≡ Menu

The SHIELD Act doesn’t go far enough: protect victims of all patent aggressors, not just “trolls”

Patent and other forms of IP law, like the state itself from which they emanate, are subject to the “ratchet effect” described years ago by Robert Higgs: there is a tendency for the laws to expand and get worse and worse. Thus  we see the expansion of patent scope to cover software; and the gradual increase in copyright scope (software, boat hull designs, maybe fashion designs coming up) and terms, and the elimination of formalities like copyright notice and the requirement to register copyright; the addition of “antidilution” to trademark law and private [sic] domain-name dispute rules that allow private parties to take others domain names using trademark law; the federal criminalization of trade secret law. We now have a private [sic] six-strikes and you’re out regulations and SOPA-type laws attempted and reintroduced over and over.

Any rolling back or improvement in any of these laws is a rare thing. The only significant in any form of IP in all of American history that I can think of is the provision of a broader “Prior Commercial User Defense” for patent infringement in the 2011 America Invents Act (see  The American Invents Act and Patent Reform: The Good, the Meh, and the Ugly). Of course, even this defense makes exceptions if the patent plaintiff is a US university (35 USC § 273(c)(2)), and it provides no defense for the independent inventor. But it’s at least an improvement. And of course the AIA made things worse too: it watered down the best mode defense and penalties for false marking. And it wasted an opportunity to make overhaul the patent system.

Every now and then some significant form is introduced. But most of it is trivial, or goes in the wrong direction. (Radical Patent Reform Is Not on the WayThe American Invents Act and Patent Reform: The Good, the Meh, and the Ugly.) Some proposals have more meat in them: proposals to reduce the term of or even eliminate software patents, or to clamp down on patent trolls. Even though software patent and trolls are not the fundamental problem with the patent system, such reforms would still be a move in the right direction.

As Mike Masnick notes, in SHIELD Act Targeting Patent Trolls Re-Introduced; It’s A Step In The Right Direction, But Just A Small One, there is a new proposal which would also improve matters, at least slightly. This is “the SHIELD Act, which would allow those sued by patent trolls over bogus patents to seek legal fees, has been reintroduced in Congress.” The EFF is also supporting this bill.

But why should only patent trolls—so-called non-practicing entities (NPEs)—have to pay the legal costs of defendants, when they lose? Under current patent law, there is no “use” or “working” requirement; there is no real “reduction to practice” requirement. This is why patent trolls can exist: there is no requirement to make and sell a product covered by your patent. In fact, it is hard to imagine how there could be such a requirement, since a patent is only a right to exclude, not a right to make the invention described; for example, if I have a patent on an improved smartphone, making the smartphone might still infringe Apple’s patents, so I would be unable to make my improved device. A working requirement would make no sense in such case since it basically means it’s impossible to obtain or enforce a patent if it is an improvement on previously patented technology, which is contrary to the entire purpose of patent law. Still, I’d be in favor of it, as it would reduce the overall amount of patenting and patent assertion, and throw a monkey wrench into the workings of patent law (this is why I proposed it in Reducing the Cost of IP Law).

But the point is that permitting patent trolls to exist (by not having a “use” or “working” requirement) and then singling them out for special treatment when it comes to payment of the winning defendant’s legal fees makes no sense whatsoever. “Practicing entities” like Apple can do as much or even more harm than patent trolls when they swing their weight around.

The assumption in the criticism of patent trolls is that so long as you use a patent that covers one of your products, against your competitors, this is okay. But why? This is even worse than what patent trolls do. Patent trolls just want a small fee. They want to “wet their beak,” like a mafia guy. They don’t want to kill the businesses they are trying to parasite off of. By contrast, Apple would love to get injunctions against and totally demolish any competitor making a smart phone “too similar” to their own product. (See Patent trolls as mafioso (and that’s a compliment).)

Yes, patent trolls impose significant costs on the economy and probably on innovation. (Patent Trolls Cost Productive Companies $29 Billion in 2011, Stall Innovation, and Hurt Small BusinessesPatent Trolls Cost The Economy Half A Trillion Dollars since 1990.) But as bad as trolls are, they are not as bad as “practicing entities”—companies whose patents do cover their products. That is why patents in general impose multiples of the amount of damages that trolls do——at least $100B a year, and probably far more (my guess would be $400B or more) (Costs of the Patent System Revisited.)

It is a good idea to make a losing patent troll pay the winning defendant’s legal fees. But it makes no sense not to extent this to all patentee-plaintiffs. Yes, Samsung can afford to pay millions to defend against a suit from Apple, and if it wins the suit, it is still out the millions; but it can afford this loss, and it can also use its own patents to countersue Apple. So then some kind of settlement might result. The result is a small number of large companies sitting on large patent warchests, all having “settlements” with each other, resulting in reduced competition, higher prices for consumers, reduced innovation, and increased barriers to competition. Why? Because smaller companies, startups, etc., have no resources to defend against these suits and no large patent warchests to hit back with. So they are as helpless when sued by an Apple as you podcasters are when sued by the troll. (The Microsoft-Apple Gesture OligopolyControls breed controls, Monopolies breed monopoliesNortel Patents Sold for $4.5 Billion to Consortium Which Includes AppleApple vs. Microsoft: Which Benefits more from Intellectual Property?Patent Cross-Licensing Creates Barriers to Entry.)

It only makes sense that companies like Apple ought to have to reimburse the victim of its attempt to use patent law to quash competition if it loses the suit, for whatever reason. The SHIELD Act should extent to all patentees, not just “non-practicing entities.” (Which I proposed  previously  in Reducing the Cost of IP Law.)

If we can’t end it, we should at least mend it. Losing patent plaintiff pays: period.

{ 2 comments… add one }

To the extent possible under law, Stephan Kinsella has waived all copyright and related or neighboring rights to C4SIF. This work is published from: United States. In the event the CC0 license is unenforceable a  Creative Commons License Creative Commons Attribution 3.0 License is hereby granted.