In a rare bipartisan move, Congress seeks to stymie non-practicing entities’ growing negative impact on technological innovation and economic growth. The bill, shorthanded as the SHIELD Act (Saving High-tech Innovators from Egregious Legal Disputes Act), would require plaintiffs to pay defendants’ legal costs in computer hardware and software patent infringement cases where the plaintiffs did not have a reasonable likelihood of succeeding.

SHIELD takes aim at non-practicing entities, colloquially known as “patent trolls,” that have generated a four-fold increase in patent infringement claims on a national scale since 2005. This increase disproportionally affects small businesses, drawing congressional attention. Studies show that small businesses were unevenly impacted by the $29 billion in expenses created by patent trolls in 2011.

Patents are created to encourage innovation by providing inventors and investors the potential for a return on investment in the chance of market success. When patent trolls sit on patents without any plans to turn such patents into marketable products or services, they go against the very essence of the Constitution’s designation of an enumerated power of Congress: “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries[.]”

SHIELD follows an unsuccessful congressional attempt to reform the patent system in 2009, judicial rulings[1] that have been ineffective in turning the tide of patent trolls’ drag on the economy, and the America Invents Act of 2011 which raised the costs of patent litigation for patent trolls but added no teeth to actually bar trivial claims. The SHIELD Act, however, gains strength by adopting a ”loser pays” principle, a principle that the American legal system has continuously rejected despite its wide recognition in a majority of the world.

In theory, adopting the loser pays principle in computer hardware and software patent infringement suits will make patent trolls think twice before bringing far-fetched lawsuits with weak claims. However, two aspects of the proposed law are troubling. First, the SHIELD Act adopts the loser pays principle only if the plaintiff is the loser. Therefore, defendants are not deterred from endless and costly litigation tactics in cases where they do not have a reasonable likelihood of succeeding. Second, although the SHIELD Act is aimed at patent trolls, it does not actually single out non-practicing entities. Therefore, if a practicing entity brings a computer hardware or software patent infringement claim against a defendant and loses, they too will have to pay reasonable costs and attorneys’ fees if their suit is deemed frivolous. The possible backlash of such a policy is that legitimate practicing entities may fear utilizing litigation to protect genuine patent claims against their larger and more financially sound industry competitors.

Fortunately, the judiciary will have plenty of leeway in dictating the breadth of the loser pays principle. For the time being, we must applaud Congress for a rare bipartisan move that has a chance to significantly impact economic growth and technological innovation in a positive way.