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US proposes ‘loser pays’ system to deal with patent trolls

US proposes ‘loser pays’ system to deal with patent trolls

18 Mar 2013

Philippa War via Wired UK –

A “loser pays” update to the proposed Shield Act in America would make patent trolls financially liable for all legal costs in unsuccessful lawsuits.

The revised version of the backronym-tastic Saving High-Tech Innovators from Egregious Legal Disputes bill was introduced by its original sponsors, representatives Jason Chaffetz and Peter DeFazio. It aims to discourage “frivolous” lawsuits from those holding patents but not actually creating anything with them.

“Patent trolls add no economic benefit to our nation,” said Chaffetz speaking at a press conference. “They have captured part of the system, and they’re exploiting it for their own financial gain. They’re hampering the innovation that our country deserves. Literally every segment of our society’s business is being attacked by these patent trolls.”

According to the updated version of the bill, defendants would be allowed to file a motion to have the plaintiff ruled a patent troll. If successful the legal action could still go ahead but with the caveat that if the patent holder was unsuccessful they would be liable for all legal costs — in some cases, millions of dollars.

Obviously creating a legal definition of a patent troll is problematic and the bill appears to acknowledge that difficulty, opting to define exemptions (i.e. things that are not patent trolls) instead:

1) ORIGINAL INVENTOR — Such party is the inventor, a joint inventor, or in the case of a patent filed by and awarded to an assignee of the original inventor or joint inventor, the original assignee of the patent.
2) EXPLOITATION OF THE PATENT — Such party can provide documentation to the court of substantial investment made by such party in the exploitation of the patent through production or sale of an item covered by the patent.
3) UNIVERSITY OR TECHNOLOGY TRANSFER ORGANIZATION — Such party is (A) an institution of higher education (as that term is defined in section 101 of the Higher Education Act of 1965 (20 USC 1001); or (B) a technology transfer organization whose primary purpose is to facilitate the commercialization of technology developed by one or more institutions of higher education.

In an interview with Ars Technica Peter DeFazio noted: “If [the plaintiff] comes up as a non-practicing entity, or a troll, under these definitions, then they know if they go forward, they’re on the hook.”

Presumably anyone not covered under the above would be considered fair game, although the wording would still leave plenty of room for argument (and billable hours) in the “Is this a case of patent trolling?” stage before the case itself was even underway.

But despite the fact that patent trolling has been repeatedly called out for criticism, recently by Barack Obama, — a site set up to enable interested parties to track legislation through the US system — gives the Shield Act just a one percent chance of being enacted.