Promote the Progress

Yesterday, NTP filed a patent infringement suit against Palm. Ho hum, another patent infringement suit, right? Wrong. This one deserves attention. Why? Well, for one, NTP is probably the most recognized of the so-called 'patent trolls.' Remember that NTP is the intellectual property holding company that achieved a $612 million settlement with RIM over the BlackBerry devices.

But that was before the Supreme Court tweaked injunctive relief law in eBay v. MercExchange (right before it, actually).

This current lawsuit comes in the wake of the eBay decision. So now, the most famous troll of all is testing the eBay-inspired injunctive relief law. Now that's interesting.

Scoop goes to the Patent Prospector.

Posted by J Matthew Buchanan at 06:51 AM | Permalink | Comments (2)

Dennis Crouch has a detailed analysis of what appears to be the first denial of injunctive relief under the guidance of eBay v. MercExchange. Approximately one month after the Supreme Court issued it's decision, Judge Leonard Davis of the Eastern District of Texas issued an order denying a permanent injunction following a finding of infringement and survival of a validity challenge. Quite appropriately, Microsoft is the benefactor of eBay's first progeny.

Posted by J Matthew Buchanan at 09:04 AM | Permalink

Did the Supreme Court throw down the gauntlet, i.e., issue a challenge, to Congress in its eBay v. MercExchange decision?  Did the Court, in essence, challenge Congress to clarify its exercise of the Patent Power?

I think it did.

Consider the following --

The Constitution, in the enumerated legislative powers section (Article 1, Section 8), states that "The Congress shall have Power To...promote the Progress of Science and useful Arts, by securing for limited Times to...Inventors...the exclusive Right to their respective...Discoveries." (emphasis added)

...the exclusive right...

Congress, of course, has exercised this "Patent Power" by enacting the Patent Act, which indicates that courts "may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable."  (35 U.S.C § 283) (emphasis added)

The eBay Court focused on this language of the Act when it rejected the Federal Circuit's rule that resulted in the nearly automatic issuance of an injunction:

"Nothing in the Patent Act indicates that Congress intended such a departure [from the long tradition of equity practice]. To the contrary, the Patent Act expressly provides that injunctions "may" issue "in accordance with the principles of equity." (emphasis added)

The Constitutional grant of the Patent Power to Congress says nothing about "may" or the "principles of equity."  Nothing.  The eBay Court seems to indicate that Congress, through the injunctive relief provision of the Patent Act, has chosen to exercise less than the full power granted to it by the Constitution; that Congress gave us a diluted version of an "exclusive Right;" and that Congress must indicate whether it wishes to exercise a broader version of the Patent Power.

So there's the gauntlet.  The challenge. Does Congress wish to continue with the current diluted version of its Patent Power, or does it wish to exercise a broader version of that Power?

Answering the challenge, of course, requires consideration of fundamental questions about the purpose of the patent system and its effects on our society at large. The eBay case, in my mind, strikes at the core of the patent policy issue. A responsible Congress would accept the challenge and evaluate its exercise of the Patent Power.  Maybe use of the full power is warranted and desirable.  Perhaps the diluted version serves us better.  Maybe something in between would serve us best.  Maybe there are many, many questions that need to be asked and answered (note, for example, that the Constitutional grant of the Power seems to indicate that the "exclusive Right" is reserved for Inventors).

The challenge has been made.  Questions need to be asked....and answered.

(picture is cover art for the Clint Eastwood film, The Gauntlet)

Posted by J Matthew Buchanan at 10:42 AM | Permalink

Why use a lame title like "Supreme Court sides with eBay" when you could have said "eBay: A Unanimous Court, Divided." Why didn't I think of that one before I posted my eBay analysis (with it's lengthy title)?

Posted by J Matthew Buchanan at 10:25 AM | Permalink

The Supreme Court fundamentally altered patent law yesterday with its decision in eBay v. MercExchange. The Court refocused the injunctive relief analysis on the traditional four-factor test, leading many commentators to wonder about who the winners and losers are in the post-eBay patent world. Some even claim that eBay, who won the case, stands to be the biggest loser as it may yet face a properly awarded permanent injunction. Who gets my vote for the biggest loser? Easy....Research in Motion (RIM), which recently settled the lenghty BlackBerry patent dispute with NTP, a licensing firm that looks very much like the type that Justices Kennedy, Stevens, Souter, and Breyer described as potentially undeserving of injunctive relief in their concurring opinion. "We wrote a $600M check for what?"

Posted by J Matthew Buchanan at 02:26 PM | Permalink

Yesterday, the Supreme Court announced its decision in eBay v. MercExchange, which addressed the controversial issue of when injunctive relief is proper in patent litigation suits.  The eBay decision was viewed by many as the most important patent law decision in recent years, and it certainly did not disappoint.  In a brief opinion of a unanimous Court, accompanied by two brief concurring opinions, the Court elegantly disguised a major shift in patent law as a refocusing of sorts.

the Court elegantly disguised a major shift in patent law as a refocusing of sortsThe Court indicated that injunctive relief under the Patent Act, as currently written, is no different than injunctive relief in other areas of law and flatly rejected categorical rules that nearly automatically award or deny such relief.  In slapping the collective wrist of the Court of Appeals for the Federal Circuit, the Supreme Court expressly empowered district courts by reminding everyone that "[t]he decision to grant or deny permanent injunctive relief is an act of equitable discretion by the district court, reviewable on appeal for abuse of discretion."

Specifically, the Court held that "the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with the traditional principles of equity, in patent disputes no less than in other cases governed by such standards."

In essence, the Court announced a refocusing of the injunctive relief standard in patent law...a shift away from the spurious general rule established by the Federal Circuit and a refocusing on the traditional four-factor test that is common to many areas of law.

So now what? After all the hype...where do we go from here?

First -- we go to the individual district courts.

By rejecting the general rule of the Federal Circuit that "courts will issue permanent injunctions against patent infringement absent exceptional circumstances," the Supreme Court has removed individual district court judges out from under the thumb of the Federal Circuit and its seemingly oppressive general rule.  Trial court judges are now free, and indeed empowered, to fully consider the traditional four-factor test for awarding injunctive relief...a test with which these judges are familiar from other areas of law.

What will the district courts do with the four-factor test?  On this question, the concurring opinions in eBay are certainly the most interesting.  There is a divide in the Supreme Court relating to the role of history - specifically, the long-standing history of awarding injunctive relief in the vast majority of patent suits upon a finding of infringement.  Chief Justice Roberts, with whom Justices Scalia and Ginsburg agree, believes that this history should play a role in the application of the four-factor test, noting that "a page of history is worth a volume of logic."  Justice Kennedy, with whom Justices Stevens, Souter, and Breyer agree, sees a different, more limited role for this history, noting that "[t]he lesson of the historical practice...is most helpful and instructive when the circumstances of a case bear substantial parallels to litigation the courts have confronted before."  (emphasis added)

the concurring opinions reveal a split on the role of history in the four-factor testImportantly, Justice Kennedy and his comrades note that the four-factor test might not be satisfied with certain types of patents and/or certain types of patent holders, such as business method patents, patents covering "a small component of the product the [infringer] seeks to produce," and firms that use patents "not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees."  These Justices seem to believe that the long-standing history of awarding injunctive relief in patent infringement suits should play a limited role, if any role at all, in certain modern patent scenarios.

We may one day see the Kennedy concurrence as a beginning of an end. The patent trolls may be set to die a slow death as district court law develops on the application of the traditional four-factor test, particularly in the areas of business method and component patents. The most egregious trolls - those that buy patents and seek only to license them - backed by the threat of an injunction - may have a terribly difficult road ahead.

Second -- we go to Congress. Maybe.

In determining whether the traditional four-factor test is proper in patent law, the Court noted that "nothing in the Patent Act indicates that Congress intended such a departure [from the long tradition of equity practice]" and that such a major departure "should not be lightly implied."  Congress certainly has the power to force a departure from the four-factor test, such as by injecting specific factors that must be considered during an analysis by a district court judge (e.g., the "extent to which the patentee makes use of the technology claimed by the patent," which has been included in versions of Representative Berman's patent reform bill introduced in prior sessions of Congress).

Will the software/high-technology sector try to advance an explicit reworking of the Patent Act in Congress or instead choose to focus on developing a favorable body of district court law?  The more likely outcome is a strategy that pursues both avenues concurrently.

So what does eBay mean from a patent policy perspective?

eBay is a hollow-victory for patent holders who seek only to license their patentsSome view eBay as a victory for the patent trolls, focusing on the language of Justice Thomas noting that some patent holders that opt not to "bring their works to market themselves....may be able to satisfy the traditional four-factor test."  Yes...this is a victory for all patent holders who themselves do not commercialize their inventions.  The Supreme Court has recognized that they can be deserving of injunctive relief and that a categorical rule denying them such relief cannot stand under the Patent Act as currently written.

I see this as a hollow victory, however.  With the discretion being placed in the hands of the individual district courts, the victory brings major questions for non-commercializing patent holders, particularly the most egregious of the so-called patent trolls.  Many district court judges may find the language of the Kennedy concurrence as opportunity to deny equitable relief to such patent owners. It's important to note that the "abuse of discretion" standard of review in this area certainly grants a wide swath of latitude in applying the test.

So the battle over the standard for awarding injunctive relief in patent cases has shifted once again.  It has shifted to the district courts for sure, and may have shifted back to Congress, too.






Sponsored links:
Business-Grade Clustered Scalable Web Hosting

Posted by J Matthew Buchanan at 11:19 AM | Permalink

How do you apply the possibility of an injunction onto the value of a company and its stock? It was difficult before reform legislation and Ebay became hot issues and is now even more challenging as both of these issues have become important and a cloud has emerged over the standard for awarding injunctive relief. Read this recent Caris & Co. downgrade of Research in Motion, which comments on the recent Visto infringement suit filed against RIM and the possibility of an injunction, as evidence of the struggle.

Posted by J Matthew Buchanan at 04:10 PM | Permalink

Everyone's favorite court watcher, Hal Wegner, has distributed the most recent copy of his "Top Ten List" of Supreme Court patent cases (it's a telling sign of the times that Hal has a list these days that is focused exclusively on the Supreme Court).

In the latest version of The List, Hal predicts that eBay v. MercExchange will be decided by a 6-3 (or possibly a 7-2) margin in favor of confirming the availability of injunctive relief for "non-working" patentees.  He expects negative votes from Associate Justices Breyer and Stevens.  His prediction is based on hearing the oral arguments and extensive study of the pleadings.

Since the days of the oral arguments, I've seen many predictions on the forthcoming decision in eBay.  I know Hal, and I know the effort he puts in to studying the cases he watches.  His is the only prediction I'm paying attention to.

Posted by J Matthew Buchanan at 09:00 AM | Permalink

The oral arguments in eBay v. MercExchange are over and now we wait to hear what sayeth the Supremes on the injunctive relief issue. (Update May 15, 2006 - click here for an analysis of the Supreme Court decision)  Some expert Court watchers are reporting that the tone of the questioning during yesterday's oral arguments revealed a likelihood that affirmance of the right to injunctive relief can be expected.  But the real issue, of course, is whether the "nearly automatic" granting of injunctions following a finding of infringement will be trimmed back.  For that, we'll have to wait until a decision is rendered in June.

But eBay marks a beginning even more that it does an end.  With the injunctive relief issue presumably settled, we're now set to head into Round Two of the patent reform movement in the United States.  Everything that has happened thus far is merely a prologue that served to define the real battle lines.

The eBay decision, no matter the outcome, will likely serve to bolster the position of some in the reform debate and enrage others.  Incentives and desires to bargain on particular reform measures, and maybe even the ability to do so, may change and the power of Congress to legislatively overrule the Court may be supported by some as a nuclear option.

We're really at a crossroads.  Round Two could be marked either by bitter disagreement that completely stalls the process or by a renewed focus on the reform measures on which agreement amongst stakeholders has been previously expressed, such as the fee diversion issue.  This seems timely, considering the facts that the Justices apparently inquired about patent quality during yesterday's arguments and that the temporary fix to the diversion problem expires at the end of fiscal year 2006.

We may get a glimpse at Round Two as early as next Wednesday, when the House Subcommittee on Courts, the Internet, and Intellectual Property holds a patent reform hearing with the interesting caption "Patent Quality Enhancement in the Information-Based Economy."

Considering the Justices questioning regarding patent quality, eBay may bring us full circle - it will be very interesting to see if any dicta relating to patent quality and/or patent reform in general makes its way into the opinion.

Posted by J Matthew Buchanan at 10:14 AM | Permalink

Law.com is running an article of mine on the eBay v. MercExchange case, argued before the Supreme Court this morning, in its IP Law Practice Center. You can view the article here (you'll need a law.com subscription), but I can send you a .pdf if you ask for it.

Posted by J Matthew Buchanan at 12:45 PM | Permalink

Last week, the Supreme Court granted certiorari in eBay v. MercExchange, a case directed squarely at the standard for granting injunctive relief in patent infringement suits. That legal standard, which currently results in the nearly automatic granting of an injunction once a patent is determined to be both valid and infringed, was the most controversial issue during the drafting of the Patent Act of 2005 earlier this year. Now, with the granting of certiorari, the injunctive relief issue stands to dramatically alter the future of the patent reform movement in the United States.

(Update May 15, 2006 - click here for an analysis of the Supreme Court decision)

The petitioner, eBay, seeks to change the standard in a manner that requires a court to consider various factors when determining whether a request for injunctive relief should be granted, including the extent to which the patentee makes use of the invention. This is exactly the same argument advanced by the Business Software Alliance during congressional patent reform hearings held earlier this year. The BSA had scored a major victory by getting an injunctive relief provision into the draft of the Act at the last minute, but suffered a setback when the provision was watered down with the introduction of H.R. 2795.

Now, as the issue moves out of Congress and into the Supreme Court, the argument for changing the legal standard is once again in the forefront. The granting of certiorari is another victory for the BSA agenda, particularly because the issue is now in absolutely pristine condition (free of all other patent reform proposals).

What does eBay mean for the future of patent reform legislation? I see three primary effects. First, the case very likely rings the death bell for H.R. 2795 as a vehicle for patent reform (if the bill isn't dead already). Neither "side" (biotech/pharma and high-tech/software) has any motivation to advance that particular piece of legislation considering its attempt at compromise that has left both sides unsatisfied. Second, the case will very likely widen the chasm that already exists between these two sides on the proper scope and content of reform legislation, making future compromise in the legislative process even more difficult. Third, the case may shift the focus of future reform efforts in Congress as the losing side in eBay focuses its legislative resources on changing the law of injunctive relief as it stands after the Supreme Court decides the case.

A hearing in eBay will likely be held in April of next year and a decision is expected by June. Stay tuned.

Posted by J Matthew Buchanan at 12:24 AM | Permalink