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March 12, 2006

Injunction Provocateur

On Friday, the Office of the Solicitor General, the Federal Government's lawyer, filed an amicus brief with the Supreme court in the MercExchange v. eBay case, where the center ring issue is granting an injunction for patent infringement, particularly in the instance when the patent holder has indicated a willingness to license, and the patent holder arguably has not practiced the invention. Arguing on behalf of the Federal Trade Commission (FTC), Justice Department, and USPTO, the brief called on the Supreme Court to grant the injunction, a notable flip-flop from the NTP v. RIM case, where its self-interest ran the other way.

The issue is whether eBay's infringing "Buy It Now" feature, accounting for a third of eBay's business, should be enjoined.

The district court was against a permanent injunction for a variety of reasons -

[T]he evidence of [MercExchange’s] willingness to license its patents, its lack of commercial activity in practicing the patents, and its comments to the media as to its intent [to seek monetary compensation rather than an injunction] are sufficient to rebut the presumption that [MercExchange] will suffer irreparable harm if an injunction does not issue.

But the appeals court (CAFC 03-1600) went for it -

If the injunction gives the patentee additional leverage in licensing, that is a natural consequence of the right to exclude and not an inappropriate reward to a party that does not intend to compete in the marketplace with potential infringers. . . . We therefore see no reason to depart from the general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.

eBay argued to the Supreme Court that the CAFC did not apply the four factors test [Odetics, Inc. v. Storage Tech. Corp., 14 F. Supp. 2d 785, 794 (E.D. Va. 1998), aff ’d, 185 F.3d 1259 (Fed. Cir. 1999)). See generally Weinberger v. Romero-Barcelo, 456 U.S. 305, 312-313 (1982)], traditionally used in deciding whether to issue an injunction: irreparable injury; inadequacy of legal remedies; balancing of parties' hardships; and whether an injunction would adversely affect the public interest.

The government brief provided its take on the four bases in deciding injunctive relief, repeatedly emphasizing the decision as case-by-case & fact-based: 1. Irreparable injury - "By definition, infringement deprives a patentee of its “right to exclude others from making, using, offering for sale, or selling the invention,” 35 U.S.C. 154(a)(1), which in turn may result in “irreparable injury” by denying the patentee, for some unrecoverable period of time, the only legal right that a patent conveys." 2. Inadequacy of legal remedies - "Congress has consistently turned aside proposals to adopt broad-based compulsory licensing schemes." 3. Balancing of parties' hardships - "As a general matter, and absent countervailing evidence, it favors structuring injunctive relief to protect the patentee’s judicially validated right to exclude without subjecting the infringer to disproportionately injurious consequences." 4. Public interest - "The question is not whether injunctive relief would merely inconvenience third parties, but rather whether such relief would undermine an identifiable public interest in the realm of national security, public health or safety, the operation of commerce, or other comparable areas of vital concern to innocent third parties or the public at large."

The government amicus brief came down on the side of injunctive relief in this case -

The Patent Act also authorizes the district courts to protect a patentee’s rights through injunctive relief. 35 U.S.C. 283. Congress first authorized injunctive relief as a permissible remedy for patent infringement more than 185 years ago, providing that the federal courts adjudicating patent disputes “shall have authority to grant injunctions according to the course and principles of courts of equity.” Act of Feb. 15, 1819, ch. 19, 3 Stat. 481. Although Congress has regularly revisited the patent laws, it has left that grant of equity jurisdiction essentially unchanged.

Because a patent confers a statutory right to exclude others from using a patented invention, continuing infringement will normally result in irreparable injury that cannot be adequately compensated by a court-imposed “reasonable royalty” for future use. Nevertheless, neither the Patent Act nor this Court’s decisions categorically require injunctive relief. Irreparable injury and inadequacy of monetary relief will not be present in every case. Moreover, a district court’s consideration of the balance of hardships and the public interest may counsel against injunctive relief in some situations. By the same token, however, there is no basis for withholding injunctive relief in response to general concerns about potential abuse of the patent system. The decision whether injunctive relief is appropriate must necessarily turn on the facts of each case.

A patentee’s willingness to license its inventions and its behavior in doing so are not irrelevant to a district court’s inquiries into “irreparable harm” and “adequacy of legal remedies,” and those considerations may in some circumstances support a determination that the prerequisites for equitable relief have not been established, but they provide no basis in this case for concluding that the harm is reparable and damages will suffice.

In this case, although the court of appeals did not invoke the traditional four-factor test, it correctly recognized that the district court had improperly relied on inappropriate considerations, which amounted to an abuse of discretion, and the court of appeals therefore properly reversed the district court’s denial of MercExchange’s request for an injunction. The judgment of the court of appeals should be affirmed, and the case should return to the district court for entry of an appropriate decree.

There is no warrant for this Court to overrule its decision in Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908), or its other decisions addressing the appropriateness of granting injunctions in patent cases. The Court correctly held in Continental Paper Bag that a federal court may grant a patentee an injunction preventing continuing infringement even if the patentee has “unreasonab[ly]” failed to practice its own invention... That holding, which the Court has repeatedly endorsed, is consistent with 35 U.S.C. 283, as well as with the collective experience of the federal courts in applying the principles of equity to patent disputes. See, e.g., Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135 (1969); Special Equip. Co. v. Coe, 324 U.S. 370, 378-379 (1945); Crown Die & Tool Co. v. Nye Tool & Mach. Works, 261 U.S. 24, 34-35 (1923). Furthermore, the Court’s holding is consistent with the Patent Misuse Reform Act of 1988, Pub. L. No. 100-703, § 201, 102 Stat. 4676, which makes clear that no patentee otherwise entitled to relief from infringement “shall be denied relief ” merely by having “refused to license or use any rights to the patent.” 35 U.S.C. 271(d)(4) (emphasis added). Cf. Illinois Tool Works, Inc. v. Indep. Ink, Inc., No. 04-1329 (Mar. 1, 2006), slip op. 12-13.

The government's self-interest naturally lies with strong patent enforcement. Surely the patent office supports strong patent enforcement as a bolster to the image of patent integrity. Overlooking the trade scene, the FTC, among other reasons, may see injunctions as a means to protect domestic patent holders against foreign marauders (like Canadian hypocrite RIM, for example).  Various agencies and departments of the Federal government maintain a considerable patent portfolio (the Navy leaps to mind), and practice very few of their inventions, so limiting injunctions wouldn't do it any good.

The Supreme Court is scheduled to hear arguments in the case at the end of the month. There has been tremendous interest in this case, with a multitude of amici briefs (here's Dennis Crouch with a listing). Processor technology companies, regular patent infringers hewing to self-interest in wanting to water down patent enforcement, are uniformly against injunctions, while the kibitzing from less biased sources runs in different directions with various nuances. One of the stupidest arguments against injunctions, put out by Intel, Microsoft, Oracle and Micron Technology, runs along the lines of "what would the Founding Fathers have wanted," as if the Founding Fathers were all of one mind (they weren't), and that singular mind could foresee the economic dynamics of the future, like some kind of white-wigged Alan Greenspan on brain steroids, in the role of a prognosticating patent-savvy Nostradamus, while angels Adam Smith & David Ricardo dance the hoochie-koo overhead.

"Buy It Now" eBay - a patent license from MercExchange, that is, or be enjoined. A Supreme Court ruling otherwise would be a quite a slap at long established precedent. What would the Founding Fathers do?

Posted by Patent Hawk at March 12, 2006 4:52 PM | Litigation