jobs because history unequivocally shows us that innovative companies go where they can get patent protection. Similarly, history shows us that innovative companies vacate countries where patent protection is unavailable, or less readily available. That is not a matter of opinion, it is a matter of historical fact. It is utter nonsense to dispute this, and to pretend that curtailing design patent rights will have no impact would be nearly hysterically funny if it didn’t come with such large consequences.”

    The Courts, Congress and the PTO have bent over backwards recently to the point where it’s exceedingly easy to invalidate patent claims or limit their scope or damages – let’s face it, these days if you can’t invalidate a patent or escape a finding of infringement, YOU’RE PROBABLY AN INFRINGER.

    If this legislation passes, I guess we can expect innovative companies to start leaving America.

  5. Patent trolls use questionable patents and highly specious assertions of infringement to bully truly small businesses to pay what some federal courts have called “extortion-like” settlements.

    This statement, like most statements regarding “Trolls,” is both under and over inclusive.

    Questionable patents are not the sole domain of “Trolls.” In fact, Pete Zura’s blog (RIP) exposed this as a canard in an analysis that showed that most entities considered “Trolls” actually had higher qualilty patents!

    Specious assertions of infringement are not the sole domain of “Trolls.” This is part and parcel of the larger system we have called Notice Pleading. Your argument with this is with the larger system.

    Bullying truly small businesses is not the sole domain of “Trolls.” In fact the bullying (and the concomitant ignoring of actual rights – see i4i, for example), is a staple of the large established powers – the very same powers that initially coined the term “Troll” as a smear campaign in their efforts to negate the power of patents.

    Any legislation – this included – that purports to deal with the “Troll” problem must be carefully evaluated to make sure that it is not just some anti-patent device (or wolf) in sheep’s clothing.

  6. And I would add (as I have noted many times) that the “specter” of litigation is a scare tactic in itself. The actual rate of litigation runs at far under 2% of all active patents (if only ALL areas of law had such a small litigation rate…!).

    If we let the scare tactic of litigation run patent law, we are not letting the tail wag the dog, we are letting the flea’s tail on the flea on the tail of the dog wag the dog.

  7. Dawn-

    I’m really interested in having you explain your views. This legislation has nothing to do with invalidating claims or making it easier to be an infringer.

    Why would innovators leave America? That is a big accusation without any support whatsoever.

    You actually think innovators will leave America if they are unable to bring frivolous lawsuits? Seems like a comical position to me.

    -Gene

  8. This legislation is pure politics. It adds nothing to the law. I the patentee’s assertions are as bad as the law sets as the threshold, rule 11 and the existing “exceptional case” provisions give the same effect.

  9. The EFF is behind SHIELD. The EFF gives the appearance of supporting individuals, but when one looks at funding needs, it’s much larger than what its smaller members pay. Large software companies are at work here, don’t be surprised when the votes pass and thereby make software patents in the hands of small entities effectively toothless.

  10. I’m not convinced by the “patent troll” angle, particularly as the bill’s wording clearly is intended to apply to ALL software patent holders, and wonder as to what it’s impact would be in the context of recent and on-going high profile software patent court battles.

    And agree that the courts will have problems making the “did not have a reasonable likelihood of succeeding” determination, particularly give the vague and overtly broad language used and claims made in many software patents.

    @American Cowboy
    I think an important thing this legislation introduces is a set of seemingly reasonable definitions for ‘computer’, ‘computer hardware patent’ & ‘software patent’, although I’m uncertain as to what real impact these may have on US law.