By Shanna K. Sanders
Posted: 2:14 am Tue, August 21, 2012
Shanna K. Sanders
The dust has barely begun to settle from the America Invents Act enacted last year and its momentous changes to the U.S. patent system, and patent law is again the focus of newly proposed federal legislation. A bipartisan bill introduced in the House of Representatives on Aug. 2 attempts to deter frivolous patent litigation by forcing unsuccessful patent plaintiffs to cover defendants? legal fees and costs.
The bill, Saving High-Tech Innovators from Egregious Legal Disputes Act of 2012 or the SHIELD Act, was introduced by Rep. Peter DeFazio (D-Ore.) and co-sponsored by Rep. Jason Chaffetz (R-Utah).
According to its sponsors, this bill is geared toward ?patent trolls? or ?non-practicing entities? (NPE), which are entities that hold patents for the sole purpose of licensing or enforcing them, but do not actually market any products or services.
Trolls or NPEs typically operate by suing or threatening to sue companies for allegedly infringing patents owned by the NPEs. Patent litigation is costly, and the party being sued is forced to spend thousands or even millions of dollars to defend against infringement claims, even if the claims are ultimately found to lack merit. Thus, many companies, and particularly smaller business and start-ups, tend to settle these cases rather than fight the NPE?s claims.
According to the bill?s sponsor, DeFazio: ?[P]atent trolls don?t create new technology and they don?t create American jobs.? Instead, ?[t]hey 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.?
The bill aims to combat the problem of patent trolls by moving to a ?loser pays? system.
The SHIELD Act would require any plaintiff who files a lawsuit related to a computer hardware or software patent to pay his or her opponent?s legal bills if a court finds the lawsuit ?did not have a reasonable likelihood of succeeding.? That?s right, proposed application of the SHIELD Act is limited to patents related to computer hardware and software.
While there are some exceptions, generally speaking, under U.S. law, all parties to litigation are required to cover their own attorneys? fees and costs, whether they win or lose. The current Patent Act provides one such exception in 35 U.S.C. ? 285.
Under section 285, attorneys? fees and costs may be awarded to a prevailing party where the other party has engaged in bad faith, litigation misconduct or inequitable conduct. Even in such cases, the court has discretion as to whether to award attorneys? fees. And until recently, cases awarding attorneys? fees to prevailing defendants have been few and far between.
The SHIELD Act is also significant in that it is the first piece of legislation to provide a definition for the ever-elusive term, ?software patent:?
?Any process that could be implemented in a computer regardless of whether a computer is specifically mentioned in the patent? as well as any computer system programmed to carry out such a process, while a computer is defined as an ?electronic, magnetic, optical, electrochemical, or other high speed data processing device performing logical, arithmetic, or storage functions.?
Although the SHIELD Act is being portrayed as ?anti-troll legislation,? opponents point out that its provisions are not limited to trolls and NPEs. Rather, any plaintiff asserting a claim of infringement related to a computer hardware or software patent who is found to lack ?a reasonable likelihood of succeeding? could be liable for his or her opponent?s legal bills. Others criticize the act because it is geared to certain technology areas, and does not apply to others.
The proposed SHIELD Act is in addition to recent ?anti-troll? legislation enacted under the American Invents Act (AIA), which was signed into law by President Obama on Sept. 16, 2011. Specifically, the AIA amended section 299 of the Patent Act, which addresses the practice of joining multiple defendants in the same suit.
Prior to the enactment of the AIA, a common litigation strategy of patent trolls was to initiate a single patent infringement suit against several unrelated defendants in a venue that was favorable or preferable to the plaintiff. This strategy reduced plaintiff?s litigation costs and made it more difficult for the defendants to transfer the case to another forum.
Under the AIA, defendants can only be joined if the parties are alleged to be jointly or severally liable or the defendants? alleged infringements arose out of the same transaction or occurrence, and there are common questions of fact.
In other words, defendants can no longer be joined to the same suit merely because the plaintiff alleges that they infringe the same patent. Although the patent trolls may file more cases, those cases are likely to be filed against fewer defendants, forcing NPEs to be more selective in the defendants they choose to sue and patents they assert.
In addition to recent legislative trends to curb patent troll litigation, recent jurisprudence may be shifting in the same direction. Courts historically have applied a more stringent standard when determining whether to award attorneys? fees to a prevailing defendant under the Patent Act?s fee shifting provision, 35 U.S.C. ?285. Thus, as mentioned, cases awarding fees to prevailing defendants are few and far between.
Just days after the SHIELD Act was introduced, the U.S. Court of Appeals for the Federal Circuit issued a rare decision awarding attorneys? fees to a prevailing defendant under section 285 of the Patent Act.
In Highmark, Inc. v. Allcare Health Management Systems, Inc., (Aug. 7), the Federal Circuit upheld the district court order (in part) finding the case exceptional after concluding that plaintiff had asserted frivolous arguments based on res judicata and collateral estoppel, shifted its claim construction positions, and made misrepresentations in connection with a motion to transfer venue. This means that all patent infringement plaintiffs, including trolls and NPEs, must carefully consider his or her infringement claims before filing, as assertion of even one non-infringed claim can result in some fee-shifting in favor of the defendant.
Whether or not the SHIELD Act gains momentum in Congress and whether the amended joinder provisions of the AIA operate to curb troll litigation remains to be seen. But there is no question that patent troll and NPE litigation is a topic of current debate and is on the forefront of recent patent legislation and jurisprudence.
Shanna K. Sanders is an associate with Heslin Rothenberg Farley & Mesiti PC, practicing trademark law, copyright law and intellectual property-related litigation. She can be reached at sks@hrfmlaw.com, or (518) 452-5600.
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