November 1, 2013 | By Adi Kamdar

Six Good Things About the Innovation Act: Part Two, Fee Shifting

The bipartisan Innovation Act is the best bill yet when it comes to fighting patent trolls. This post is the second of a series explaining the bill's various provisions. While the Innovation Act won't fix every problem with the patent system, it includes a powerful set of proposed reforms that—taken together—will significantly reduce the threat of abusive patent trolls.

Join us in supporting the Innovation Act. Take action and contact your member of Congress now.

Fee Shifting

Imagine you're a startup facing a patent troll lawsuit. The odds are in your favor: the patent it is asserting is of poor quality, and its claims of infringement are spurious at best. Yet the projected legal fees of the lawsuit run into the millions of dollars. Resigned, you decide to settle.

Patent trolls leverage this dynamic to shake down businesses and individuals. The Innovation Act, however, features a fix: fee shifting. The bill allows courts to shift fees to winning parties, giving those facing suits added incentive to fight back. In other words, if a troll loses a lawsuit, it could be liable for covering the winning party's costs.

Since patent trolls are often shell companies with no assets other than the patents they assert, the bill includes language allowing the defendant to bring a "real party in interest" into the litigation—parties that financially benefit from the litigation. For example, This American Life focused on a shell company known as Oasis Research, which asserted patents sold to it by the larger troll Intellectual Ventures. Intellectual Ventures received 90% of Oasis' net profits, yet because it's a separate company, it was absolved of all of Oasis' sins. Not anymore: with this bill, Intellectual Ventures, as the troll's major financial beneficiary, could be joined to the lawsuit.

Fee shifting is a legislative solution that we have long supported as a fix for the explosion of patent troll litigation. We were pleased earlier this year to see bills like Reps. Peter DeFazio's and Jason Chaffetz' SHIELD Act, which offered a similar fee-shifting proposal that added a bond requirement. (Both DeFazio and Chaffetz have sponsored the Innovation Act.) More recently, Sen. Orrin Hatch (R-UT) introduced similar legislation in the Senate, the Patent Litigation Integrity Act. We strongly support that legislation.

Ultimately, fee shifting will give small defendants a chance to fight back against weak troll cases. At the same time, it will do no harm to a party who has a legitimate claim of infringement on a good quality patent. In other words, the only ones on the losing end of this fee-shifting provision are the trolls who rely on the outrageous expense of patent litigation to extort quick settlements.

Fee shifting is one of the strong solutions the Innovation Act has for the patent troll problem. Tell your members of Congress to support this much-needed reform.

Posts in this series:

Part One: Heightened Pleading

Part Two: Fee Shifting

Part Three: Ending Discovery Abuse

Part Four: Transparency

Part Five: Customer Suit Excpetion

Part Six: Covered Business Method Review


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