This morning, Representatives Peter DeFazio (D-OR) and Jason Chaffetz (R-UT) introduced the SHIELD Act, which would create a "loser pays" system for some types of patent litigants. The bill is meant to stymie companies that do nothing more than file patent lawsuits.
Ars spoke with DeFazio at CES 2013 in January, when this bill was still in the formative stages, to get some background about how the bill developed, and the problems the Oregon representative hopes it will solve.
DeFazio has been in Congress since 1987, and represents Oregon's 4th District, which covers a wide swath of Western Oregon. It includes Eugene, the state's second largest city and home to the University of Oregon.
Ars: When people think about who's concerned about patent trolls, they immediately think of big Silicon Valley companies that were aggressively pushing patent reform back in 2007, not necessarily Oregon. How did you get interested in this issue?
Rep. DeFazio: Well, about two years ago I was visiting a local company—which needs to remain unnamed, because of the fear of attracting more attention from patent trolls. We have quite a few software developers in Eugene, as well as up in Portland. This was a small, growing company, about 80 employees. They were on the verge of launching a new product. And typically, that's when patent trolls strike.
I think the trolls' focus in recent years has shifted from big companies to growing companies, or even startups, at the point at which they have enough resources to pay a blackmail, or bribe—whatever you want to call what these people are extorting from folks.
Anyhow, I was vaguely aware of the problem. Like a lot of people, I'd read a couple articles about it, but it didn't bring it home. In talking to the CEO of this company, I found out that basically, [the threat] came at a point where they needed to add employees. But because of the pending litigation, they were afraid to add anyone, because of the added cost.
That brought it home. I've got a district that's desperate for jobs. And when you're talking to someone who's got an established and growing small business, and can't add jobs... Here's this small CEO on the phone with the counsel of Google and other big companies, and they said, well, we'll just divide up the litigation costs. And he said, hah! No way. So, they paid, because they needed to move on.
Ars: And how did you react to that when you went back to Congress?
DeFazio: I figured, well, there's a lot of people more conversant with this issue than me. I figured, there's got to be a bill pending to take care of this problem. It's an outrageous problem. And I asked Michael (a staffer) to check it out. And he comes back and says, "There's no bill." I said, "You've got to be kidding me."
A lot of people were under the mis-impression that after the huge struggle over AIA (the America Invents Act, passed in 2011), that the problem was solved. Now, there are a few small tweaks in the AIA that can help. But it wasn't targeting the real problem.
Ars: How did your colleagues in Congress get the impression that the problem was being taken care of?
DeFazio: Anything that relates to patent reform, or intellectual property, is pretty specialized. It comes mostly out of Judiciary [Committee]. They're all lawyers, and some are very conversant with these issues, while others are attorneys in other areas. So a lot members of Congress may follow the debate, but they don't get into the details of the bill. And with AIA, it was such a prolonged battle. It was touted as such a major reform, and a fix for the problems with the system, so there was a general impression that we'd already taken care of the issue. Even some members of Judiciary had that impression.
Then along came the SOPA/PIPA fight. And everyone said, whoa, these issues are difficult—and hot. So Congress just kind of backed off.
Ars: How did it go when you started talking to your colleagues in Congress about the idea of a bill aimed at the patent troll problem?
DeFazio: We spent a lot of time consulting with a broad range of people on how the heck we're going to do this. I said, look, this is very targeted. They would acknowledge it's a problem but say, 'this is probably not the time.'
But our coalition is building and the bill is evolving. We started out very targeted on software. After being approached by a number of companies we thought would be very helpful to our coalition, we said, we'll include hardware. But [last year's] bill didn't receive action.
Then we started getting calls from other areas, like airlines. Whoa—airlines? Airlines are being sued over their seat selection software. And we started hearing from retailers, who are being sued for their retail format online—for how customers select their purchases, these sorts of things. Suddenly we start saying, wow, there's a bigger universe out there of people who are being impacted.
Then last year, along came this Project Paperless—the people suing over the scanning, and all that. Suddenly, any small business using scanners—they were being asked for $1000 per employee! And, you know, that raised the awareness of the issue to a whole new community. So we decided to try and draft a new version of the bill that will basically capture, or put off, trolls in any productive sector.
And we've got to deal with some varying interests here. We're talking to pharmaceutical companies to make sure they're okay with this.
Ars: So how is this bill different than last year's?
DeFazio: Last year's bill was a procedural standard, and a little more subject to judicial interpretation. Now, it's a more straightforward pleading. It will be like an initial motion or pleading in the case, to make it clear to the troll that it's going to potentially cost them a lot of money. We've got the three-part test, which is for the people who do R&D, people who manufacture—and the third part is the toughest part, to have some allowance for people who hold patents beyond what they've developed themselves, but are not trolls. That's the trickiest standard.
This is tricky. I'm not going to say this is easy to do.
Ars: It sounds like you guys are trying to do what has been challenging for a lot of folks in legal and technology circles, which is to say, define what exactly is a patent troll.
DeFazio: Yes. And they can morph. You know, people are really smart. It's like regulating Wall Street. You regulate this one product, and they can figure out a new one. But we're trying to have a standard that a normal human—and a judge—could understand.
They could plead at the beginning of the case. Establish the status of the entity that is the plaintiff. And if they come up as a non-practicing entity, or a troll, under these definitions, then they know if they go forward, they're on the hook. We're making [the fee-shifting] mandatory, if the defendant prevails. Last time we left a lot more discretion for the judge. This time we're narrowing that, so it's a clearer message.
The second thing we're also putting in is some bonding. If it's established they are going to be on the hook in this case for the fees, if they don't prevail, then they're going to have to bond.
Ars: Why did the idea of a bill specifically targeted towards software and computer patents get dropped?
DeFazio: Some people would like to have something much more targeted—for example, just to software—but that's something that would be harder to build a coalition to get Congress to act on. I mean look, we're dealing with a totally dysfunctional entity here. Last Congress was the least productive Congress in 60 or 70 years, by a factor of 50 percent. Most of the bills we passed were naming post offices. To get something teed up, we're going to need a broad bipartisan coalition, and we're going to need a coalition in the business community. That's what it will take in order to whet the appetite of Congress to go ahead and actually do something.
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