House bill takes aim against patent trolls, frivolous lawsuits

published in McAfee & Taft tIPsheet | August 1, 2012

By Zach Oubre

“An act to starve the patent troll.”

Although that’s not the preamble of the Saving High-Tech Innovators from Egregious Legal Disputes Act, that is nevertheless its purpose. This “SHIELD” Act was introduced earlier this month by House Representatives Peter DeFazio (D-Oregon) and Jason Chaffetz (R-Utah) and specifically targets frivolous patent infringement suits by shifting the burden of legal costs to the plaintiff. A copy of the bill can be found here.

Amidst a political season obsessed with health care and partisan politics, this bipartisan intellectual property law may come as a surprise to those unfamiliar with the infamous patent troll (also known as “non-practicing entities”), a business entity that acquires broadly phrased patents and then sues other businesses for allegedly infringing on those patents. Due to the high cost of defense, many businesses are forced to settle, even if there is little evidence to support the plaintiff’s claims. In fact, according to Boston University, patent trolls cost defending businesses $29 billion in legal and licensing fees in 2011 alone. As a result, patent trolls have gained recent notoriety, particularly in the computer software field.

According to a recent public statement of Rep. DeFazio, “Patent trolls don’t create new technology and they don’t create American jobs. They pad their pockets by buying patents on products they didn’t create and then suing the innovators who did the hard work and created the product. These egregious lawsuits hurt American innovation and small technology startups, and they cost jobs. My legislation would force patent trolls to take financial responsibility for their frivolous lawsuits.”

So, the SHIELD Act aims to add risk to what is currently a riskless business model. Under the act, a district court may award a prevailing defendant its attorney’s fees if the court determines the plaintiff “did not have a reasonable likelihood of succeeding.” The bill does not explicitly limit this fee-shifting provision to non-practicing entities, so, it  could be available against any plaintiff. Importantly, the SHIELD Act is specific to computer patent litigation, and its fee-shifting provision would only be applicable in suits alleging infringement of computer hardware or software.

To accomplish this limitation, the SHIELD Act does what no other piece of American legislation has ever done: define the software patent. Under the bill, a “computer software patent” is “(a) a patent that covers any process that could be implemented in a computer regardless of whether a computer is specifically mentioned in the patent, or (b) any computer system that is programmed to perform a process described in sub paragraph (a).” “Computer” is broadly defined as “an electronic, magnetic, optical, electrochemical, or other high speed data processing device performing logical, arithmetic, or storage functions.”

Although these definitions are presumably aimed at merely limiting the act’s fee-shifting provision, the effect of defining the software patent could reach much further. Federal courts would likely utilize such a statutory definition to define the outer limits of software patentability. Some legal commentators have even speculated that the definition could open the door to future legislation aimed at prohibiting software patents altogether.

Whatever the effects of the bill, it is clear that the SHIELD Act’s purpose is to take steps toward preventing frivolous patent infringement suits. Unfortunately, with the looming election, the SHIELD Act may be rusted before it ever sees the President’s desk.