Monday, April 03, 2006

Brian's Presentation: Awarding Injunctions Once Infringement is Found.

My research paper will discuss when injunctions should be awarded after infringement is found. The two sides of the argument have surfaced in MercExchange LLC v. eBay, inc. 401 F.3d 1323 (Fed. Cir. 2005). The Supreme Court recently heard oral arguments in this case and the decision could have a huge impact on patent law.

The history of the case is as follows. In May of 2003, a jury found eBay liable for willful infringement and awarded damages in the range of $10-20 million (it is hard to say the exact number because on appeal many of the amounts were adjusted, dropped, or remanded). In August of 2003, MercExchange’s motion for a permanent injunction was denied by the District Court. The judge recognized he had discretion and identified four factors to consider before awarding an injunction. The factors were: (1) whether the patent holder would be subject to irreparable injury without an injunction, (2) whether the patent owner had an adequate remedy at law, (3) whether an injunction would be in the public interest, and (4) whether the balance of hardships tipped in the patent owner’s favor.

On appeal the Federal Circuit reversed and held that a permanent injunction should issue once infringement is found, except in exceptional circumstances (e.g., need to protect public health). The court noted that this was not an exceptional circumstance and awarded a permanent injunction. Subsequently, the Supreme Court granted eBay’s petition for certiorari. Below I’ll briefly present some arguments for the two views. Although eBay calls the current Fed. Cir. rule an “automatic injunction” rule, I am reluctant to use this label because both the Fed. Cir. and MercExchange acknowledge that the court does have some discretion. Until I come up with something better I will refer to eBay’s rule as the “high-level of discretion” rule and MercExchange’s rule as the “near-automatic” injunction rule.

“High-Level of discretion” rule (eBay)
- 35 U.S.C. § 283 contains permissive language: “may” grant an injunction.
- Prevent opportunistic behavior by trolls who extract disproportionate royalties to the detriment of innovation without practicing the patent.
- Problem because technology products are complex and may have hundreds of patents that read on them. A patent for a small part could cause large complex products to be pulled from the market due to one small infringing piece, regardless of the level of infringement.
- The above problem is multiplied by the fact many companies bought up lots of patents inexpensively, often in bankruptcy auctions, after the dotcom bust.
- eBay also argues that the field of technology should effect the likelihood of injunction, and in this case the patent is a business method, which is a less favored technology for patents.

“Near-automatic” injunction rule (MercExchange)
- Agrees four-factor test should apply, but states that the third and fourth factors (public interest and balance of hardships) strongly favor the patent owner.
- Right to exclude and not a right to damages that defines the essence of a patent owner’s rights as stated in 35 U.S.C. § 154.
- Right of exclusivity means nothing if court won’t enforce it.
- Constitutional argument: to provide the “exclusive right” to their discoveries. Article I, Clause 8.
- Denial of injunction would diminish the value of the incentive to innovate, need injunctions to attract capital. Expectation of injunction encourages investment in unproven and risky technologies that are expensive to develop.
- Possibility of injunction drives parties to settlement, and in some cases may serve as an equalizer for small company trying to fend of larger competitors.
- Too much discretion could result in compulsive license system.

I expect many more arguments to arise during our class discussion, but I hoped to provide an example of some of the arguments on each side. I can not comfortably side with either party as of right now. I initially backed eBay because I just felt trolls seemed to be cheating the system, then I was beginning to think that the right to exclusive use is the backbone of patent law and giving judges too much discretion would result in a compulsory license system. Right now I am in the middle, I hope the class discussion may push me one way or the other. If I wrote my paper right now I would probably support a rule with a presumption towards an injunction, but would work on creating a list of circumstances when they shouldn’t issue (and this case may be one of them). I also plan to present some solutions not presented by either party in the case.


Blogger duffee said...

It seems to me that the patent system loses one of its central goals if we impose an affirmative obligation on the patent owner to practice the invention. Obviously there are some problems, but in most cases I think that patent owners who are relying on the exclusivity of their right without actually practicing their invention are not doing anything wrong but merely doing what they are allowed to do under the patent protection scheme.

2:53 PM  
Blogger Brian Bulson said...

I totally agree with you, I think it is completely legitimate to get a patent for the sole reason to prevent others even if you have no plan to utilize it yourself. In my proposal, the situations would be very rare to ever consider not issuing an injunction. One example comes to mind: Andy manufactures widgets and discovers a more efficient way to manufacture them. However, it would cost him more to update his factories than he would save by implementing the new invention. By obtaining a patent, he can prevent others from using the more efficient methods, in exchange for disclosing it, so that others can either design around it or wait until his patent expires to utilize the invention.

Otherwise, the deal offering a limited monopoly in exchange for disclosure of a new invention is broken.

5:27 PM  

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