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May 15, 2006

Injunction Mud

The U.S. Supreme Court, in a deceptive unanimous decision, has muddied the basis for granting a permanent injunction against patent infringers, with self-subversive concurring opinions tacked on. In the closely watched case of MercExchange v. eBay, eBay will be allowed to continue to infringe, at least for now.

The Supreme Court syllabus (05-130s) provides a ready background and summary.

Petitioners [eBay] operate popular Internet Web sites that allow private sellers to list goods they wish to sell. Respondent [MercExchange] sought to license its business method patent to petitioners, but no agreement was reached. In respondent.s subsequent patent infringement suit, a jury found that its patent was valid, that petitioners had infringed the patent, and that damages were appropriate. However, the District Court denied respondent's motion for permanent injunctive relief. In reversing, the Federal Circuit applied its .general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.. 401 F. 3d 1323, 1339.

The traditional four-factor test applied by courts of equity when considering whether to award permanent injunctive relief to a prevailing plaintiff applies to disputes arising under the Patent Act. That test requires a plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. The decision to grant or deny such relief is an act of equitable discretion by the district court, reviewable on appeal for abuse of discretion. These principles apply with equal force to Patent Act disputes. "[A] major departure from the long tradition of equity practice should not be lightly implied." Weinberger v. Romero-Barcelo, 456 U. S. 305, 320. Nothing in the Act indicates such a departure. Pp. 2.6.

Judge Thomas, delivering the opinion (05-130), likened a patent to a copyright with regard to the basis for injunctive relief.

An underlying issue in the case was to what degree it made a difference whether the patent holder is a practitioner of the claimed technology. The district court had categorized MercExchange as a non-practitioner, willing to license, thus providing its basis for decision. The Supreme Court decried such categorization, but failed to mark any clear lines beyond the vaguely drawn four-factor test.

Although the District Court recited the traditional four-factor test, 275 F. Supp. 2d, at 711, it appeared to adopt certain expansive principles suggesting that injunctive relief could not issue in a broad swath of cases. Most notably, it concluded that a "plaintiff's willingness to license its patents" and "its lack of commercial activity in practicing the patents" would be sufficient to establish that the patent holder would not suffer irreparable harm if an injunction did not issue. Id., at 712. But traditional equitable principles do not permit such broad classifications. 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. To the extent that the District Court adopted such a categorical rule, then, its analysis cannot be squared with the principles of equity adopted by Congress.

The bright line that the CAFC had drawn, towards granting injunctions with exception relating to equity, was rubbed out. But the Supreme Court failed to explain or illustrate how a non-practitioner could "satisfy the traditional four-factor test."

In reversing the District Court, the Court of Appeals departed in the opposite direction from the four-factor test. The court articulated a "general rule" unique to patent disputes, "that a permanent injunction will issue once infringement and validity have been adjudged". 401 F. 3d, at 1338. The court further indicated that injunctions should be denied only in the "unusual" case, under "exceptional circumstances" and "in rare instances . . . to protect the public interest." Id., at 1338.1339. Just as the District Court erred in its categorical denial of injunctive relief, the Court of Appeals erred in its categorical grant of such relief.

In concurring opinion (05-130c), Justices Roberts, Scalia, and Ginsburg emphasized relying upon case law precedent.

When it comes to discerning and applying those standards, in this area as others, "a page of history is worth a volume of logic." New York Trust Co. v. Eisner, 256 U. S. 345, 349 (1921) (opinion for the Court by Holmes, J.).

Considering the heavy emphasis on case law precedent, and Thomas's opining that patents are like copyrights, the door seems open to apply copyright infringement relief precedent to patent cases.

In acknowledgment of the CAFC's logic for granting injunctions as a matter of course, with justifiable exception, based upon historical practice, the concurring opinion seemed to be splitting hairs that don't exist.

From at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases. This "long tradition of equity practice" is not surprising, given the difficulty of protecting a right to exclude through monetary remedies that allow an infringer to use an invention against the patentee's wishes - a difficulty that often implicates the first two factors of the traditional four-factor test. This historical practice, as the Court holds, does not entitle a patentee to a permanent injunction or justify a general rule that such injunctions should issue.

The concurring opinion (05-130c1) of Justices Kennedy, Stevens, Souter, and Breyer was subversive in taking square aim at non-practitioners (the common pejorative: patent troll); that money was good enough if the patent holder didn't practice the claimed invention.

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.

Displaying astonishing lack of jurisprudence and outright ignorance, Kennedy, Stevens, Souter, and Breyer cast a taint on business-method patents, suggesting that the nature of the patent may affect a court's reasoning in determining equitable relief. In sneaking in an extraneous consideration, this itself undermines the court's opinion that the four-factor test in light of historical precedence is the sole basis for determination of equity; the court further mocking itself.

In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.

Thus, the Supreme Court delivers a unanimous decision that is less than unanimous, with conflicting undertones. The Supreme Court would have done better to have provided a clearer set of guidelines, essentially backing either the appeals court or the district court in approach by clarifying the interpretation or relative strengths of the factors in the four-factor test, thus affording the easier categorization that the lower courts had reasonably sought.

The case was remanded back to district court for another round. Whatever the district court rules, expect an another appeal, as today's Supreme Court ruling provided no tangible guideline for lower court guidance.

Posted by Patent Hawk at May 15, 2006 12:49 PM | Injunction

Comments

The Court said that both the District Court and the Appeals Court were wrong.

The court has said that the equities of each case must be considered in applying the four factor test. If you have a patent licencing firm, which wants to licence its patent to the world, damages representing a fair licencing fee are an adequate remedy. To allow an injunction in some cases (think RIM) is little more than judicial extortion from the infringer of value unrelated to the value of the patent itself.

Why should a patent holder like NTP, whose patents had no causal link with the development of the BlackBerry, be able to capture all of the value created by RIM by its innovation, investment and risk taking? The gross unfairness of the RIM/NTP result is obvious to anyone who does not have a vested interest in the current patent system.

It is my view, that the Supreme Court decision was the minimum reform the courts could bring in and still maintain any credibility with the general public in the area of patent enforcement.

Posted by: Joe Smith at May 17, 2006 9:44 AM

The problem was the Supreme Court, in a supposed unanimous decision, talking out both sides of its mouth on the same issue.

On the one hand, no categorical rule excluding non-practitioners from injunction…

"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. To the extent that the District Court adopted such a categorical rule, then, its analysis cannot be squared with the principles of equity adopted by Congress."

On the other hand, a desire for a categorical rule excluding non-practitioners from injunction…

"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."

Or are lower courts to hang their hat on the "small component of the product" part of that statement, going to factor 3 in the four-factor test?

The majority opinion by itself was fine. It was the concurring opinions that dissented at the edges that clouded the picture.

Most pointedly, what should a lower court understand from the "potential vagueness and suspect validity" statement regarding business-method patents? That statement could apply to a patent of any type. But are courts to now consider patent type as to equitable remedy?

The Supreme Court is not supposedly to play the role that the inscrutable Alan Greenspan did; they're supposed to provide clarity as to the law of the land. As a precedent, this ruling is more of a mess than a clarification.

Posted by: Patent Hawk at May 17, 2006 11:04 AM

Joe Smith wrote: "The court has said.. [i]f you have a patent licencing firm, which wants to licence its patent..., damages representing a fair licencing fee are an adequate remedy."

That's a careless rendition, and not what the court said. It's just what you wanted the court to say.

Posted by: Patent Hawk at May 17, 2006 12:12 PM

Patent hawk

You are deliberately distorting my post by mixing and matching two sentences. I know perfectly well that the court did not say the words you put in my mouth.

You are however, quite right that that is what I wish the court had had the courage to say out loud since it is the truth.

Posted by: Joe Smith at May 17, 2006 6:23 PM

Sorry Joe, it was not a deliberate distortion. Paragraphs typically represent a single thought, so my interpretation was understandable, given the way you wrote it. Nonetheless, my apology.

Posted by: Patent Hawk at May 18, 2006 12:45 AM

If the public actually knew what the Supreme Court has done in the past 5 years there would be rioting in the streets due to their decisions. They are nothing but a fraud and they continue their fraud upon the United States in this decision. Similarly in Blakely v. Washington they told the States that they could not use any fact in which a defendant was not convicted of or admitted to increase a defendants sentence. Then they come back in United States v. Fan Fan, et. Booker and tell the Feds that they can do whatever they want and don't have to adhere to the 6th Amendment of the Consitution. Even the most conservative justices such as Scalia and Thomas disagreed. It is the same in this case where the Supreme Court is talking out of both sides of their mouth.

Posted by: Jeff Groover at August 17, 2010 1:00 PM

If the public actually knew what the Supreme Court has done in the past 5 years there would be rioting in the streets due to their decisions. They are nothing but a fraud and they continue their fraud upon the United States in this decision. Similarly in Blakely v. Washington they told the States that they could not use any fact in which a defendant was not convicted of or admitted to increase a defendants sentence. Then they come back in United States v. Fan Fan, et. Booker and tell the Feds that they can do whatever they want and don't have to adhere to the 6th Amendment of the Constitution. Even the most conservative justices such as Scalia and Thomas disagreed. It is the same in this case where the Supreme Court is talking out of both sides of their mouth.

Posted by: Jeff Groover at August 17, 2010 1:01 PM

Here's an update - On July 30, 2007, the District Court once again issued an order denying the injunction, ruling that, based on MercExchange's history of licensing or attempting to license the patent, monetary damages were sufficient remedy.[2] On February 28, 2008, the parties announced that they had reached a settlement after six years of litigation. Under the settlement, MercExchange was to assign the patents to eBay; the terms of the settlement were otherwise confidential.

Posted by: www.google.com/accounts/o8/id?id=AItOawlSOf92x69Pt992XHzcN4zkCiTSc6l2Uz8 Author Profile Page at January 17, 2011 5:00 AM

I don't know much about patents and litigations... That's why it blows my mind to see how much hate it can be added to this processes. I was speaking with a friend of mine from http://www.ip-holdings.com/ and he was trying to explain why is it that HUGE companies, go on a bloddy quest to destroy their competitors and even when it sure looks logical, I can not help to think that these companies tend to forget their own development, as long as they hurt enough the other guys... Cold, this world we live on.

Posted by: Randall at February 7, 2011 4:48 PM