U.S. Reps. Peter DeFazio (D-Ore.) and Jason Chaffetz (R-Utah) have introduced legislation (H.R. 845) that would create a “loser pays” system in patent infringement cases to impose the costs of litigation on a losing party which cannot prove that it (i) invented the patent at issue, (ii) made a substantial investment in the patent’s exploitation, or (iii) is either an institution of higher education or “a technology transfer organization whose primary purpose is to facilitate the commercialization of technology developed by one or more institutions of higher education.” Referred to as “patent trolls” or “non-practicing entities” (NPEs), such litigants have been shown to be responsible for billions in costs to operating companies forced to defend or settle infringement claims brought against them.
Introduced on February 27, 2013, the bill has been referred to the House Committee on the Judiciary. Patent attorneys who gathered on Capitol Hill the day after the bill was introduced cited a Boston University study that reported $29 billion in direct costs from “patent troll” litigation in 2011. The vast majority of companies defending such suits evidently had less than $100 million in revenue. Speaking during the event, Sen. Mike Lee (R-Utah) said, “The dramatic rise in abusive patent litigation … imposes significant costs on American businesses, threatens innovation, and is ultimately detrimental to economic growth.”
Discussing the bill, “Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013,” or SHIELD Act, DeFazio reportedly said that he was motivated to introduce it after learning about a start-up company in his district threatened with an infringement lawsuit by an NPE and hesitant to hire new employees due to the cost of the pending litigation. According to DeFazio, “I think the trolls’ focus in recent years has shifted from big companies to growing companies, or even startups, at the point at which they have enough resources to pay a blackmail, or bribe—whatever you want to call what these people are extorting from folks.” He noted that the legislation has been expanded from a version introduced in the last Congress to include all types of patents and not just those pertaining to software. See The Blog of LegalTimes and ArsTechnica, February 28, 2013.