Why The New SHIELD Bill Can't Stop Patent Abuse

In an effort to chase patent trolls back under their bridges, two congressmen last week reintroduced a bill they call SHIELD — a laborious acronym that stands for Saving High-Tech Innovators from Egregious Legal Disputes. While the bill went nowhere in the last Congress, the timing seems pretty good now, particularly since President Obama recently urged Congress to take on patent trolls in a recent Google+ hangout. (Watch that portion of the hangout below.)

But while the pending legislation could help turn trolls to stone in court, SHIELD fails to address the real problem of patent abuse. If passed, the bill would most likely reduce the value of patents as weapons for litigation. But it would do nothing to protect companies from the practices that keep forcing them into court.

What Patent Trolls Really Cost

Patent trolls — who prefer to be known as "non-practicing entities," meaning they hold patents but don't use them to provide actual goods or services — effectively use patents to chisel money out of companies that actually do make things or provide services.

They've proliferated over the past few decades, and now the tech industry is throwing good money after bad in court cases instead of on innovation. In a 2011 study, Boston University found that businesses spend $29 billion fighting patent trolls every year, or about $1.7 million per case.

Predatory patent enforcement has stifled growth to the point where research and development budgets now include money earmarked to fight these legal battles. Shelling out dollars for lawyers is a major problem for companies big and small, and can be a kill shot for early stage startups, which may be forced into costly settlements even if a troll's case is weak.

Where SHIELD Succeeds

The SHIELD bill's main change would be to force patent trolls who lose their cases to to pay the defendant's legal fees. This change would protect legitimate companies and could break patent trolls who are abusing the legal system.

Another major plus: A requirement that patent trolls post bonds to cover the cost of legal fees they might owe if they lose. This provision basically allows a company being sued to tell the court early on in the case that they think trolls have no assets.

"The bond requirement will make it hard for thinly capitalized trolls to sue," says Colleen Chien, a patent expert and assistant law professor at Santa Clara University. Chien, who has testified on patent issues before Congress, the Department of Justice and the Federal Trade Commissions, says that fee shifting can work to help curb frivolous litigation by scaring off trolls.

This fee shifting provides a disincentive for trolls to file suit in the first place, says Ed Goodmann, a tech analyst at the San Francisco public policy group Engine Advocacy. In other words, it creates a role reversal in which the hunter becomes the hunted. But that's only in the courtroom, and that's where the problem lies.

Where SHIELD Fails

What SHIELD doesn't solve is the mess at the patent office. SHIELD is essentially a back-end solution to a front-end problem. It deals with what happens after a patent is granted instead of attacking the real issue, which is the way patents are granted in the first place.

Here's one example. Imagine mailing a letter to yourself with a stamped date on it. This becomes proof that you came up with an idea at that specific time. But what if you could unseal the letter, muck with it and add new info, and then reseal it while keeping the original date intact?

That's the basic idea exploited by many patent trolls, who legally cheat through a loophole in the patent system called the continuation application process. Trolls have swarmed the continuation process by taking old, previously filed applications and editing them with added documentation. This pushes the claim to the top of the patent office pile. Then trolls can say their claims predate those of competitors, giving them the legal fodder they need to challenge more legitimate companies.

"They sit around and wait and use new technology, and write their claims and claim priority back to years ago," explains Daniel Nazer, a staff attorney and policy analyst at the Electronic Frontier Foundation. SHIELD, he says, is "a big reform in terms of dealing with the patent troll threat, but it doesn't deal with problems of the Patent and Trademark Office. If you want to buy a patent just for the sole purpose of suing people, that business model is going to be less attractive. But it's not a silver bullet. You have to win a case, which is expensive before you get attorneys' fees."

All the positives of the bill are in the courtroom, not the patent office, Nazer says. He characterizes the bill as helpful in spurring the discussion towards patent reform, but a failure when it comes to addressing bigger outstanding issues.

What's Next

So SHIELD is only a piece of the patent puzzle. And an incomplete one, at that.

For starters, it's too soon to say if the bill will even pass, although it's certainly making waves in online circles. In a sign of solidarity, a coalition of more than 60 entrepreneurs and advocacy groups, including big names like Mark Cuban, Reddit co-founder Alexis Ohanian, the EFF, and Engine Advocacy, sent an open letter to Congress last week asking legislators to schedule hearings and support SHIELD.

There are other forces in motion as well. In January, the U.S. Patent and Trademark Office began a "software partnership" geared to get public input on how to improve software-related patents. The Federal Trade Commission also created a patent workshop in December to improve the process.

While these forums were geared more towards examining the way the system works as opposed to seeking legislative reforms, their very existence suggests that the agencies themselves recognize the patent system's shortcomings. That's a step people like the EFF's Nazer say is a good sign.

Will it be more than that? We can only hope, because otherwise piecemeal efforts like SHIELD will only address the tail of the problem, not its heart. 

Lead image via Flickr user tellumo, CC 2.0