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Breakdown of the proposed Shield Act

Posted by: In: Uncategorized 12 Apr 2013 Comments: 0

Recently, Representatives Peter DeFazio (D-OR) and Jason Chaffetz (R-UT) reintroduced the SHIELD Act (the name stands for Saving High-Tech Innovators from Egregious Legal Disputes). The Act attempts to thwart the efforts of non-practicing entities (NPEs), which own patents, but do not offer any products or services that practice the claims of those patents. People often refer to NPEs by the pejorative term “patent trolls”. The SHIELD Act would amend Title 35 of the U.S. Code and add a new section, § 285A.

The SHIELD Act attempts to achieve its goal of slowing NPE activity by imposing a “loser pays” rule in patent cases brought by NPEs. Under the Act, the court “shall award the recovery of full costs” to the winning party, who claimed the NPE’s patent was invalid or not infringed. The Act makes clear that it does not apply to: 1) the inventor (or joint inventor) of the patent or the original assignee; 2) a party that has made a “substantial investment” in exploiting the patent; and 3) universities or technology transfer organizations. Unlike an earlier version of the SHIELD Act, the new version applies to all industries, not only the software industry, which is currently impacted most often by NPEs.

In the press conference introducing the new SHIELD Act, Representatives DeFazio and Chaffetz laid out the perceived problem with NPEs. They cited a study that found two years ago, $29 billion was paid to NPEs. Representative Chaffetz stated that NPEs “add no economic benefit” to the country and are “hampering innovation”. Representative DeFazio went even further and likened the NPE business model to “blackmail” and “extortion”.

I respectfully disagree with the Representatives’ characterization of NPEs – a topic for a future blog. But the new version of the SHIELD Act is an improvement over the old version and it is nice to see a moment of bipartisanship these days. If it does become law, I will be interested to see if it has any measurable impact on NPEs and their operating strategies.

– Suzy Fitzgerald

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