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SHIELD Act Seeks to Shift Litigation Costs in Patent Suits Brought by Non-Practicing Entities

Posted in Intellectual Property

A bill has been introduced in Congress that would permit prevailing defendants in patent infringement suits to recover litigation costs and attorneys’ fees.

The Saving High-Tech Innovators from Egregious Legal Disputes (“SHIELD”) Act was introduced on February 27 by Congressmen Peter DeFazio (D-OR) and Jason Chaffetz (R-UT).  The bill would provide for the award of full litigation costs to a prevailing party asserting invalidity or noninfringement in a patent action.  In order to recover fees, the party asserting invalidity or noninfringement would first have to obtain a judgment that the party alleging infringement was not (1) the original inventor, (2) exploiting the patent, or (3) a university or technology transfer organization.

The exceptions in the bill are meant to ensure that the bill targets non-practicing entities (“NPEs”), colloquially known as “patent trolls.”  NPEs are entities that acquire patents from their original developers, often when those developers go into bankruptcy, and aggressively enforce those patents against purported infringers.  Recent estimates have shown that U.S. companies and investors paid approximately $29 billion to NPEs in 2011.  This bill is part of an ongoing effort to limit the prevalence of these lawsuits, which are typically aimed at companies in the technology industry.

According to Representative DeFazio, the intent of the SHIELD Act is to “force patent trolls to take financial responsibility for their frivolous lawsuits.”  As reported by Law.com, a number of industry groups, entrepreneurs and investors have expressed support for the bill, including The Consumer Electronics Association, the National Association of Manufacturers, entrepreneur and Dallas Mavericks owner Mark Cuban and Alex Ohanian, founder of popular social news aggregator side Reddit.