Proposed SHIELD law is nothing but a gift to infringers

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The SHIELD Act, which was introduced last week by Reps. Peter DeFazio (D-Ore.) and Jason Chaffetz (R-Utah), would force patent owners who lose a patent dispute to pay the winner’s legal fees. This practice, known as the “English Rule” is anathema to American judicial tradition and widely criticized as intimidating would-be plaintiffs from bringing grievances to courts for fear of incurring even greater financial losses than they have already suffered. Not surprisingly, the backers of this legislation act are undeterred because intimidating plaintiffs — in this case inventors and small patent owners — is precisely their goal.

The backers of this bill argue that high tech companies are inundated and harassed by inventors and small patent owners, which they refer to as NPE’s (or Non Practicing Entities), suing them for frivolous patent infringement claims. Patent litigation statistics paint an entirely different picture. First, according to 2011 patent litigation study published by the international accounting firm PricewaterhouseCoopers, the number of patent suits filed each year has increased by just 4.9% from 1991 through 2010. This is roughly the same rate of growth (4.5%) experienced by the U.S. Patent and Trademark Office (USPTO). Hardly a patent litigation crisis!

What’s more, sponsors of the Shield Act would have us believe that most patent infringement lawsuits filed by NPE’s have no “reasonable likelihood” of prevailing in court and urgent action is needed to curb the abusing lawsuits. But the same study cited above showed that patent owners or NPEs win almost two out of three cases that come to trial. If innovators and patent owners are vindicated in court in two thirds of cases, where is the harassment?

At first blush, the English Rule seems only fair — the plaintiff who forced the defendant into spending money on the defense of a meritless lawsuit should pay for the defendant’s legal fees. But this is precisely how our legal system works now. First, in any litigation — patent or otherwise — litigants and their attorneys must satisfy Rule 11 of the Federal Rules of Civil Procedure, which states that any claim or assertion made by a litigant or its counsel must have a basis in fact or in law. A plaintiff bringing a frivolous lawsuit that has no merit, i.e., has no basis in fact or in law, can be sanctioned under Rule 11.

Moreover, U.S. patent law specifically provides that “the court in exceptional cases may award reasonable attorney fees to the prevailing party.” Frivolous litigation certainly qualifies as an exceptional case. In January, Johnson & Johnson was awarded $4.7 million in attorneys’ fees and expenses after winning a patent suit brought by MarcTec LLC.

With all of these protections against frivolous lawsuits already in place, why would Congress think it necessary to propose additional legislation? The answer is simple: To intimidate patent owners whose IP rights are routinely infringed by corporate bullies. 

In an attempt to blunt criticism from inventors, backers of the bill say the legislation says the losing patent owner pays the legal fees of the defendant only when there was no “reasonable likelihood” the plaintiff or patentee will prevail in the litigation. As a practical matter, the very possibility of having to pay millions of dollars in defense costs will give a pause to many law firms before representing inventors on a contingency basis effectively denying these inventors access to justice.

Existing laws that aim to prevent frivolous lawsuits are equally applicable to both parties. But, the SHIELD Act unfairly aims to penalize only plaintiffs — in this case, the patent owners. There is no provision to protect frivolous declaratory judgment cases filed by infringers to intimidate patent owners or meritless reexaminations filed by infringers to hold up the court proceedings.   

Supporters of the Shield Act are the same computer industry monopolists that sponsored the Patent Reform Act of 2010 that passed into law as the America Invents Act. It comes as no surprise that this latest piece of their legislative initiative singles out computer software and hardware patents, which are the sole subjects of this proposal. If the current legal framework is so bad, one has to wonder why the Shield Act singles out computer technology patents and doesn’t apply across the board. The reason: the computer industry lobbyists who drafted the legislation ingeniously crafted it avoid provoking the wrath of big pharma, who almost derailed their attempts to pass patent reform last time around. The SHIELD Act is nothing more than a 21st Century version of pork-barrel legislation.

Judging by previous patent reform effort and this new legislative assault, corporate interests have once again used their undue influence to gain unfair advantage over small inventors – true American innovators. Congressmen DeFazio and Chaffetz may want to give a more accurate name to their new bill: the “Shield the Infringer Act.”

Poltorak is CEO and chairman of the General Patent Corporation.