Alert April 11, 2013

SHIELD Act of 2013: Congress Considers New Limits to Patent Infringement Lawsuits Brought by Non-Practicing Entities

On Feb. 26, Representatives Jason Chaffetz (R-UT) and Peter DeFazio (D-OR) filed the “Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013” in response to pressure from the high technology sector and shortly after President Obama suggested new legislation was needed to “crack down on patent trolls.”  The stated goal of the legislation is to address frivolous patent claims brought by non-practicing entities (“NPEs”), defined as entities that own patents but neither developed the technology nor produce any products that use the patented technology. The bill provides a mechanism by which a defendant may ask a court to award its full costs, including attorneys’ fees, to defend the suit if the defendant proves noninfringement or invalidity of a patent being asserted by an NPE. Similar provisions had been introduced in previous legislation, but either failed to make it through Congress or were stricken from what eventually passed as the Leahy-Smith America Invents Act of 2011. The new bill makes plaintiffs immune from such an award if they are the original inventors, a company employing the inventors and owning the patents, a company that exploits the patent through production or sale of an item covered by the patent, or a university or technology transfer organization.

Currently, NPEs face less risk in asserting questionable patents or claiming their patents cover a broad spectrum of seemingly unrelated products, as courts usually do not penalize such behavior; further, because NPEs do not make or sell any products, they are effectively immune to counterclaims in which the defendant asserts its own patents. The primary risk to NPEs is having their patents invalidated, which requires either litigation or a long and expensive process at the PTO – processes that typically cost much more than settling. While NPEs with strong patent portfolios will still be able to assert their rights and profit from successful lawsuits, NPEs looking for small, nuisance-value settlements may be deterred under legislation such as the SHIELD Act, as even a remote risk of paying litigation costs may force them to think twice before initiating cases with the hope of collecting settlements based on dubious patents.  

At this time it is unclear whether the proposed SHIELD Act will advance through the legislative process, but the introduction of this bill following the President’s comments reflects a continuing congressional interest in this issue. If your company receives a letter suggesting that it needs a license to a patent or that its products or services infringe a patent, or your company is considering sending such a letter, please contact your patent attorney immediately to discuss the implications of this legislation.