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December 19, 2007

Have a Cigar

Insisting on injunctive relief for patent infringement by eBay for its "Buy it now" feature, MercExchange is like a pit bull with rags for brains. After last year's overturning the CAFC practice of granting injunctions "automatic like a dog," the Supreme Court decision in eBay v. MercExchange sewed a new garment out of old cloth, updating "the traditional four-factor test" for granting injunctions: (1) are you screwed without an injunction?; (2) what do you mean, money's not enough? (the prostitution test); (3) considering both sides, who's seriously damaged one way or the other?; (4) are consumers screwed by an injunction?. Back in deliverance district court after giving MercExchange $30 million in eBay bucks, the judge had MercExchange squeal like a pig.

The eBay ruling boils down to: if you're not a direct competitor to the infringer and this patent doesn't directly translate to your bottom line (lost profits), you don't get an injunction. A fancy dog and pony show, or being the State, might get you an exception to what is what is not a "categorical rule."

Eastern District of Virginia Judge Jerome Friedman's bottom dollar was, consistent with MercExchange's behavior, the four factors roll into one big greenback stogie. "Have a cigar..." the judge suggested.

Reading the 49-page ruling, it becomes apparent that logical compartmentalization is not Judge Friedman's long suit.

1. Irreparable Harm

[N]ot only has MercExchange consistently sought royalties from internet companies interested in utilizing its patents, including eBay, and publicly announced its willingness to license its patents to eBay before, during, and after trial, but it failed to establish that an injunction is necessary to protect its brand name, market share, reputation, goodwill, or future research and development opportunities.

Second, and likewise differentiating MercExchange from patent holders who do not practice their patents but nonetheless seek to defend their right to exclude, MercExchange’s public and private actions indicate its desire to obtain royalties from eBay.

2. Adequate Remedy at Law

[T]he court’s conclusion that monetary damages adequately compensate MercExchange for its injury is driven not only by the fact that MercExchange failed to develop its patent or develop its patent through a licensing program, but also by the fact that MercExchange has established a pattern of utilizing the ’265 patent primarily as a sword to aid in litigation or threatened litigation against infringers or potential infringers. Although the court recognizes that MercExchange has every right to utilize its patents in such manner, such behavior suggests that an injunction against eBay may also be used to obtain similar ends. Utilization of a ruling in equity as a bargaining chip suggests both that such party never deserved a ruling in equity and that money is all that such party truly seeks, rendering monetary damages an adequate remedy in the first instance. See eBay, 126 S. Ct. at 1842 (Kennedy, J., concurring) (acknowledging the blossoming industry of firms utilizing patents “primarily for obtaining licensing fees” and recognizing that for such 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”)...

3. Balance of the Hardships

MercExchange has failed to point to damages to its reputation, goodwill, brand recognition, customer base or market share that were caused by eBay’s infringement.

MercExchange appears to exist solely to license its patents to established internet companies that either infringe or are fearful of litigation if they potentially infringe; MercExchange’s specialization in obtaining fees through threatened litigation suggests that it will not suffer a hardship from a similar resolution of the instant matter.

What should be in the "public interest" section, but shows up in "balance of the hardships" -

[T]he far more substantial risk of harm to eBay is the potential for eBay to lose customers if forced to remove the buy-it-now option from its website, potentially impeding millions of transactions.

4. Public Interest

Wiping the taint of bias off his robe whilst stroking his oracle, the judge speculated that the patent, currently under reexamination, is of horseapple quality:

Although this court does not ground its opinion in speculation regarding the final outcome of such reexamination, it would be futile to attempt to craft forward looking equitable relief without considering foreseeable future events.

[T]he ’265 patent is a business method patent that appears to rely upon combining non-unique elements into a unique combination. The questionable nature of many business method patents...

Below appears in the "public interest" section, not the "balance..." section.

eBay is a multibillion dollar corporation whose online marketplace brings together tens of millions of buyers and sellers around the world and eBay unquestionably has a substantial impact on the United States’ economy; furthermore, eBay’s success pre-dates its infringement. In contrast, MercExchange is a company with two employees that work out of their homes and appear to specialize in litigation and obtaining royalties for licenses based on the threat of litigation.

The judge figured both sides were little weasels during litigation, so that was a wash. The judge took exception to MercExchange shooting off its mouth.

As recognized by MercExchange’s trial counsel during oral argument on the motion to stay and motion for an injunction, “there is no end to hypocrisy on both sides in litigation, and that’s true in every case, and it’s certainly not untrue in this case” (Transcript Dkt. 691, at 129). Thus, the court gives no weight to the allegations discussed above when conducting the equitable calculus. The court does, however, consider eBay’s status as a willful infringer of the ’265 patent and such status plainly favors MercExchange when conducting an equitable balancing in consideration of the public interest. That being said, the court ultimately concludes that such willful infringement is insufficient to tip the public interest in MercExchange’s favor because: (1) as noted previously, the court views the willfulness issue to be a close call; (2) enhanced damages will suffice to punish such borderline willfulness; and (3) MercExchange’s established history of suing market participants to exact a royalty, sustained lack of interest in defending its right to exclude, and repeated attempts to sell off its intellectual property rights, create a strong public interest in holding MercExchange accountable for its past actions and words, including words to the public. See Odetics, 14 F .Supp. 2d at 796 n.28, 797 (rejecting the defendants’ arguments regarding the propriety of an injunction as both inconsistent with arguments advanced at trial and flatly contradicted by one of the defendant’s press releases).

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MercExchange can't whip the dead pony enough; expect an appeal.

The straight-man version at Patenly-O.

Posted by Patent Hawk at December 19, 2007 3:29 PM | Injunction