Bill Targeting Patent Trolls Could Be First Nail in the Coffin

Bill would force trolls to pay legal costs of defendants if they lose cases

This could be the year Congress takes serious action against patent trolls, non-practicing entities that buy up patents and virtually extort companies to pay up for violating frivolous patents.

A good first step could be a bill re-introduced Wednesday by Reps. Peter DeFazio (D-Ore.) and Jason Chaffetz (R-Utah) that would force plaintiffs to pay all of a defendant's legal costs if the patent lawsuit fails in court. 

It's hard to find anything nice to say about patent trolls except that they are really good at squeezing money from unsuspecting companies. A Boston University study estimated $29 billion was spent in 2011 by companies defending themselves against patent trolls holding questionable patents to things like using links in SMS message or embedded videos in ads. (A typical lawsuit can cost a defendant anywhere from $2 million to $8 million).

"That's $29 billion wasted that could have gone into innovation," DeFazio said during a press conference Wednesday. Even though many companies just settle with patent trolls to save time and money, the bill's sponsors hope the bill will go a long way to discourage frivolous litigation, which Chaffetz said was "out of control."

When the SHIELD Act (for Saving High-Tech Innovators From Egregious Legal Disputes) was introduced last year, it didn't get very far. But this year could be different especially with strong bipartisan support in Congress. The bill also picked up support from a coalition of entrepreneurs, investors and innovaters led by the Electronic Frontier Foundation, which fired off a letter to the House Judiciary Committee requesting a hearing.

President Obama also recently singled out patent trolls as a menace to the economy. "They [patent trolls] don't actually produce anything themselves, they're just trying to hijack somebody else's idea and see if they can extort some money out of them," Obama said in a recent Google+ Fireside Hangout.

Obama's support "may give the bill more legs than when it was originally introduced," said Dick O'Brien, evp for the American Association of Advertising Agencies.

Agencies get hit by patent trolls because advertisers turn to their agencies for indemnification. "When settlements are proposed by the trolls, it can cost $150,000 to $200,000. For a smaller to mid-size agency, this can put you out of business," O'Brien said.

Along with the Association of National Advertisers, the advertising community has set patent troll legislation as one of its top priorities for 2013, stepping up lobbying with lawmakers, the Federal Trade Commission, the Department of Justice and the General Accountability Office, which is working on a report.

If there is one problem with the reintroduced SHIELD Act, it's that it doesn't go far enough because the remedy comes at the end of the process, after companies have already had to invest hundreds of thousands of dollars.

"An agency still could incur a lot of [costs] money investing on a gamble that the troll will have to pay all the costs," O'Brien said. "This bill has all the best intentions. We applaud Chaffetz and DeFazio, but it's not the perfect solution yet."

At least it's a start. "This [bill] would probably be the swiftest, simplest piece of legislation that we can pass in a bipartisan way. It would solve more than half of the problem," Chaffetz said.


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