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RESOLUTION OF THE LICENSING EXECUTIVES SOCIETY (USA & CANADA), INC. RELATING TO THE “SHIELD ACT”

Wednesday, June 19, 2013  
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RESOLVED – That the Licensing Executives Society (USA & Canada), Inc. (“LES”) opposes the SHIELD Act in its current form.  

The SHIELD Act and What it Purports to do
The SHIELD Act, or “Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013”, H.R. 845, purports to stem the tide of “frivolous” patent litigation by targeting “patent trolls,” otherwise commonly known as “Non-Practicing Entities” (or “NPEs”).  The archetypal troll does not make a product or offer a service.  Instead, the troll is most commonly a company whose sole source of revenue is derived from patent licenses.  The troll purchases one or more U.S. patents, and then typically offers to license the patents relatively inexpensively, banking on the high cost of litigation to deter potential licensees from filing suit to have the patents declared invalid and/or not infringed.  The license fee is less than the legal fees that would be incurred in merely figuring out whether the patents are invalid and/or not infringed prior to bringing any formal action for relief.

Notably, the Act does not prohibit trolls from filing a patent infringement suit; instead, it provides that, where a patent is found invalid or not infringed, the defendant “shall” recover their “full costs” for defending the suit.  Under current law, costs are only awarded where the court finds the case to be “exceptional,” usually due to material and substantial litigant misbehavior.   

Instead of defining “patent trolls” or “NPEs,” the bill specifically exempts three classes of patent holders from its provisions:

(1) where the patent holder is “the original inventor, a joint inventor, or … the original assignee of the patent;”
(2) where the patent holder “can document…substantial investment…in the exploitation of the patent through production or sale of an item covered by the patent;” or
(3) where the patent holder “is…an institution of higher education …or …a technology transfer organization [associated with] one or more institutions of higher education.”

LES Opposes the SHIELD Act for at least the following reasons:

  1. The Act would apply where a patent owner files suit, and the suit reaches a decision on validity and/or infringement.  However, only about 5% of all patent cases go through trial to final resolution.  Moreover, many trolls do not file suit, and when they do they aim for early settlement under compelling terms well below the costs of suit.  The Act would do little or nothing to preclude that behavior.
  2. The Act does nothing to prevent “trolling” by any of the exempted groups; and might have the unintended consequence of encouraging trolling by those groups.
  3. The Act applies not only to suits brought by trolls, but also to declaratory judgment suits, i.e., suits brought against the patent owner seeking judgment that a patent is invalid or not infringed.  This may have the unintended consequence of encouraging  declaratory judgment suits as the patent holder will more likely be responsible for the costs of the suit.
  4. Existing law affords remedies for frivolous lawsuits, and for other abusive or illegal litigation tactics; and wisely leaves it to the court’s discretion to grant such remedies.  As courts are in the best position to evaluate the evidence, and are firsthand witnesses to the conduct of the parties, an attempt to codify and eliminate that discretion is unwise. 
  5. The Act would dispense with substantial precedent as to what constitutes a frivolous law suit, and introduces uncertainty as to what would constitute an “egregious legal dispute.”  Increased uncertainty will chill enforcement, diminish the value of intellectual property, and frustrate the Constitutional purpose of our patent system – to promote the progress of the useful arts.  Innovation will suffer, and industrial development will decline. 
  6. The Act will harm those who lack manufacturing capabilities but who nonetheless wish to capitalize the fruits of innovation by granting rights to others.  The increased risk that those downstream purchasers of intellectual property will be held accountable for well reasoned licensing and/or enforcement efforts, means that innovation generally will decline in value.  This will diminish the market value for innovation, and weaken our patent system – perhaps the most potent economic engine known to man. 
  7. In a merger or acquisition, where the value of the acquired company is attributable at least in part to its intellectual property, that value will be diminished.  The acquiring company might not be the “original assignee” under the Act, and the risks associated with implementing and/or enforcing its intellectual property will be greater.  Product development will diminish, and society will have fewer choices. 

LES is a non-profit professional society of about 4,000 members throughout the US and Canada who are engaged in technology licensing to bring the fruits of innovation to market.  It is the leading licensing organization in the North American continent, and counts among its members representatives from all technological and industrial disciplines.  LES is engaged in education, networking, public policy, and the sharing of best practices to promote the effective use of intellectual property regimes to the ultimate benefit of society.  LES is a member society of Licensing Executives Society International (LESI), a global society. 

Brian P. O'Shaughnessy
Regional Vice President, USA
LES (USA & Canada), Inc.

Brad Olson
Issues Co-Chair
LES Public Policy Committee

Malcolm McGowan
Issues Co-Chair
LES Public Policy Commitee


June 19, 2013

Hon. B. Goodlatte
Chairman
Committee on the Judiciary
United States House of Representatives
2138 Rayburn House Office Building
Washington, DC 20515
  Hon. J. Conyers, Jr.
Ranking Member
Committee on the Judiciary
United States House of Representatives
2138 Rayburn House Office Building
Washington, DC 20515

      Re: H.R. 845, SHIELD Act

Dear Chairman Goodlatte and Ranking Member Conyers:

The Licensing Executives Society (USA & Canada), Inc. (LES USA & Canada) is a professional society dedicated to high standards and ethics among executives engaged in the profession of technology licensing. Our 4,000 members represent all 50 states and every technology-oriented industry. LES is the leading U.S. organization in standards development, education, and best practices in the development and commercialization of innovation through effective intellectual property laws and policies.

LES (USA & Canada) opposes passage of the SHIELD Act, or “Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013”, H.R. 845. We invite your attention to the attached LES USA & Canada Resolution. Most notably, the Act does not establish an effective regime to remedy abusive and/or baseless patent litigation. The Act would diminish invention and innovation by compromising the rights and remedies of IP owners, and invites gamesmanship in a misbegotten attempt to define troll-like behavior. Efforts to remediate such behavior are best left to courts to address on a case-by-case basis.

Promoting invention and innovation through effective intellectual property laws and policies is paramount to LES (USA & Canada). We look forward to working with Congress to achieve that objective.

Sincerely,

Brian O’Shaughnessy
Regional Vice President, U.S.A.
LES (USA & Canada), Inc.
cc: United States House of Representative Judiciary Committee