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May 19, 2006

Injunction Juncture

Speculation is bubbling about what impact the MercExchange v. eBay Supreme Court ruling is going to have. With regard to injunctions, the general forecast is muted, though it may cast a long shadow over posturing and the quality of asserted patents.

Supposedly, the intricate four-factor test now reigns supreme in determining the equitability of granting an injunction upon finding infringement. Seemingly, the Supreme Court dismissed the nature of the patent holder, whether practicing the claimed invention or not, as an ipso facto basis for denying injunctive relief.

For example, some patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves. Such patent holders may be able to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so.

How a non-practitioner could meet the four-factor test was left unstated.

Universities were singled out with sympathy in the Supreme Court ruling, yet distinguishing them from pay-to-play patent licensing companies is going to be tricky, especially since the ruling buried the concept of pigeonholing patent holder by type.

Yet a concurring opinion belied damning classification, suggesting two easy criteria upon which to deny injunctive relief: 1) non-practitioner; 2) infringement comprises a "small component" of the accused product.

An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees... For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent... When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.

Regardless of the practicing status of the patent holder, expect the significance of infringement in the scope of a product's competitiveness to play as a factor. Given that, in hypothetical retrospect, RIM would have had a tough time convincing the court that its wireless email service wasn't a major component of the Blackberry's success, and hence NTP deserving an injunction.

By the logic of significance, don't expect software patents to generally get much traction towards injunctive relief, as they usually cover but a tidbit of a product's feature set. But that depends. In the eBay v. MercExchange case, is the infringing "buy it now" feature a small or major component? Consider that the infringing feature is isolated, and thus injunctive relief readily granted without affecting eBay's sales otherwise. In other words, an injunction would modestly inconvenience eBay customers, while still letting eBay continue business as usual, so, logically, in that case, denying a sought-after injunction could be denying MercExchange an equitable remedy.

Reading the tea leaves, the tilt seems towards evaluating whether denying an injunction would create a hardship for the patent holder. That skews the evaluation in an odd way. Simplistically you'd think competitors would more easily skate towards injunctions than a non-practicing patent holder. But what if the patent holder is a competitor of the infringer, but asserts a patent which it doesn't practice? In the Court drawing an analogy to copyrights, the nature of marketplace competition is still likely to play a stronger role in granting injunctive relief than whether a particular asserted patent is practiced, especially considering that multi-patent cases are common, where some may be practiced by the patent holder and some not.

Patent-licensing companies are less likely to be affected than perhaps expected; their strategy is typically getting paid, either a lump-sum or royalties. The issue is the size of the payment. "One factor such companies might consider is actually selecting some companies not to license their patents to, so as to demonstrate the differential impact on the marketplace," observed Sharon Barner of Foley & Lardner.

One twist is for patent-holders to cast themselves as representing inventor's interests, as well as those already licensed. For those who refuse to take a license, injunction, it could be argued, becomes the only recourse. "For example, if they have licensed others, they are protecting the investment of others," calculated John Daniel at Kramer Levin Naftalis & Frankel. Another aspect of that might be for patent holding companies to construct their patent acquisition agreements where the inventor gets a cut. That mitigates initial payout to an inventor and spreads the risk of an enforcement campaign, if not the expense. And, in light of the Supreme Court ruling, an inventor having a vested interest may clothe a patent licensing company in the role of representing, as Judge Thomas put it, "self-made inventors."

The ruling may embolden defendants, figuring they won't face injunction, thus encouraging them to battle to the last. This is exactly what RIM did, obstinate up to the point of imminently facing injunction. Generally stiffening the spines of defendants to fight on could lesson the appetite of patent holding companies to assert weak patents. "Suits over low-value patents will be less attractive and brought less often. In this way, the eBay decision will mitigate many of the worst aspects of the current system, which in turn will reduce patent cases on the outer edge," mused Dan Bromberg at Quinn Emanuel Urquhart Oliver & Hedges.

Business method patents were in for a kicking.

The potential vagueness and suspect validity of some of these [business method] patents may affect the calculus under the four-factor test.

Ironically, the vagueness the Court complained of applies in spades to the accusation itself. But might the taint cause patent-licensing companies to shy away from business method patents in general, as being inherently lower value? Or lower the price that a patent licensing company is willing to pay to an inventor for a business-method patent, using enforcement risk as a bargaining chip? Or both?

The ruling won't necessarily lessen the outcry for patent reform, which seems more driven by serial infringers in the computer/software industry, and by a vocal anti-patent contingent, though it might soften the punch of their arguments.

It's not yet clear that the Supreme Court enunciated a tougher standard for granting injunctions, nor that patent enforcement campaigns will change much as a result of the ruling. As Sharon Barner put it, "If the alleged infringer is indeed found by a court to infringe, the patent-enforcement company will, in the end, get just what it sought from the outset - reasonable compensation."

Posted by Patent Hawk at May 19, 2006 12:37 AM | Injunction

Comments

"By the logic of significance, don't expect software patents to generally get much traction towards injunctive relief, as they usually cover but a tidbit of a product's feature set."

The SCOTUS judges show astounding ignorance of modern high-tech in general, and software in particular.

Every large software product can be bloated with miriads of unneccasary features to any desired size to reduce apparent contrubution of a tiny piece of code achieveing critical functionality.

Example - RSA algorithm for public key encryption which is critical to e-commerce security.

Denying injunction to the holder of such patent just because its software code represents less than 0.001 % of the total size of the program (e,g, Internet Explorer Browser) would be GROSSLY unfair, because the rest of the code might be a huge artificially bloated piece of junk, and this little tiny piece is critical to the program functiuonality

This way MS can steal all the original and critical ideas from all the innovative startups and get away with stealing.

Posted by: software engineer at May 19, 2006 7:35 AM

software engineer's comment confused code size with significance. As any software developer knows, even in relatively feature-lean applications, core components often are a small percent of total object code size.

Signficance, as intended, relates to the competitive edge provided by a patented feature. The eBay example was partly to illustrate a counter-example, where a small software component could be considered both significant (owing to its competitive edge value), and deserving of injunctive relief, particularly if the feature is readily extracted.

Posted by: Patent Hawk at May 19, 2006 12:48 PM

From SCOTUS opinion: "...When the patented invention is but a small component of the product the companies seek to produce..."

Patent Hawk, are you sure that the judges in future patent cases will interpret this SCOTUS opinion the right way (feature significance) and not the wrong way (code size) in the context of software inventions ?

I myself is not so sure...

Posted by: software engineer at May 19, 2006 1:11 PM

The inconsistency of patent case district court decisions is why over a third are overturned on appeal. That's one argument for a better trial court system for patent litigation. And that's the reason for venue shopping now, such as the popularity of the Eastern District of Texas: they know how to run patent cases.

Posted by: Patent Hawk at May 19, 2006 2:50 PM