The SHIELD ACT will stack the deck against small business, impair innovation

The House Judiciary Committee is holding a subcommittee hearing today on a one-sided bill that would have a chilling effect on innovation and small businesses by unfairly stacking the deck in favor of corporate giants and impairing the value of intellectual property. 

H.R. 845, the “Saving High-Tech Innovators from Egregious Legal Disputes" (SHEILD) Act, would drastically alter the U.S. patent system by forcing only losing plaintiffs to pay defendant's attorney’s fees and costs.  In loser-pays systems, larger corporate defendants can bully injured plaintiffs into unfair settlements because the risk of financial ruin is far greater for the smaller business.  This essentially cuts-off access to justice for individual Americans and small businesses, who are already shouldering the costs of injuries. 

But this bill goes even further and is inherently unfair because it only applies to plaintiffs seeking to enforce their intellectual property rights.  The risk of paying the defendant's costs and fees would most often prove too big of a risk for small businesses or start-ups to take on corporate giants. That would negatively affect small businesses that are often forced to protect their patents from larger rivals, which can afford the costs of prolonged litigation.  This is also unnecessary because since 1952, U.S. patent law already allows judges to award attorney's fees for meritless cases. 

Additionally, the SHIELD Act unfairly targets small businesses that do not manufacture or sell products.  The SHIELD Act draws an arbitrary distinction between patents obtained by small and medium sized businesses and those obtained by large corporations by harshly impacting only companies or individuals who do not manufacture or sell products associated with an alleged patent infringement.  

This arbitrary distinction would give an unfair advantage to large corporations.  For twenty years, IBM obtained more U.S. patents than any other company and obtained patents on an extremely wide variety of technologies – many of which the company has never tried to exploit through production or sale of an item covered by the patent.  Yet, not surprisingly, IBM and other large companies are extremely active in enforcing their patent rights - including patents covering many inventions that are neither produced nor sold by the company.  This bill would arbitrarily harm a smaller company that similarly tried to enforce their patent rights, yet not IBM.

This also negatively impacts American innovation.  Many start-ups, individual innovators and small businesses rely on patents they have produced to generate revenue and funding. The SHIELD Act would substantially impair the value of intellectual property assets because it creates an additional cost to enforce patent rights. 

No one doubts that problems exist within the current patent system, but the SHIELD Act will only make a troubled system worse.