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May 30, 2006

Tumbling Dice

Reflection on the Supreme Court's mud sling on injunctions in eBay v. MercExchange appears to embolden infringers to fight on. The knock-on effect may be to raise damage awards, fueling outcry for patent reform.

Patently-O reports Intel's General Counsel Bruce Sewell as musing:

There will now be a greater willingness to take cases to trial . . . [since] if you lose a case there is a potential you can compensate the plaintiff in dollars rather than having your whole company shut down.

In a thoughtful May 30 commentary in the Washington Times by Scott Kieff, agreement:

Leaving the question of an injunction open to an all-things-considered analysis in each case would give even brazen infringers strong incentives to litigate in perpetuity rather than accept a reasonable settlement at an early stage... A legal test that rewards a failure to cooperate would lead to a decrease in cooperation, not an increase -- all at expense of the public interest.

While an injunction could shut down a business, it also drives parties to strike deals -- because shutting down the business is a loss for both sides. These patent deals are essential to innovation. [P]resent practice only allows permanent injunctions after the court has determined the patent is both valid and infringed. It would be ironic and harmful to let fears about the weakest patents prevent injunctions for those shown to be the strongest.

Yes, many patents are "trivial" to real business. But the decision by an infringer to spend millions on litigation -- and, increasingly, lobbying -- is plenty of evidence the invention is not trivial. And if truly trivial, the patented technologies should be cheap to omit or design around. Sure, in some cases, the value is due mostly to the hassle costs of litigation. But it would be better for infringers to put their ingenuity into striking deals or inventing around the patent, rather than trumping up novel legal arguments about how their case is "special" and not right for an injunction.

The risk of not being afforded an injunction seems starker for patent licensing companies, as, in light of the eBay case, they seemingly face a higher hurdle in meeting two of the four factors in the four-factor test: irreparable harm and inadequacy of money damages. Taking injunctions off the table raises the likelihood of increasing damages awards, as courts may view equity can only be restored at a larger compensatory sum than with another possible remedy, particularly as a patent holder regularly must fight to the bitter end to protect a legally sanctioned property right, but with little practical recourse to stop trespassing.

The leverage afforded the possibility of an injunction cuts two ways: raising the risk of shutdown focuses an infringer's mind on getting a deal done, ultimately lowering the price paid. In its Blackberry imbroglio, RIM paid $612 million to settle with NTP. What would RIM have had to pay if NTP could not have forced an injunction, if money were the only object, the only compensation for infringement? The whisper numbers before the settlement were towards $1 billion. Precisely because injunction was imminent, bull-headed RIM might have saved its stockholders a pretty penny.

Scott Kieff on this point:

While some bemoan the hefty $600 million Blackberry settlement, waiting to settle will prove costlier to the party that loses legal battles along the way. And high-profile, high-priced eleventh-hour settlements reveal little about the often overlooked and remarkably low royalty deals that could have been reached earlier. This presumably motivated Chief Justice John Roberts, and Justices Antonin Scalia and Ruth Bader Ginsburg to note in their concurrence a discomfort in letting an infringer unilaterally decide to use another's property simply by paying the owner a court-determined fee.

Larger damage awards may lead to more public outcry that the patent system is broken, the huge legal fees and monumental awards acting as a bullhorn for action to change the system by vested interests (computer technology companies like Intel) riling those unaware of dynamic causality, particularly those most easily swayed by money: Congress.

Earlier Patent Prospector coverage: Injunction Juncture, & Injunction Mud (on the eBay v. MercExchange ruling itself).

Posted by Patent Hawk at May 30, 2006 12:31 AM | Injunction