Congressmen target NPEs with loser-pays bill
Two US congressmen have proposed a bill aimed at reducing “frivolous” patent lawsuits filed by non-practising entities (NPEs).
Jason Chaffetz and Peter DeFazio have sponsored the Saving High-Tech Innovators from Egregious Legal Disputes Act 2013, which would allow defendants to order an NPE to pay full legal costs if it loses a case.
Though it doesn’t actually name NPEs, the bill applies to plaintiffs that do not meet one of three conditions – original inventors, companies that exploit patents, and universities or tech transfer offices.
At a press conference on Wednesday, the congressmen, both from the House of Representatives, said the bill would not be restricted to any particular industry.
They said NPEs drained $29 billion from innovators and companies in 2011, and add no benefit to the economic system. The congressmen said the loser-pays system would deter frivolous litigation and reduce the number of “shell companies”, which are those developed only to file lawsuits.
“The bill would have a chilling effect,” said DeFazio, a representative from Oregon. He added that companies with legitimate gripes about patent infringement should still be allowed to file lawsuits.
Chaffetz, a representative from Utah, added: “This is a huge problem ... This is out of control.”
But the bill unnecessarily discriminates against patent owners and discourages them from using licensing agreements, said Mike Powell, shareholder at law firm Baker Donelson Bearman, Caldwell & Berkowitz, PC.
“I’m not a fan of NPEs but some of them have pretty creative business models and they have made IP litigation more affordable. I don’t believe in wasteful litigation but you have to respect the NPEs’ right to litigate.”
He said NPEs would easily find ways of claiming that they are original inventors and that they do invest in their patents, two of the bill’s conditions.
He added: “There are more effective ways of resolving egregious litigation. You could make mediation mandatory in an attempt to resolve cases early on.”
“The bill is trying to place a band aid on a much larger wound.”
At the press conference, both DeFazio and Chaffetz noted concerns about potential “patent fatigue” – given the recent implementation of the America Invents Act and continuing discussions about US software patent reform – but said the bill was limited in its scope.
Powell said: “I don’t think the bill will pass. It might go round another couple of times but it must be revised so as not to discriminate against a class of patent owners.”
Apart from in special circumstances, defendants in US cases have to cover their own costs in patent litigation, even if they succeed.
