Proposed loser pays legislation signals increasing congressional concern with NPE patent infringement lawsuits
14 August 2012
New legislation proposed in the U.S. House of Representatives would allow defendants in computer hardware or software patent infringement lawsuits to recover litigation costs where a court finds the claimant did not have a "reasonable likelihood of succeeding" on the merits.
Although unlikely to pass in the current election year legislative session, the bill is indicative of growing Congressional concern with the rise in patent infringement lawsuits brought by nonpracticing entities (NPEs).
Federal lawmakers in Washington, D.C. have voiced growing concern with the rise in patent infringement lawsuits brought by nonpracticing entities (NPEs). Last year's Leahy-Smith America Invents Act,1 perhaps the most significant piece of patent reform legislation in a generation, authorized a broad federal study into the economic consequences of NPE litigation for the U.S. economy. On August 1, 2012, U.S. Representatives Peter DeFazio (D-OR) and Jason Chaffetz (R-UT) took more direct aim at the issue, co-sponsoring the Saving High-Tech Innovators from Egregious Legal Disputes Act of 2012 (the Shield Act).2
The Shield Act would allow defendants in computer hardware or software patent lawsuits (including Section 337 investigations at the International Trade Commission) to recover litigation costs where a court finds the claimant did not have a "reasonable likelihood of succeeding" on the merits. Although it technically would apply in any patent suit involving the alleged infringement of a computer hardware or software patent, as a practical matter, the Shield Act is intended to curb patent infringement lawsuits brought by NPEs by increasing the risk that the plaintiff in a frivolous lawsuit will bear the defendant's costs.
The Shield Act would not mandate cost-shifting in such lawsuits but rather would provide courts with discretion to award defense costs if the lawsuit ultimately is found to be frivolous. That is, a court could determine that a patent claimant had no likelihood of success on the merits and still decline to award attorney's fees to the defendant. The Shield Act's cost-shifting provisions would not be triggered at all if a defendant agreed to settle a patent dispute prior to trial or other summary determination. The Shield Act also provides courts with broad discretion to determine what constitutes "a reasonable likelihood of succeeding" on the merits. Although the bill has been criticized for granting courts discretion to determine whether a lawsuit has a reasonable likelihood of success on the merits, courts routinely apply a similar standard in other contexts — for example, in the context of temporary restraining order or preliminary injunctions3 — and there is no reason to think that courts would be incapable of doing so under the Shield Act.
It is unlikely the Shield Act will pass in the current election year legislative session. The bill currently has only two co-sponsors and no companion legislation in the U.S. Senate. Moreover, the bill is likely to be opposed by several significant constituencies, including NPEs and the plaintiffs' bar more broadly. Regardless of the eventual success of this bill, however, the Shield Act is indicative of a broader concern in Congress with the effects NPE litigation may have on both the domestic technology industry and the U.S. economy generally.
1 Public Law 112-29.
2 H.R. 6245, 112th Cong. (2012).
3 See, e.g., Momenta Pharms., Inc. v. Amphastar Pharms., Inc., Nos. 012-1062, 2012-1103, 2012-1104, 2012 U.S. App. LEXIS 16160 (Fed. Cir. Aug. 3, 2012) (in determining motion for preliminary injunction, the district court must consider, inter alia, "whether the movant has sufficiently established a reasonable likelihood of success on the merits").