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SHIELD Act proposed to make patent trolls pay

Bipartisan bill goes Nick Fury on the lawyers

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Shell companies that threaten legal action over patent infringement without actually producing anything themselves could be driven out of business if the newly proposed and risibly backronymed Saving High-tech Innovators from Egregious Legal Disputes (SHIELD) Act becomes law.

In an all-too-rare display of US congressional bipartisanship, representatives Peter DeFazio (D-OR) and Jason Chaffetz (R-UT) announced the legislation, which would make the infringement accuser liable for both sides' legal fees should they lose. Universities and companies that actually produce an end-product to sue about are exempt.

"These trolls are hampering innovation, slowing companies down and locking them up in lawsuits," said Chaffetz at a press conference.

"There is not a successful software company that I'm aware of that doesn't have to spend an exorbitant amount of money defending itself against frivolous lawsuits," he said. "I'm optimistic that this is probably the first, best, bipartisan piece of legislation we can pass and do so in a swift manner."

Chaffetz explained that he and DeFazio want to target people who buy up broad patents and then spam out multiple demands threatening dire action. He cited a recent Boston University study that found patent trolls raked in $29bn in 2011. (More research will be released in March.)

There have been reports that both the Department of Justice and the Federal Trade Commission are taking a look at the problem of patent trolling, and there's been a steadily increasing clamor from industry to stop this madness. Last year 61 per cent of patent claims came from non-producing companies, according to research from Silicon Valley's Santa Clara University.

This is a second outing for the SHIELD Act, which was first introduced last year. The five-page bill has been amended to protect all industries rather than just the software sector, but it's the computing world that's been crying out the most.

"Patent trolls contribute nothing to the economy," said Chaffetz. "No industry is immune to these attacks. Instead of creating jobs and growing the economy, businesses are wasting resources to fight off frivolous lawsuits. This bipartisan legislation will curb future abuse by requiring trolls to bear the financial responsibility for failed claims."

Where did it all go wrong?

In 1994, Bill Clinton broke the long-standing and utterly sensible tradition that an actual patent lawyer should be Commissioner of the United States Patent and Trademark Office, and instead appointed Bruce Lehman, who was at the time the chief lobbyist for the Software Publishing Industry.

Under Lehman's leadership, the USPTO changed the rules to allow much broader patents to be issued, often spanning completely different technological areas. These types of patents are the troll's weapon of choice, with some so broad they could cover pretty much anything on the internet, for example. At the same time the amount of patents issued by the office began to increase.

Lehman was also one of the main authors of the widely reviled Digital Millennium Copyright Act, and helped negotiate the Trade-Related Aspects of Intellectual Property Rights trade agreement. In 2006, he was inducted into the first International IP Hall of Fame by Intellectual Asset Management (IAM) magazine.

At the same time, software companies started getting interested in adding another revenue stream to their business plans by using the patents they had built up over years of operation to charge licensing fees from other firms. Most companies had always got some revenue from patents, but the industrialization of the process really kicked in around a decade ago.

Today, Silicon Valley jobs pages are full of jobs for IP asset managers, and everyone wants their slice. It's becoming a major cost to many firms, and a lot of research and development is stalled not for technical reasons but because the company's lawyers have said there could be legal problems.

Ex-Microsoftie Nathan Myhrvold's IP colossus Intellectual Ventures is sometimes held up as the blackhearted villain of non-productive IP revenue squeezing. Last year, a Stanford study claimed to have found at least 1,276 shell companies associated with IV holding roughly 8,000 US patents and 3,000 pending US patent applications.

But compared to some in the industry he's much more legit – he has an actual corporate headquarters. Many of the companies squeezing businesses over broad patent claims simply exist as someone's laptop and bank account, but their targets pay up because it's cheaper than the cost of litigation.

All this has driven the cost of patents through the roof, and companies are having to spend billions to buy large bundles. There are signs that the patent price bubble is popping, but in the meantime companies are getting sick of it and are beginning to work together to bring down prices.

It remains to be seen if Congress can get its collective arse into gear and take some action, but the dynamic congressional duo of DeFazio and Chaffetz seem confident that the SHIELD Act will at least get through the House of Representatives. The EFF has also become involved, setting up a website to allow people to lobby their local legislator.

El Reg remains skeptical, but there'll be some serious lobbying muscle behind this attempt to bring sanity to the US patent system. ®

The smart choice: opportunity from uncertainty

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