Congress to Consider New 'Patent Troll' Legislation

by Orrick, Herrington & Sutcliffe LLP

On February 27, Congressional Representatives Peter DeFazio, D-Oregon, and Jason Chaffetz, R-Utah, introduced a proposed bill intended to curb litigation initiated by Non-Practicing Entities (NPEs), or “patent trolls.” NPE litigation has been a perennial hot political topic since the discussions leading up to the America Invents Act. In fact, President Obama publicly took aim at patent trolls two weeks ago during an online Fireside Chat, and called for Congress to “build some additional consensus on smarter patent laws” in order to stymie what the President described as the NPEs’ business model of “essentially leverag[ing] and hijack[ing] somebody else’s idea … [to] see if they can extort some money out of them.”

The Bill, H.R. 845, which if enacted would apply to all patent litigation filed on or after the date of passage, is titled the “Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013,” or the SHIELD Act. If passed, the SHIELD Act could significantly chill NPE-initiated litigation as it would require NPEs that fail to prove their asserted patent is valid and infringed in litigation to pay the entire litigation costs, including reasonable attorneys' fees, incurred by the prevailing accused infringer following a final judgment. The SHIELD Act was designed to address criticisms leveled against a previous version introduced last year that did not provide a clear definition of an NPE and only awarded litigation costs where an accused infringer proved the NPE initiated a patent case in which it did not have "a reasonable likelihood of succeeding."

The current language of the Bill defines an NPE as a patent owner that was (1) not the inventor or original assignee of the patent, (2) is not a university or technology transfer organization associated with a university, or (3) did not make a “substantial investment…in the exploitation of the patent through production or sale of an item covered by a patent.” Procedurally, the SHIELD Act would permit an accused infringer to move early in the case for a judgment that the patent owner is an NPE. The patent owner would have 90 days to show that it is not an NPE, as defined in the Bill, and the presiding judge would have 120 days from the filing of the motion to make a determination whether the patent owner is an NPE. The Bill also permits a judge to stay discovery, except for discovery related to whether the patent owner is an NPE, until the NPE motion is resolved if the motion is filed early enough. If the patent owner is deemed an NPE, it would be required to post a bond to cover the full costs of litigation.

The President’s support, the fact that the SHIELD Act has bipartisan support, and the strong support this measure will doubtlessly receive from many technology companies will create significant tailwinds that could push the SHIELD Act through the House, at least. Clearly, if passed in its current form, the SHIELD Act could have a transformative effect on NPE-initiated patent litigation. We will continue to track this Bill as it makes its way through Congress.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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