Without Nick Fury, will the SHIELD Act Still Pass?

February 28, 2013 6:51 AM

SHIELD Act introduced a second time to combat patent lawsuits that rely on those being sued going for settlements because the cost of defensive can be prohibitive. Though still a gamble, if SHIELD were in place and the defendant victorious, the patent holder would have to pay the legal costs. The bill is being reintroduced by Peter DeFazio (D-OR) and Jason Chaffetz (R-UT). Arstechnica interviews DeFazio.
posted by juiceCake (19 comments total)

The bill is H.R. 845. Its text is not available on Thomas yet.

Although the current patent law already allows the award of attorney's fees in "exceptional cases," those are fairly rare. I support something like this that would deter companies that are only seeking cost-of-litigation nuisance settlements.

But honestly, I'm not sure it's even necessary to worry about figuring out who is a "patent troll" and only apply the loser pays rule to them. We could instead make loser pays the default rule in patent litigation and allow judges to require each party to pay its own fees in exceptional cases (e.g. the relatively rare but emotionally-charged "David vs. Goliath" situation where an individual inventor, acting in good faith, sues a major corporation; or a case where a party won but engaged in some questionable conduct along the way).
posted by jedicus at 7:32 AM on February 28 [2 favorites]

But honestly, I'm not sure it's even necessary to worry about figuring out who is a "patent troll" and only apply the loser pays rule to them. We could instead make loser pays the default rule in patent litigation and allow judges to require each party to pay its own fees in exceptional cases (e.g. the relatively rare but emotionally-charged "David vs. Goliath" situation where an individual inventor, acting in good faith, sues a major corporation; or a case where a party won but engaged in some questionable conduct along the way).

then judges have to certify who exactly is "David" and "Goliath" in each case? and every defendant has to risk double legal fees for every case before certification?

The Coalition for Patent Fairness, including Adobe, Cisco, Dell, Google, Oracle and Verizon said in a statement that "patent trolls can't have a free roll of the dice, and SHIELD would help to ensure that they do not."

The current patent situation has created a bubble market in patents. Patent trolls are speculators in that market. I think the standard for meaningful patent reform is whether the value of patent portfolios are significantly diminished by it so, if some of the biggest patent holders around are for it... the consequence of SHIELD type laws for the patent market is that it reduces the number of small players willing to buy patents. As long as patents are property and able to be sold, how are you going to distinguish between a "troll" and a small company which is buying/investing in technology? again, judges have to certify not just who is "David" but whether "David" is "good." But either way, if patents are only valuable for "good" companies then you are increasing the market power of the biggest players in the patent market.
posted by ennui.bz at 7:46 AM on February 28

then judges have to certify who exactly is "David" and "Goliath" in each case?

Under the current law they already have to decide what is an exceptional case. My proposal would just flip it from "exceptionally worthy of an award of attorney's fees" to "exceptionally worthy of only being required to bear their own costs."

every defendant has to risk double legal fees for every case before certification

Bear in mind that loser pays is the rule in essentially every country in the world other than America. Loser pays is the default rule in Alaska and, for some categories of litigation, Oklahoma and Oregon. Their courts have not become inaccessible as a result.

However, switching to loser pays may not necessarily significantly reduce meritless or frivolous filings. Empirical studies of Alaska, for example, have found that Alaska's Rule 82 may have somewhat reduced litigation overall but filings there are otherwise indistinguishable from the rest of the country. Douglas C. Rennie, Rule 82 & Tort Reform: An Empirical Study of the Impact of Alaska's English Rule on Federal Civil Case Filings [pdf], 29 Alaska L. Rev. 1 (2012).

Now, the SHIELD Act is, as I understand it, a one-way shifting provision, unlike the Alaskan rule. It would only compensate defendants, not plaintiffs, so it may have more of a deterrent effect. Although a properly structured patent monetization company may be able to pursue litigation without concern for an attorney's fee award, knowing that it would simply declare bankruptcy if the patent was invalidated. So in some cases an award under the SHIELD Act may prove illusory. Only where the patent was found valid but not infringed and the company intended to pursue other cases would the company need to remain solvent.

And patent litigation may be a special case. Certainly it is more expensive than most kinds of litigation, and patents enjoy a (undeserved, in my opinion) presumption of validity that gives plaintiffs an advantage. Those factors may also contribute to it being more successful than other loser pays provisions.

So while I do support this bill (or at least something like it; it's hard to say without seeing the text), this may not be a panacea. I still favor also removing or reducing the presumption of validity as well as other reforms.
posted by jedicus at 8:21 AM on February 28 [2 favorites]

I has been practicing patent law for about ten years and the proposed bill seems poorly written to me. It seems to seek to define non-practicing entities in part (d) but it's missing a conjunction between (d)(2) and (d)(3) - probably "or" but really there's no excuse for such sloppiness.

Also, if I read it correctly, the bill doesn't penalize universities (the classic "good guy" trolls/non-practicing entities) but fails to protect federal labs. Federal labs frequently rely on outside companies to license and commercialize their inventions, and such companies want patent protection to ensure that their work in developing commercial products is not taken advantage of by another company. By making these patents potentially very costly to enforce, the bill would reduce the value of much of our federally funded research.
posted by exogenous at 8:26 AM on February 28

Patent trolls are speculators in that market.

They are a very particular type of speculator. They are like junk bond investors: cheap to buy, potentially high yield, most will fail.

if some of the biggest patent holders around are for it

They are for it because the 'patent trolls' are agin' it. Those companies are all frequent targets of 'patent troll' suits.

As long as patents are property and able to be sold, how are you going to distinguish between a "troll" and a small company which is buying/investing in technology?

The SHIELD Act attempts to do so by distinguishing between practicing and non-practicing entities. "Patent owners can be defined as non-practicing unless the plaintiff is an inventor or original patent holder, is actually using the patent, or a university [or technology transfer organization]."

again, judges have to certify not just who is "David" but whether "David" is "good."

I think you are reading too much into the David v. Goliath analogy. Instead, just read it as "individual inventor versus large company." In most cases, the large company is going to incur a lot of attorney's fees, far more than the individual inventor could ever hope to pay. It's not a question of "goodness." It's a question of whether it would be just to saddle the individual with millions of dollars in attorney's fees for trying to enforce legal rights in good faith. Judges decide such questions all the time.
posted by jedicus at 8:31 AM on February 28

I has been practicing patent law for about ten years and the proposed bill seems poorly written to me.

Where did you find a copy of the bill?
posted by jedicus at 8:31 AM on February 28

I saw a copy of the bill via this story.

While patent trolling is a problem, the underlying problem there is pervasive throughout: really really shitty patents. Until we fix the quality of the patents, the whole system stays bad; fixing the quality of patents will get rid of the troublesome trolls.

Additionally, many inventors don't have a ton of money to go about commercializing their inventions (and patent prosecution isn't cheap). Many of them end up selling their patents to speculators to extract some value back out of the process, and that option is going to evaporate with (d)(2) of this bill, because no one is going to pay for a patent unless they can actually sue on it.

As for (d)(1), why is it okay to sue as an assignee who gets it straight from the inventor? What if the inventor assigns it to one company who sells it to another and another, and eventually the last company with the patent simply pays him off to assign it to him and then back? Sounds like they are fine under this law.

One of the weirdest things about patents are that they do not grant a right to make the invention, they only grant a right to exclude others from making the invention. This bill seems to have flipped that on its head for the sake of scoring cheap points.
posted by nickgb at 8:44 AM on February 28

I saw a copy of the bill via this story.

Thank you.

Until we fix the quality of the patents, the whole system stays bad; fixing the quality of patents will get rid of the troublesome trolls.

The 'troll' business model depends on two vital things: a patent that is 1) cheap to sue on but 2) expensive to defend against. It's not really about patents as such. It's about cost-of-suit nuisance settlements. The same thing happens in, for example, medical malpractice cases.

There are lots of ways to address those elements other than improving patent quality across the board, which would be incredibly expensive and incredibly wasteful, since most patents are never involved in litigation, actual or threatened. More targeted solutions (fee shifting, reducing the presumption of validity) up-end the economics of trolling just as well without spending resources on inconsequential patents.

As for (d)(1), why is it okay to sue as an assignee who gets it straight from the inventor?

That's a very good question. For example, a very large number of Intellectual Ventures's patents would fall into that category, but few people would describe IV and its holding companies as practicing entities.
posted by jedicus at 8:57 AM on February 28

I has been practicing patent law for about ten years and the proposed bill seems poorly written to me.

Yes. The exception for exploitation of the patent, § (d)(2), only covers patents that are ultimately related to the "production or sale of item[s] covered by the patent." That leaves out a whole host of method patents that are unrelated to the manufacture or sale of products. It's possible that was intentional, but I don't see why.
posted by jedicus at 9:01 AM on February 28

Can the economy REALLY bear the cost of a helicarrier, especially after the White House claiming we could not afford a Death Star?

I think not. Keep that in mind.

(Honestly though, something to stop things like scanner patent trolling needs to be done, as this means we acknowledge there is a problem, which the first thing needed to fix it.)
posted by Samizdata at 9:22 AM on February 28

Loser pays is a great system for the powerful, usually corporations. The little guy would be deterred from bringing suit against a big powerful corporation with unlimited litigation resources and that suits big companies just fine. Why limit it to patent? We have all these pesky product liability, environmental, discrimination and other suits that would also be reduced by a loser pays system. Yes, big companies, like Google, are all for this.
posted by caddis at 9:30 AM on February 28

More targeted solutions (fee shifting, reducing the presumption of validity) up-end the economics of trolling just as well without spending resources on inconsequential patents.

Fee shifting already exists for egregious cases, and as caddis points out it's pretty biased against small companies or inventors.

Reducing the presumption of validity is a far more drastic solution than increasing patent quality in that it reduces the value of all patents in existence regardless of quality. Increasing patent quality will simply weed out the worst patents from issuing. Yes, it's expensive, but it also is necessary in order to operate a patent system worth having.
posted by nickgb at 4:06 PM on February 28

My experience with attempts to improve patent quality have largely involved patent examiners making shitty rejections at no apparent consequence to themselves (yet at great cost in time and money for the patent applicants), because if they allow something that someone above them thinks should not be allowed, shit rains down on them.
posted by exogenous at 4:21 PM on February 28

Loser pays is a great system for the powerful, usually corporations. The little guy would be deterred from bringing suit against a big powerful corporation with unlimited litigation resources and that suits big companies just fine. Why limit it to patent?

Because there are relatively few patent infringement suits brought by "little guys." Individual inventors bring only about 3-4% of computer hardware, computer software, and financial method patents, for example. Colleen V. Chien, Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in the Litigation of High-Tech Patents [pdf], 87 N.C. L. Rev. 1571 (2009). The largest category of such suits involves one large company suing another, accounting for 28%. 'Troll'-type suits are another large category, 17% by number of suits, 28% by number of defendants.

The number of patents with only a single listed inventor has been steadily falling, as has the number of patents with no listed assignee, so these numbers are unlikely to reverse themselves in the future.

It is not unreasonable to think, then, that the default rule for patent litigation can assume that the litigants are companies, particularly large companies, where fee shifting would make sense. That is doubly true for cases involving 'trolls.'

Fee shifting already exists for egregious cases

The law of exceptional cases does not allow it to be used often enough to have a significant impact on companies seeking cost of litigation nuisance settlements.

Reducing the presumption of validity is a far more drastic solution than increasing patent quality in that it reduces the value of all patents in existence regardless of quality.

You have to question why the presumption of validity exists in the first place. It represents a Congressional determination that the Patent Office has done a good job and so the courts should be wary of second-guessing patent validity. Empirical evidence suggests it doesn't actually do that great of a job, so reducing the presumption of validity isn't a "drastic solution" that reduces the value of all patents. It's a reasonable solution that brings the overinflated value of all patents more in line with their actual value.

Increasing patent quality will simply weed out the worst patents from issuing

First, you're presupposing that there is some straightforward way for the Patent Office to "improve patent quality," especially across the board. It already can't retain examiners for more than 3 years. And despite over a decade of focus on "quality," there isn't much evidence that it accomplished anything.

Second, why does it make sense to spend enormous resources trying to improve the quality of hundreds of thousands of patents that will never be litigated or the subject of a commercially significant license? Who cares about the quality or value of unimportant patents? Why not make it easier to invalidate the few thousand patents each year that are actually litigated?
posted by jedicus at 6:46 AM on March 1

It is not unreasonable to think, then, that the default rule for patent litigation can assume that the litigants are companies, particularly large companies, where fee shifting would make sense. That is doubly true for cases involving 'trolls.'

Even the law review article says, "Still, along with the classic
story of the American inventor, the David v. Goliath narrative
remains an important part of the patent litigation landscape."

This article is limited to the high tech industry. It seems that the problem of patent trolls is predominantly one for the tech sector, although we can see them starting to branch out into medical devices, and the pharm industries. Still, the cases that somehow seem the most unfair to the target company are mostly in the tech sector. Why should we craft a solution to protect the tech industry at the expense of the little guy, the start-up, the small business etc.? Loser pays just reinforces the power dynamics of large corporations. It may also be easy for the "trolls" to get around by placing the patents into thinly funded corporations who give the litigation to well funded law firms to handle on contingency. Loser pays will enhance the power of big corporations, both inside and outside the tech sector. Your assumption that the courts are only for large corporations strikes me as being grossly unfair to everyone else.
posted by caddis at 12:23 PM on March 1

Even the law review article says, "Still, along with the classic
story of the American inventor, the David v. Goliath narrative
remains an important part of the patent litigation landscape."

It's just that, a narrative. Empirically, it's nigh-irrelevant. Law (and economics) should be based as much as possible on facts and reality, not narratives.

Your assumption that the courts are only for large corporations strikes me as being grossly unfair to everyone else.

It's not an assumption. It's an empirical fact of patent litigation. Why shouldn't the rules in this area of law be based on reality rather than feel-good narratives?

But furthermore, every other developed country in the world uses loser pays. Do you think that the courts of the UK, France, Germany, Canada, Japan, etc, etc, etc are only for large corporations?
posted by jedicus at 9:35 AM on March 2

Those large corporations certainly have more of an advantage over small companies and individuals than in the United States.
posted by caddis at 9:13 PM on March 2

The US Patent and Trademark Office seeks comments on establishing a small claims court for patent enforcement (PDF).
posted by exogenous at 5:52 AM on March 8

The SHIELD Act: When Bad Economic Studies Make Bad Laws
posted by exogenous at 6:05 AM on March 18