IP Cases & Articles

SHIELD Act - Protecting Against Patent Trolls in the US

The term ‘patent troll’ is widely used to refer to a commercial entity that collects patents mainly for the purpose of aggressively pursuing alleged infringers. Alleged infringers are encouraged to settle with the patent troll, rather than entering expensive litigation proceedings.

A defining characteristic of such patent trolls is that the accumulation of patents is done, not for the purposes of expanding or making use of the technology per se, but rather to use the patent itself as a means to make money. This technique has been widely criticised as being detrimental to innovation, since the patent trolls themselves typically do not exploit the technology, and other companies are steered away from the technology in order to avoid the high settlement costs. A further concern about such techniques is that the patents favoured by patent trolls are extremely broad and potentially invalid. However, few companies are prepared to pay the large sums of money necessary to enter infringement/validity proceedings. Instead, as the patent troll will be appeased by paying a much smaller sum of money as a settlement, many alleged infringers prefer to pay this smaller sum rather than go to court.

According to a Boston University study, the direct cost of patent trolls asserting patents in 2011 was $29 billion.

This figure includes the cost of settlements and companies going to court. However, the figure excludes indirect costs such as diversion of resources, delays in new products and loss of market share, which in themselves can be quite significant.

Although patent trolling is not exclusive to the US, its effect is somewhat mitigated in the UK. This is because UK court cases may involve the losing party paying a proportion of the winning party’s legal costs. Therefore, if the patent troll tries to assert an overly broad and invalid patent against a third party, they may have to pay a proportion of the winning party’s legal costs. This is not currently the case in the US. However, the SHIELD Act aims to adjust the legal process when patent trolls are involved so that they may have to pay a proportion of the winning side’s costs.

The SHIELD (Saving High-Tech Innovators from Egregious Legal Disputes) Act is a bill that has been introduced to US congress by Peter DeFazio and Jason Chaffetz. Broadly speaking, it requires that the plaintiff is required to pay the full costs of the defendant if either the plaintiff’s patent is found to be invalid, or if the defendant is found not to have infringed the plaintiff’s patent. Plaintiffs may also be required to provide a bond, showing that they can cover the defendant’s legal costs, before being allowed to proceed with infringement proceedings.

Certain categories of plaintiff are exempt from the SHIELD Act. Specifically:

  • the original inventor(s) or assignees of the patent application on filing;
  • entities showing substantial investment in exploiting the patent by sale or use of a product covered by the patent; and
  • university or technology transfer organisations whose main purpose is to facilitate the commercialisation of technology developed at higher education institutions.

By making it potentially expensive for patent trolls to pursue alleged infringers using a weak patent or having a weak infringement case, the SHIELD Act aims to remove the disincentive for alleged infringers to contest infringement accusations. At the same time, the SHIELD Act also allows legitimate infringement suits – either from people who exploit patents in an ‘accepted’ way or from anyone who has a genuinely legitimate patent.

The Electronic Frontier Foundation (EFF) is encouraging all Americans to tell their representatives to enact the SHIELD Act and has set up an automated system for people to contact their elected representative and pass on their message of support for the Act.

Useful links

The Electronic Frontier Foundation (EFF) represents “the public interest in every critical battle affecting digital rights”. Their website can be found at: http://dycip.com/effwebsite

Boston University School of Law Research on Innovation ‘The Direct Costs from NPE Disputes’ written by James E Bessen and Michael J Meuer, Law and Economics Research Paper No. 12-34, 28 June 2012

The SHIELD Act in full (pdf) can be viewed on the Electronic Frontier Foundation’s (EFF) website