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As Senate staffers have quietly met behind closed doors to hammer out a compromise on patent troll legislation, an ongoing dispute between tech companies and patent holders such as universities about who pays if a patent challenge is rejected has escalated into a significant hurdle.

Silicon Valley and universities are fighting over whether to include a provision called “fee shifting” into the patent troll legislation. Fee shifting would essentially allow a judge to require the loser to cover the winner’s legal fees in patent cases.

Since many patent trolls use shell companies with few assets, lawmakers are considering allowing defendants to go after the beneficial owners (or parties with a financial stake in the shell company) for legal fees. The provision is designed to provide some financial heartburn for patent trolls who currently can file sketchy patent suits against companies with little downside risk.

“A patent troll has very low costs of entry and no downside. It doesn’t cost them a lot to file a lawsuit. They don’t have any documents or paper to be discovered,” said Matthew Tanielian, executive director of the Coalition for Patent Fairness, which represents tech companies including Google, Oracle and Samsung. Shifting the legal costs onto trolls could help prevent some suits, he said.

“Ultimately, fee shifting will give small defendants a chance to fight back against weak troll cases,” the Electronic Frontier Foundation wrote recently in defense of the provision.

But universities and other patent holders worry that the provision will also drag them into litigation even if they’re trying to defend valid infringement cases. After the House passed legislation that included similar language, universities and their allies urged the Senate to leave out the provision.

“This is a case where fee-shifting is well-intentioned to target a real abusive practice and target shell companies and trolls,” said John Vaughn, executive vice president of Association of American Universities. But the current proposals “have the unintended effect of undermining patent holders trying to legitimately enforce their patents and thereby would devalue the patents.”

The problem facing universities is that their objections have left them on the same side as the patent trolls. It’s a touchy issue for the academic community, since some universities have taken to behaving in troll-like ways by licensing their patents to lawsuit-happy aggregators.

“Are Universities Patent Trolls,” Stanford Law School professor Mark Lemley infamously asked in a 2008 article. There are various opinions about that. Lemley concluded that universities “share some characteristics with trolls, at least if the term is broadly defined, but they are not trolls.”

There’s no doubt some universities are trying to maximize revenue from their patents, although some studies have suggested that has been a challenge .

“There have been some cases where universities are knowingly licensing patents or selling them to companies that are NPEs and widely thought to be patent trolls,” Vaughn acknowledged. His organization is urging Congress to “find a way that effectively targets abusive practices” without drawing in other universities which aren’t licensing their patents to trolls.

Other than the trolls themselves (more politely called non-practicing entities or NPEs), most sides agree that something needs to be done to cut down on the number of ransom-like demand letters and lawsuits brought against companies by companies holding a broad portfolio of patents. How to tackle that problem has been the challenge.

Last year, House lawmakers overwhelming passed the Innovation Act, a patent troll-focused bill which was approved on a 325 to 91 vote. That legislation adopted rules on fee shifting, despite last-minute lobbying by universities, biotech companies and other patent holders to kill that language. The White House weighed in with support, although administration officials have suggested changes to different provisions, such as demand letters.

Not surprisingly, the House legislation was opposed by patent aggregators such as Intellectual Ventures, which complained that the legislation “would make it much harder for inventors — especially individual inventors and small businesses — to defend against big corporate infringers.”

Now the fight has shifted to the Senate where lawmakers are expected next week to consider a different bill  drafted by Senate Judiciary Committee Chairman Patrick Leahy’s staff. That bill is expected to look different now, since staffers have been shifting through new provisions lifted from other proposals offered by various senators in search of a compromise.



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