Will a ‘Loser Pays’ System Deter Patent Trolls?

Will a ‘Loser Pays’ System Deter Patent Trolls?

The U.S. may have finally found a way to stop, or at least limit, patent trolls from continuing to wreak havoc on the legal system. A proposed “loser pays” update to the Shield Act in America Act would make patent trolls financially liable for all legal costs in unsuccessful lawsuits. Representative Peter DeFazio who helped create and introduce this bill made the following comments in an interview with Ars Technica, “We started out very targeted on software…Then we started getting calls from other areas, like airlines…And we started hearing from retailers…Suddenly we start saying, wow, there’s a bigger universe out there of people who are being impacted.”

The revised version of the Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013 is intended to provide for the recovery of patent litigation costs in unsuccessful patent lawsuits. The Act indicates that in cases involving the validity of infringement of a patent, if the court determines there has been no patent infringement, the defendant has the opportunity to recoup all legal costs by showing that the plaintiff does not meet at least one of the following conditions:

  • 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.
  • 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.
  • University of 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.

These conditions or definitions are intended to determine whether or not the party alleging patent infringement is a “patent troll.” In discussing these conditions Peter DeFazio stated the following, “We’ve got the three-part test, which is for the people who do R&D, people who manufacture—and the third part is the toughest part, to have some allowance for people who hold patents beyond what they’ve developed themselves, but are not trolls. That’s the trickiest standard.”

While this act is an important step in helping protect companies from the actions of patent trolls, if passed, it still leaves much to be desired. Companies of all sizes would still be taking on a great risk by going to court against patent trolls with only a chance of recouping legal costs. However, if this act can help discourage patent trolls from filing frivolous lawsuits in court, that fixes a large part of the problem.


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