The SHIELD Act — Saving High-Tech Innovators from Egregious Legal Disputes — is back.  The SHIELD Act was originally introduced in the last Congress and would have awarded costs, including reasonable attorney’s fees, to a prevailing defendant when, upon completion of the case, a Court held that the patentholder’s case had not had a reasonable likelihood of success.  Many raised concerns — including mine here — about whether the original SHIELD Act’s reasonableness standard would be significantly different than the § 285 exceptional case standard  There were also concerns that the original SHIELD Act would not change a troll’s calculus in filing or prosecuting the case because defendants had to take the case to resolution to find out whether fees would be awarded.  And finally, the SHIELD Act was both under and overbroad because it only applied to computer hardware and software technologies without separating out competitor cases in those technology sectors. This morning, Congressman DeFazio (R-Oregon) introduced a new version of the SHIELD Act.  This new version addresses many of the issues with the original version.  The current SHIELD Act would award costs, including reasonable attorney’s fees, to a prevailing party that had asserted noninfringement and/or invalidity defenses in a patent case, if the Court holds that the patentholder does not meet any of the criteria that roughly define trolls.  Those criteria are:

  1. The plaintiff is the inventor of the asserted patents, a joint inventor of the asserted patents or the original assignee of the patents;
  2. The plaintiff provides “documentation . . . of substantial investment made by such party in the exploitation of the patent through production or sale of an item covered by the patent”; or
  3. The plaintiff is an institution of higher education (as defined by the Higher Education Act) or a technology transfer organization associated with one or more institutions of higher education.

These three factors are a rough cut at identifying trolls.  Of course, we will have to see how courts interpret the “substantial investment” prong.  For example, does the investment have to result in the making or sale of a product, or is it enough that there was significant investment, even if the investment did not come to fruition.  And while allowing suits by the original inventor is defensible, there is some concern that this limitation is overbroad.  For example, an original inventor could be funded behind the scenes by a troll and side-step the SHIELD Act. The current version of the SHIELD Act also makes an important timing change.  In order to get a fees award, the accused infringer will be required to file a motion seeking a finding that the patentholder does not meet any of the three conditions above.  If an accused infringer files that motion before the deadline for serving its initial disclosures, the Court must stay discovery except for that related to the motion until the Court rules upon whether the patentee meets any of the conditions.  If the accused infringer files its motion after the initial disclosures deadline, the Court is free to defer ruling until after a final judgment is entered in the case.  But the SHIELD Act gives accused infringers (including retailers) the ability to determine at the outset of the case whether they will get an award of its reasonable attorney’s fees when they prevail. That would be a critical change in the law.  Today as a retailer evaluates its defenses and strategy throughout a case, it can weigh its opportunity to get its fees paid at the back end of the case if the retailer prevails and then if the Court finds the case exceptional.  But knowing at the outset of a case that it will gets its attorney’s fees if it prevails is a much more tangible possibility which will likely factor heavily into the analysis for many retailers.  And it may cause patentholders who know they do not fit any of the three conditions, to not file cases that they feel to be weak or even closer to the line.