US congressmen take on patent trolls with SHIELD Act

A bipartisan bill aims to bring in a 'loser pays' system for software and hardware patent lawsuits, to protect startups from companies that want to force settlements through the threat of high legal bills

Two US congressmen have introduced a bill that would force so-called patent 'trolls' to pay the legal costs of the people they sue, if the suit is unsuccessful.

The Saving High-tech Innovators from Egregious Legal Disputes (SHIELD) Act was introduced on Wednesday by Democrat Peter DeFazio and Republican Jason Chaffetz. The congressmen said the move was intended to save tech start-ups jobs, which are often threatened by such lawsuits.

"Patent trolls don't create new technology and they don't create American jobs," DeFazio said in a statement. "They pad their pockets by buying patents on products they didn't create and then suing the innovators who did the hard work and created the product. These egregious lawsuits hurt American innovation and small technology startups, and they cost jobs. My legislation would force patent trolls to take financial responsibility for their frivolous lawsuits."

'Non-practising entities'

'Trolls' — more formally known as 'non-practising entities' or NPEs — usually operate by suing firms for allegedly infringing on the broad patents the NPEs have bought as legal weapons.

Patent cases are costly and the firm being sued can be liable for massive costs even if their defence is successful. Smaller firms in particular therefore tend to settle rather than fight the NPE's claim, as was the case with Lodsys and app developers.

Even large firms sometimes pay up. A good example there is Eolas , an NPE that has been surprisingly successful with patents that supposedly cover much of web technology.

"A single lawsuit, which may easily cost over $1 million if it goes to trial, can spell the end of a tech start-up and the jobs that it could have created," Chaffetz said. "This bill combats the problem of patent trolls by moving to a 'loser pays' system for software and hardware patent litigation."

As Ars Technica has pointed out, the SHIELD Act would not only be limited to NPEs. The wording of the bill targets any plaintiff "who did not have a reasonable likelihood of succeeding" in their patent lawsuit.

Software patents

The site also notes that this is the first piece of US legislation to define software patents. This is significant — as is the bill as a whole — because the US is both the epicentre of the tech industry and a country that allows software patents. Such patents, which often cover little more than ideas, are generally not granted in the EU, for example.

However, people in the EU use tech products developed in the US, and vice versa. Therefore, the actions of NPEs in the US can affect customers anywhere in the world if they use US-made products, and start-ups anywhere in the world can be targeted by US NPEs if they have customers in that country.

According to the Act, the term 'software patent' means: "(A) a patent that covers any process that could be implemented in a computer regardless of whether a computer is specifically mentioned in the patent; or (B) any computer system that is programmed to perform a process described in sub paragraph (A)."