The Changing Landscape of Willful Infringement: The Effect of Willfulness as a Question of Law

By Shawna S. Boothe* and John D. Kendzior**

I. Introduction

Under the United States Patent Act, “whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.”[1]  A finding of willful patent infringement allows the court, at its discretion, to “increase the damages up to three times the amount found or assessed.”[2]  While a finding of willfulness is a sufficient basis for awarding enhanced damages, it does not compel such an award.[3]  Additionally, the court may award reasonable attorney fees to the prevailing party for willful infringement.[4]

Willful infringement significantly affects the technology that patents protect.  In the recent high-profile Apple v. Samsung trial, the patents at issue concerned smartphones and tablets.  The San Jose, California nine-person jury found that Samsung infringed six of seven Apple patents.[4]  The jury awarded Apple $1,049,393,540 in damages—one of the largest awards in an intellectual property case to date.[5]  Moreover, the jury found that Samsung willfully infringed on five of six Apple patents.  Thus, presiding Judge Koh can grant Apple’s request to treble the $1.05 billion jury award and to award attorney fees under 35 U.S.C. §§ 284, 285.

II. Background

The Court of Appeals for the Federal Circuit articulated a standard for evaluating willful infringement in Underwater Devices, Inc. v. Morrison-Knudsen Co.  “Where . . . a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing.”[6]  The affirmative duty of a potential infringer included, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.  Ensuing case law shaped the willfulness landscape and evaluates willfulness under the totality of the circumstances.

III. Seagate’s Willfulness Standard

Twenty-four years later, the Federal Circuit overruled Underwater Devices and established a two-prong test for proving willful infringement in In re Seagate Technology, LCC.  First, “a patentee must show by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.”[7]  This first prong is a threshold objective standard in which the state of mind of the accused infringer is not relevant.  If the threshold objective prong is satisfied, the patentee must also demonstrate the second prong: “that this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.”[8] This second prong is a subjective inquiry.  The Court left the development and application of Seagate’s willfulness standard to future cases.  Subsequent case law established that the objective prong tends not to be met where an accused infringer relies on a reasonable defense to a charge of infringement.[9]  Examples of defenses that negate the objective prong of willfulness include invalidity and noninfringement assertions.[10]

Seagate significantly altered two aspects of the willfulness landscape.  First, it elevated the previously lower threshold for establishing willfulness.  Seagate moved away from Underwater Device’s affirmative duty of care—which was akin to negligence—and adopted a more rigorous objective recklessness standard.  The Federal Circuit reasoned that a higher standard of recklessness permitting enhanced damages comports with Supreme Court precedent requiring a showing of recklessness before civil punitive damages are allowed.[11]  Seagate’s heightened standard has made it more difficult for a prevailing party to recover enhanced damages.[12]>  Second, resulting from Seagate’s abandonment of an affirmative duty of care, potential infringers are no longer required to obtain opinion of counsel in order to avoid liability for willful infringement.

IV. Willfulness As a Question of Law

Under Seagate precedent, the willfulness two-pronged inquiry has long been treated as a question of fact.[13]  On June 14, 2012, the Federal Circuit once again transformed the landscape of willfulness by announcing, in Bard Peripheral Vascular, Inc. v. Gore & Associates, Inc., that the threshold prong is henceforth a question of law.  The Bard Court held, “the objective determination of recklessness, even though predicated on underlying mixed questions of law and fact, is best decided by the judge as a question of law subject to de novo review.”[14]  In Bard, the Federal Circuit delineated a rule for two distinct circumstances.  When a defense or noninfringement theory asserted by an accused infringer is purely legal, the objective recklessness of such a theory is a purely legal question to be determined by the judge.  Such purely legal defenses include claim construction and reexamination.  Alternatively, when the objective prong turns on fact questions or on legal questions dependent on the underlying facts, the judge remains the final arbiter of whether the defense was reasonable, even when the underlying fact question is sent to a jury.  Such underlying factual defenses include anticipation or obviousness.  Under the second circumstance, if the defense is a question of fact or a mixed question of law and fact, the court may allow the jury to determine the underlying facts relevant to the defense first, and then it would determine the reasonableness of the defense as a matter of law.

The Bard Court reasoned that the judge is in the best position to determine whether an accused infringer’s defenses are reasonable.[15]  Furthermore, judges have the discretion to award enhanced damages and attorneys fees for willful infringement; therefore, it is logical for judges also to decide the objective prong of willfulness.  To support its holding, the Bard Court also relied upon the Supreme Court’s conclusion that objective baselessness should be a question of law through analogizing objective baselessness for sham litigation to a finding of lack of probable cause to institute an unsuccessful civil law suit—which subjects mixed questions of fact and law to a de novo review.  Bard extended the Supreme Court’s analogy to encompass objective recklessness because Seagate’s objective recklessness and objective baselessness are identical under Federal Circuit precedent.

V. Bards Effect on the Willfulness Landscape

This most recent change to willfulness as a question of law substantially affects the overall willfulness landscape in two respects.  First, a question of law is determined by the court, either on a pretrial motion for partial summary judgment or on a motion for judgment as a matter of law at the close of the evidence.[16]  Prior to Bard, few of these motions were granted because willfulness was ultimately a question of fact to be decided by the jury after trial.  Now that willfulness is a question of law, an avenue is created for disposing of willfulness allegations by judicial decision prior to trial.   Therefore, courts will likely experience increased filings of such motions due to this new avenue, and movants likely will experience greater success—not necessarily on the merits of the motion but on the sheer ability of courts to grant the motions without needing to submit the issue to the jury.

Secondly, the decision in Bard creates a disjointed pairing of a question of law with a standard for proving facts.  Seagate requires that the threshold prong of objective recklessness be proven by clear and convincing evidence.  Typically, clear and convincing evidence is the standard for proving questions of fact, which was consistent when willfulness was a question of fact.  In holding that the threshold prong of objective recklessness is a question of law, the Bard court failed to address or change the standard of proof required for this prong.  Thus, Seagate and Bard, understood together, create an issue of law that still must be proven by the standard for an issue of fact.

In an earlier concurring opinion, Justice Breyer addressed the exact problem we now face with Seagate and Bard.[17] Justice Breyer, in his concurring opinion in Microsoft Corp. v. i4i Limited Partnership, firmly stated that the clear and convincing evidentiary standard should only apply to questions of fact and not to questions of law.  Additionally, Justice Breyer instructed courts to prevent “the ‘clear and convincing’ standard from roaming outside its fact-related reservations . . . .”[18]  One does not have to make a significant inferential leap to conclude that Justice Breyer would admonish the Federal Circuit for establishing willfulness as a question of law that applies the clear and convincing evidence standard of proof.  Although both remain “good” law, there is undeniable tension between Seagate and Bard that will likely be addressed in subsequent case law.

VI.       Conclusion

The willfulness landscape has undergone two significant changes within the last five years.  First, the willfulness standard in Underwater Devices was replaced by the standard set forth in Seagate, which heightens the burden of proving willfulness by requiring objective recklessness as opposed to negligence.  Additionally, Seagate abandoned Underwater Devices’ duty of care and duty to seek opinion of counsel.  However, no change could be more significant than the change that occurred in Bard, which held that willfulness is as a question of law rather than a question of fact.  As a question of law, judges may determine the threshold prong of willfulness without submitting the issue to the jury.  The judge could dispose of a willfulness allegation by granting a motion for summary judgment or judgment as a matter of law.  Thus, the authors posit that the courts will see an increase in such motions, and movants will experience greater success solely because of the new avenue to dispose of willfulness allegations.  Another effect of the change in Bard is the tension created by joining a question of law with the burden of proving a question of fact—clear and convincing evidence.  The authors posit that Justice Breyer would strongly disapprove of such joining based on his special concurrence in i4i, and the tension will be resolved in subsequent case law.


* J.D. Candidate, University of Illinois College of Law, expected 2013. B.A., Mathematics and Philosophy, University of Saint Thomas, 2010.  Firstly, I would like to thank James Hanft at Schiff Hardin LLP for his insights and guidance during the 2012 summer associate program, which sparked my interest in this topic.  Secondly, I am grateful to the editors of the Journal of Law, Technology, and Policy for their support while writing this piece.  Lastly and most importantly, I would like to thank my family for their continued support throughout the years.

** J.D. Candidate, University of Illinois College of Law, expected 2013. B.S., Finance and Information Technology, Marquette University, 2010.  Firstly, I would like to thank my co-author for introducing me to this topic and being a pleasure to work with.  I would also like to thank my fellow Journal of Law, Technology, and Policy editors and members for their insights and advice throughout the writing and publication process.  Lastly, I would like to thank my family for their encouragement of my legal education.

[1] 35 U.S.C. § 271 (2010).

[2] 35 U.S.C. § 284 (2011); e.g., In re Seagate Tech., LLC, 497 F.3d 1360, 1368 (Fed. Cir. 2007) (“Absent a statutory guide, we have held that an award of enhanced damages requires a showing of willful infringement.”).

[3] State Indus., Inc. v. Mor-Flo Indus., Inc., 948 F.2d 1573, 1576 (1991) (citing Modine Mfg. Co. v. Allen Grp., Inc., 917 F.2d 538, 542–43 (Fed. Cir. 1990)).

[4] 35 U.S.C. § 285 (1952).

[5] Apple, Inc. v. Samsung Elecs. Co., No. 11-cv-01846-LHK at 2–7 (N.D. Cal. Aug. 24, 2012) (amended verdict form), available at http://cdn.slashgear.com/wp-content/uploads/2012/08/ApplevSamsung-1931.pdf; Jessica E. Vascellaro, Apple Wins Big in Patent Case, Wall St. J. (Aug. 25, 2012, 1:41 PM), http://online.wsj.com/article/SB10000872396390444358404577609810658082898.html.

 [6] Apple, No. 11-cv-01846-LHK at 15.

[7] Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380, 1389–90 (Fed. Cir. 1983).

[8] > In re Seagate Tech., LLC, 497 F.3d 1360, 1368 (Fed. Cir. 2007).

[9] Id.

[10] Spine Solutions, Inc. v. Medtronic Sofamor Danek USA, Inc., 620 F.3d 1305, 1319 (Fed. Cir. 2010).

[11] Advanced Fiber Techs. (AFT) Trust v. J & L Fiber Servs., Inc., 674 F.3d 1365, 1377 (Fed. Cir. 2012).

[12]See Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 71 (2007) (noting that a reckless disregard of a requirement of the Fair Credit Reporting Act would qualify as a willful violation that makes a person civilly liable to the consumer).

[13] Siraj Husain, Note, The Willfulness Pendulum Swings Back: How Seagate Helps Level the Playing Field, 28 Loy. L.A. Ent. L. Rev. 239, 239–240 (2008).

[14] Cohesive Techs., Inc. v. Waters Corp., 543 F.3d 1351, 1374 (Fed. Cir. 2008); Stryker Corp. v. Intermedics Orthopedics, Inc., 96 F.3d 1409, 1413 (Fed. Cir. 1996).

[15] Bard Peripheral Vascular, Inc. v. Gore & Assocs., Inc., 682 F.3d 1003, 1007 (Fed. Cir. 2012).

[16] > Id. at 1006.

[17] DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F.3d 1314, 1324 (Fed. Cir. 2009) (quoting Warner Jenkinson Co., Inc. v. Hilton Davis Chem. Co., 520 U.S. 17, 39 n.8 (1997)).

[18] Microsoft Corp. v. i4i Ltd. P’ship, 131 S.Ct. 2238, 2253 (2011) (Breyer, J., concurring).

[19] Id.

Cyborgs: Natural Bodies, Unnatural Parts, and the Legal Person

By Alexis Dyschkant*

INTRODUCTION

The phrase “one’s person” has an important legal role because of the unique rights an individual has over her person and because of the prohibition on wrongfully contacting another’s person.  Isolating the boundary of a person is crucial for determining when (or if) someone has wrongfully contacted an individual.  Historically, “one’s person” has been limited to “one’s natural body” and some, but not all, artificial attachments to one’s natural body.  The cyborg, a creature composed of artificial and natural parts, challenges this conception of a “person” because it tests the distinction between the natural body and an artificial part.  Artificial objects, such as prosthetics, are so closely attached to bodies as to be considered a part of one’s person.  However, claiming that personhood extends to things attached to our natural bodies oversimplifies the complicated interrelation between natural objects and artificial objects in the cyborg.  If our person is no longer limited to our natural body, then we must understand personhood in a way that includes the cyborg.  I argue that the composition of a body does not determine the composition of a person.  One’s person consists to the extent of one’s agency.

ARTIFICIAL PARTS AND ONE’S PERSON: LEGAL BACKGROUND

One commits battery when she causes a “harmful or offensive contact with the person of the other.”[1]  Contact with a person has not been limited to contact with that person’s natural body.  For example, grabbing an object out of one’s hand is battery if the object is so closely connected to someone as to be considered a part of his body.[2]  In particular, objects which serve to substitute for a part of one’s natural body may be considered a part of one’s body, such as interference with a cane.[3]  Disability aids, such as prosthetics, wheelchairs, or hearing aids, are paradigm examples of artificial objects that are viewed as intimately attached to one’s body.  Interference with these objects is likely to be considered contact with a person.

The Restatement of Torts gives a guideline as to what is considered an “intimate connection”:There are some things such as clothing or a cane . . . which are so intimately connected with one’s body as to be universally regarded as part of the person.  On the other hand, there may be things which are attached to one’s body with a connection so slight that they are not so regarded. [4] At the heart of the discussion is the physical relationship between the artificial object and the natural body.  The artificial object needs to be attached to the natural body, and this attachment comes in degrees of intimacy.  At some point, the object is so closely attached we commonly refer to the object as part of one’s person.  Physical attachment to the body is the most significant factor in considering the role of an artificial object to one’s person.  For example, it is unlikely that touching a prosthetic limb that is completely detached from a body would constitute contact with a person.  Being attached to a physical body is paramount to determining whether an artificial object is considered a part of one’s person.

NEUROPROSTETHICS AND THE HIDDEN CYBORG

The problem with focusing on whether an artificial object is attached to a body is that the concept of “attachment” creates a conceptual barrier between “thing attached” and “thing attached to.”  Attachment can come in degrees, but it necessarily includes a relationship between two separate entities.  The image of the body, wholly organic and natural, and its artificial parts creates a dichotomy between the original, real body and its subsequent alterations.[5]  This image may accurately describe common representations of prosthetics and disability products, such as wheelchairs and canes, which can clearly be separated from one’s body.  But, while these kinds of artificial objects are common, it is a mistake to think that this is the norm.  The cyborg is more common than many believe.

A cyborg, simply put, is a creature that consists of both natural and artificial parts.[6]  Recent developments in science, called “Neuroprosthetics,” suggest that a science fiction conception of the cyborg is not entirely fiction.[7]  As the name suggests, Neuroprosthetics are artificial objects that are directly controlled by one’s nervous system—similar to how a natural arm is controlled.  Just in the last few months, we have seen the creation and private use of “Neuroprosthetic exoskeletons,” mechanical additions to a human body, such as a mechanical limb, which are integrated into one’s body.[8]  These exoskeletons respond directly to neuro-information in what has been called a “brain-computer interface.”[9]  Not only are these Neuroprosthetics not easily detached from one’s body like traditional prosthetics, but they challenge the inherent dichotomy between “thing attached” and “thing attached to.”  Neuroprosthetics become conceptually and biologically woven into the natural fabric of one’s body.  At one end, there is a clearly mechanical exoskeleton composed entirely of artificial parts and at the other end there is a natural, organic brain.  Somewhere between these two points, there is the woven interconnection between organic and artificial, but locating the “attachment” is difficult, and potentially, impossible.

But one need not look to modern technology to find cyborgs.  We are all cyborgs.  If the cyborg is as pervasive in society, then there is an even stronger motivation to distance personhood from biology.  The hidden cyborg is someone who has become so accustomed to her artificial parts that she fails to see herself as a cyborg at all.  The image of the natural human body as distinct from artificiality has become a thing of the past.  The most obvious examples of this are everyday objects like eyeglasses or cosmetics.  Tattoos are permanent additions to one’s body that can only be removed by removing organic material.  At the most extreme end of artificiality is the role of devices into which one can “off-load” his cognition, such as smartphones.  Some argue that our ability to save information contributed to the growth of our neuro-processing ability.[10]  Importantly, some of these artificial parts are not attached to a natural body.  Glasses merely rest on a body.  Tattoos are not “affixed” to one’s body, but literally woven into one’s skin.  Computing devices are entirely detached from our natural body.  This suggests that the role of artificial objects in one’s person extends beyond attachment.

CONCEPTIONS OF THE CYBORG’S PERSON

There are three possible responses to the existence of the cyborg.  One is to insist that one’s person is composed of a natural body and attached objects.  A second response, advanced by Gowri Ramachandran, is to reconceive of the body as a “social body.”[11]  I advance a third response which distances the “person” from the “body” and associates one’s person with one’s agency.

Salvaging the Natural Body-Artificial Part Distinction

One may insist that there remains an important difference between the natural body and the artificial object attached to the body.  Tattoos do not occur naturally; one must add a tattoo.  Similarly, one must attach a Neuroprosthetic to a natural body.  The fact that the location at which the exoskeleton is attached is difficult to locate does not mean that there is no point of attachment.  Moreover, consider the exoskeleton or the tattoo a paradigm example of the most intimate attachment.  However, this response blurs the role that “attachment” to one’s person is meant to play.  If the location of the attachment is lost and, thus the boundary between the artificial and the natural, then what distinguishes it from natural attachments such as donated organs other than the fact that it is artificial?  Moreover, even naturally occurring parts of one’s body can also become detached, such as temporary organ removal during surgery or a lost tooth that is going to be reattached.  The fact that functionally-equivalent artificial objects and natural objects can be attached and detached in similar ways suggests that a concept of “one’s person” should not depend on the natural-artificial distinction or the attached-detached distinction.[12]

The Social Body

Ramachandran offers a solution to the cyborg problem by introducing the “social body” which consists of those objects, possibly natural or artificial, which are important to our daily lives.[13]  One’s social body may include objects which blur the line between natural and artificial.  “Pacemakers, imaginary artificial organs of the future, and ink in a tattoo are often thought of as part of the social body, and they are neither organic nor human.”[14]  Ramachandran’s portrayal of the social body de-emphasizes the importance of attachment by focusing on the function of an object.  While this view is indeed a step in the right direction, it does not go far enough to distance the conception of one’s “person” from one’s “body.”  As she points out, the role of artificial objects in the social body is rhetoric that can potentially be identified as a replacement for natural body parts.[15]  The term “social body” invokes a pretense, as if it is an invented term used to give artificial objects a more privileged role in our lives.  Arguably, changing the natural body to a social body continues to place some body at the center of personhood.

Moving Beyond the Body

The view advanced here responds to the introduction of the exoskeleton-bearing cyborg and the hidden cyborg by distancing the body from the person entirely.  What the cyborg shows us is that the body can be composed of any kind of part but the person is necessarily the agent which controls, benefits from, and depends upon these parts.  Human tissue, animal tissue, or mechanical “tissue” all allow a person to exercise their agency and interact with the world.  The type of body which a person controls need not be relevant.  Hence, determining when one has made contact with “the person of another” does not necessarily depend on the naturalness or composition of one’s body, but on the relationship between the object contacted and the person’s agency.  We can imagine a technologically advanced future in which people retain control over parts detached entirely from their body or in which one’s person is dispersed across great spaces.  Neuroprosthetics are the first phase of this development; they are prosthetics that are not only integrated with our bodies, but also with our cognition.  They directly respond to electro-chemical signals put off by our brains.  What constitutes a person, in these cases, is that all of these parts compose a single agent capable of controlling or sensing them in the same way that we currently control or sense our natural parts.  The distinction between person and body is not new, but throughout much of history the person has been limited, or contained in, the body.  The development of the cyborg represents an exciting change.  It is now possible to conceive of the person extending physically beyond the body via attachments, integrations, extensions, and even completely detached objects.[16]


* J.D., College of Law, Ph.D., philosophy, University of Illinois at Urbana-Champaign, expected 2015.

[1] Restatement (Second) of Torts § 13 (1965).

[2] Fisher v. Carrousel Motor Hotel, Inc., 424 S.W.2d 627, 629 (Tex. 1967).

[3] Respublica v. De Longchamps, 1 U.S. (1 Dall.) 111, 114 (1784).

[4] Restatement (Second) of Torts § 18 cmt. c (1965) (emphasis added).

[5] See Donna J. Haraway, A Manifesto for Cyborgs: Science, Technology, and Socialist Feminism in the 1980s, in The Haraway Reader 7, 11 (1985) (discussing three theoretical boundary breakdowns in modern society between human and animal, organism and machine, and physical and non-physical).

[6] Id.

[7]E.g., Miguel A. L. Nicolelis, Mind in Motion, Sci. Am, Sept. 2012, at 58; Emilia Mikołajewska & Dariusz Mikołajewski, Neuroprostheses for Increasing Disabled Patients’ Mobility and Control, 21 Advances Clinical & Experimental Med. 263 (2012), available at http://www.advances.am.wroc.pl/pdf/2012/21/2/263.pdf.

[8] Chris Wickham, UK Paraplegic Woman First to Take Robotic Suit Home, Reuters (Sept. 4, 2012), http://www.reuters.com/article/2012/09/04/us-science-exoskeleton-idUSBRE8830RZ20120904.

[9] Mikołajewska & Mikołajewski, supra note 7, at 264.

[10] Cary Wolfe, What is Posthumanism? 35 (2010).

[11] Gowri Ramachandran, Assault and Battery on Property, 44 Loy. L.A. L. Rev. 253, 259 (2010).

[12] Haraway, supra note 5, at 11–13.

[13] Ramachandran, supra note 11, at 263–66.

[14] Id. at 267.

[15] Id. at 275.

[16] Ramachandran, for example, willingly includes smartphones as part of the social body in the form of an “exo-brain.”  Id. at 275–76.  The introduction of external information processing has led some philosophers, such as extended mind theorists and transhumanists, to include the smartphone as a part of one’s person.  Id.

Piercing the SHIELD Act

By Jessica Lanfordϯ

On August 1, 2012, Rep. Peter DeFazio (D-Or.) introduced a bipartisan bill that seeks to protect American start-ups from the destructive costs of frivolous lawsuits brought by patent trolls.[1]  Backed by the software and computer hardware companies that it seeks to protect, the Saving High-Tech Innovators from Egregious Legal Disputes Act (SHIELD) effectively forces Non-Practicing Entities (NPEs) to pay defendants’ legal costs.

This Article provides an overview of the bill, then analyzes its effectiveness by asking three questions: 1) What is the NPE problem? 2) Is fee-shifting a sensible policy instrument? and 3) Do we need to go beyond existing law to prevent frivolous lawsuits?  Ultimately, a closer look shows that the system proposed by the SHIELD Act is premature, ineffective, and unnecessary.

Overview of the SHIELD Act:

The SHIELD Act proposes a “loser-pays” system[2] for cases involving computer hardware or software patents, with the following language:

(a) In General—Notwithstanding section 285, in an action disputing the validity or alleging the infringement of a computer hardware or software patent, upon making a determination that the party alleging the infringement of the patent did not have a reasonable likelihood of succeeding, the court may award the recovery of full costs to the prevailing party, including reasonable attorney’s fees, other than the United States.[3]

The preamble suggests that the statute applies to both validity and infringement actions.  But the bill then limits the system to apply only against the party “alleging the infringement.”  Thus, the SHIELD Act is a one-way system: alleged infringers can recover their costs if they prevail in court—but patentees may not seek recovery against accused infringers who assert frivolous defenses.[4]

The bill also provides definitions for “Computer,” “Computer Hardware Patent,” and “Software Patent.”  If passed, the bill will define “software patent,” for the first time, to mean: a) “any process that could be implemented in a computer regardless of whether a computer is specifically mentioned in the patent,” or b) a “computer system that is programmed to perform [such] a process.”[5]  But the bill stops short of endorsing the controversial software patent with a disclaimer: the SHIELD Act should not be “construed as amending or interpreting categories of patent-eligible subject matter . . . .”[6]

1. NPE Problems: Where’s the Beef?

An NPE is defined as an entity that does not manufacture products itself—also known as a “patent troll.”[7]  Universities, independent inventors, and failed businesses are all examples of NPEs.  But the term “patent troll” can also mean a specific type of NPE that buys patents from others merely to assert them.  Critics liken these businesses to the fabled greedy troll who hijacks bridges, then threatens to gobble-up anyone who passes his way.[8]

Is the SHIELD Act really anti-troll legislation?  Supporters claim that the fee-shifting provision could help “the good guys” beat patent trolls.[9]  But the bill’s effects are far broader than its proponents suggest: any plaintiff that alleges infringement without a “reasonable likelihood of succeeding,” could be forced to foot its opponent’s legal bills.[10]  And by leaving the construction of “a reasonable likelihood of succeeding” up to the court, the SHIELD Act could end up creating more litigation than it seeks to prevent.[11]

In a news release, Rep. DeFazio claimed that patent trolls “pad their pockets by buying patents on products they didn’t create and then suing the innovators who did the hard work and created the product.”[12]  But current evidence of NPE activity seems to show otherwise.   For example, last year, one of the largest publicly traded NPEs reported that it paid more in royalties to inventors than it did to the patent attorneys who enforce their patents.[13]

Rep. DeFazio also claims that patent trolls’ lawsuits hurt American innovation and tech startups.[14]  His belief is widely shared, but it lacks credible support. [15]  In reality, NPE activity has the potential to spur innovation, and stimulate investment in start-ups.[16]   And the NPEs that Rep. DeFazio targets could actually help the little guy.  By buying patents from inventors and owners who can’t afford to market their own technologies, NPEs give non-manufacturing inventors the opportunity to monetize their patents—one that they may otherwise not have.

The bill is also intended to neutralize NPEs’ controversial business practices.  Specifically, Rep. DeFazio points to patent trolls’ habit of buying broad patents for the purpose of filing “flimsy lawsuits” for infringement.[17]  Perhaps he is unaware of recent evidence that the patents enforced by “trolls” are substantially similar to patents litigated by practicing entities.[18]  For example, patents litigated by NPEs have the same range of claims and references cited as other litigated patents.[19]  And contrary to popular belief, a recent study shows that the patents NPEs typically litigate are more important and influential than those litigated by non-NPE plaintiffs.[20]

Yet, no studies show that NPEs actually file frivolous lawsuits, or that they are routinely accused of Rule 11 violations.  So, where’s the beef?  Until we have a realistic understanding of so-called “patent troll” litigation and NPE behavior, we should refrain from passing laws aimed at limiting their activity.

2. Is Fee-Shifting a Sensible Policy Instrument?

For more than 200 years, litigants in the United States have operated under the “American Rule”: each party pays its own litigation costs, whether it wins or loses.  In contrast, under both the “English Rule” and the SHIELD Act, the loser pays.

Despite its effectiveness in discouraging frivolous lawsuits, the English Rule produces unwanted results.  First, in a “Loser Pays” world, a potential plaintiff decides whether to litigate by considering its financial risks, rather than the merits of its case.  As a result, plaintiffs with meritorious claims that are not sure-fire winners will give up on litigation for fear of paying the defendant’s costs.

Second, the English Rule encourages more litigation than its American counterpart by reducing settlements, particularly in cases involving higher stakes and confident parties.  Naturally, in a “Loser Pays” system, a confident high-stakes litigant will pursue trial for full recovery.  But the American Rule reduces litigation: a confident party will prefer to settle when the cost of doing so is less than the cost of victory at trial.

Finally, if the British experience is any indication, patent enforcement costs arising from the SHIELD Act could drown small businesses and startup patentees[21]—the same entities that the bill claims to protect.  Therefore, unless we want to limit small businesses’ access to courts, the SHIELD Act and its “Loser Pays” system is ineffective.

3. Do We Need to Go Beyond Existing Law to Prevent Frivolous Lawsuits?

If supporters of the SHIELD Act simply want protection from frivolous lawsuits, then why do they need this bill?  Existing patent law allows the court to award reasonable attorney’s fees to the prevailing party in “exceptional” cases, under Section 285.[22]  Courts typically award attorney’s fees under Section 285 when evidence shows that the plaintiff brought litigation in bad faith.[23]   But without a showing of bad faith, attorney’s fees under Section 285 are unavailable.[24]

A plaintiff of a frivolous lawsuit is also subject to sanctions under Rule 11 of the Federal Rules of Civil Procedure.  Under Rule 11, attorneys are required to certify that the papers they file are legally sound, rooted in fact, and “not interposed for any improper purpose.”[25]

Yet the SHIELD Act seeks to shift the standard’s focus from a plaintiff’s conduct to his or her perceived probability of success.  The bill proposes that even in the absence of bad faith, a patentee should be liable for attorney’s fees based on the court’s opinion of his or her “reasonable likelihood of success.”

The SHIELD Act is a hollow sword.

If passed, the SHIELD Act has the potential to hurt those that it claims to protect.  The threat of overwhelming legal costs will keep small innovators from litigating worthy claims, giving alleged infringers a free pass.  At the same time, the bill’s supporters seek to expand existing protections against frivolous lawsuits without any meaningful understanding of NPE activity.  Before we even consider passing legislation aimed at limiting the behavior of patent trolls, we need to take a close look at what they actually do.


ϯ J.D. Candidate, University of Illinois College of Law, expected 2013.

[1] Press Release, Congressman Peter DeFazio, DeFazio Introduces SHIELD Act to Protect American Innovation, Jobs (Aug. 1, 2012), available at http://defazio.house.gov/index.php?option=com_content&view=article&id=792:defazio-introduces-shield-act-to-protect-american-innovation-jobs&catid=69:2012-press-releases; Cong. Research Serv., H.R. 6245: Saving High-Tech Innovators from Egregious Legal Disputes Act of 2012, govtrack.us,  http://www.govtrack.us/congress/bills/112/hr6245 (last visited Oct. 15, 2012).

[2] Loser Pays System Introduced in Congress, PatentlyO (Aug. 9, 2012, 10:21 AM), http://www.patentlyo.com/patent/2012/08/loser-pays-system-introduced-in-congress.html.

[3] SHIELD Act of 2012, H.R. 6245, 112th Cong. (2012).

[4] Ron Katznelson, Here They Go Again – This Time with the Patent SHIELD Act, IPWatchdog (Aug. 26, 2012, 7:25 AM), http://www.ipwatchdog.com/2012/08/26/here-they-go-again-this-time-with-the-patent-shield-act/id=27476/.

[5] H.R. 6245.

[6] Id.

[7] Michael Risch, Patent Troll Myths, 42 Seton Hall L. Rev. 457, 459 (2008); David L. Schwartz & Jay P. Kesan, Analyzing the Role of Non-Practicing Entities in the Patent System 2 (July 25, 2012) (Ill. Program in Law, Behavior and Soc. Sci. Paper No. LBSS13-03; Ill. Pub. Law Research Paper No. 13-01; Chi.-Kent Coll. of Law Research Paper No. 2012-03), available at http://ssrn.com/abstract=2117421.

[8] Peter Christen Asbjørnsen & Jørgen Moe, Three Billy Goats Gruff, in 37 Popular Tales from the Norse 275–76 (George Webbe Dasent trans., London, George Routledge and Sons 2d ed.); Schwartz & Kesan, supra note 7, at 2.

[9] Julie Samuels, Can You Believe It? Legislation that Would Actually Help Fix the Patent System, Electronic Frontier Found. (Aug. 1, 2012), https://www.eff.org/deeplinks/2012/07/can-you-believe-legislation-would-actually-help-fix-patent-system.

[10] H.R. 6245.

[11] Timothy J. Maier, The Proposed Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act, Maier & Maier, PLLC (Aug. 10, 2012, 2:47 PM), http://www.postgrant.com/2012/08/the-proposed-saving-high-tech-innovators-from-egregious-legal-disputes-shield-act.html.

[12] Press Release, Congressman Peter DeFazio, supra note 1.

[13] ACACIA Research Grp., Annual Report (Form 10-K), (Feb. 29, 2012), available at http://biz.yahoo.com/e/120229/actg10-k.html; Schwartz & Kesan, Analyzing the Role of NPEs in the Patent System, Patentlyo (Aug. 21, 2012, 4:04 AM), http://www.patentlyo.com/patent/2012/08/analyzing-the-role-of-npes-in-the-patent-system.html.

[14] Press Release, Congressman Peter DeFazio, supra note 1.

[15] Risch, supra note 7, at 492–93.

[16] From Exposing NPE Myths to Explaining NPE Math, RPX, http://www.rpxcorp.com/index.cfm?pageid=14&itemid=25.

[17] Press Release, Congressman Peter DeFazio, supra note 1.

[18] Risch, supra note 7, at 480; Schwartz & Kesan, supra note 13.

[19] Risch, supra note 7, at 480.

[20] Id. at 481.

[21] Katznelson, supra note 4; Richard Tyler, Inventor Fury as Patents Prove Too Costly to Defend, Telegraph (Mar. 8, 2012, 11:11 AM), http://www.telegraph.co.uk/finance/yourbusiness/9130815/Inventor-fury-as-patents-prove-too-costly-to-defend.html.

[22] 35 U.S.C. § 285 (2006); Alexander Poltorak, Proposed SHIELD Law Is Nothing but a Gift to Infringers, Hill (Aug. 10, 2012, 3:15 PM), http://thehill.com/blogs/congress-blog/technology/243135-proposed-shield-law-is-nothing-but-a-gift-to-infringers.

[23] ICU Med., Inc. v. Alaris Med. Sys., Inc., 558 F.3d 1368, 1379–80 (Fed. Cir. 2009).

[24] Brooks Furniture Mfg. ., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).

[25] Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990).