Today, Patently-O has a summary of the briefs received in the US Supreme Court thus far in the case of eBay v MercExchange . Parties briefing include Yahoo!, the EFF, AIPLA, 52 Law Professors (written by Mark Lemley, who has written prolifically and informatively on matters of patent litigation generally), a bunch of technology companies (including a joint brief from Intel, Microsoft, Oracle and Micron), Nokia and others. The summaries make an interesting read, because they reveal two things: that this dispute has a very broad background in some of the most contentious reform issues in patent law in the US today, and second, that this could well end up being, as Patently-O has described it , ‘the most important patent case in the past five years’.

In eBay v MercExchange, the Supreme Court will presumably determine whether a patentee should have a right to an injunction once infringement is found. The case was brought by Thomas Woolston, creator of the MercExchange, against eBay for infringement of MercExchange’s patents covering live internet auctions. The district court held that eBay was liable and ordered a damages payment worth something like US$35 million, but refused an injunction, giving 4 concerns:

  1. General concern over the viability of business method patents;
  2. A strong likelihood of continuing disputes based on eBay workarounds;
  3. MercExchange’s willingness to license; and
  4. MercExchange’s failure to request a preliminary injunction.

On March 16, 2005, the Federal Circuit released its decision on appeal, reversing the decision in-part, but rejecting each of these arguments against a permanent injunction. The CAFC held that ‘that the district court “did not provide any persuasive reason that this case is sufficiently exceptional to justify the denial of a permanent injunction’, and noted:

‘If the injunction gives the patentee additional leverage in licensing, that is a natural consequence of the right to exclude and not an inappropriate reward to a party that does not intend to compete in the marketplace with potential infringers. . . . We therefore see no reason to depart from the general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.

Personally, I find the concept of an automatic injunction a bit strange. My colleague Ben LawFont, Ben, has has previously explained the issue in more detail:

‘Injunctions are equitable remedies, and it used to go without saying that an injunction did not issue as of course. Particularly in cases where the injunction is interlocutory (ie while the lawsuit is still being fought), the party seeking it must show irreparable injury if it were not granted. ‘

The interesting thing about eBay v MercExchange is its timing, in terms of a range of developments plaguing patent law in the US at the moment.

Last year, one of the issues Congress was grappling with was patent law reform, and some of the issues in that reform process should be easy – the shift to the world standard of first to file rather than first to invent. But one of the key issues that stalled progress on patent law reform has been the issue of injunctions. To quote from an address by Orrin Hatch, a key Senator on a relevant congressional committee:

‘Altering the standard for determining whether injunctive relief should be granted in a patent infringement case has emerged as perhaps the most contentious issue in the patent reform debate. Large high-tech companies, many of which have products covered by thousands of patents, believe that some change in current law is necessary to prevent what they consider as something akin to legalized extortion by plaintiffs who use the threat of an injunction to obtain settlements that are allegedly disproportionate to the value of the patent that is infringed.

Because the profitable life of many high-tech products is relatively short, an injunction that keeps these products off the market for a year or two can threaten the profitability or even the viability of a small or mid-sized tech company, which arguably forces these companies to settle cases for much more than the claims are actually worth.

To add to the difficulty, some believe there appear to be quite a few over-broad patents in these areas, resulting in a situation where an infringement suit might be successful even though it would have failed if the patent claims were written properly. The tech industry has dealt with this problem in part through cross-licensing to avoid the mutually assured destruction that would accompany aggressive enforcement of all relevant patent rights.

Cross-licensing only works as a solution if the other potential litigants face a comparable threat from the available remedies. Many tech companies argue that the main threat is not from other legitimate companies, it is from overly-aggressive patent holders and their attorneys who use the disproportionate threat of an injunction to extort large settlements based on nearly worthless patents. It is alleged that these types of patent holders, commonly referred to as patent trolls or licensing shops have no interest in cross-licensing because – in the most extreme examples – they don’t make or sell anything and therefore have no business risk from an injunction. They allegedly exist predominantly for the purpose of threatening litigation to obtain settlements. ‘

And you can see this fight coming out in the briefs, from Patently-O’s summaries. Large company Yahoo! argues that ‘the availability of injunctions should turn largely on whether the patentee engages in research and development and should discourage entities whose sole business is patent litigation’. On the other side, a bunch of law professors led by Thomas Field argue that the right to an injunction should be strong, and not variable according to the patentee’s use of the patent – arguing that:

‘The trial court accepted arguments analogous, given the apparent economic disparity between the parties, to ones Goliath might have made in asking that David be disarmed’

(nice line! wish I’d thought of that)

Another company to file a brief is RIM, arguing that the patent enforcement system ‘must promote the useful arts’. Why are they interested?

Well, of course, RIM are the people who make BlackBerry, and they are deeply enmeshed in patent litigation with a company, NTP, which does not currently do research, and which does not make products. In their case, the district court judge issued an order barring the sale of the must-have executive device in the US. This did cause some rather general panic and caused some US legislators to get involved:

‘RIM and its defenders in Congress played their trump card – invoking the spectre of another major terrorist attack in Washington. Several lawmakers, impressed that their own BlackBerrys had not failed on Sept 11, 2001 while cellphones everywhere went dead, warned in hearings that shutting off the devices threatened natioanl security. Even House Speaker Dennis Hastert – the top Republican in Congress and an avid BlackBerry user – intervened on RIM’s behalf.

(from the Globe and Mail story)As my colleague Ben has pointed out, an injunction in this case is strange, to be honest:

‘the patentee has no ongoing business that will be harmed if the injunction isn’t issued. And, more to the point, it is the alleged infringer’s business which may be destroyed if the injunction is granted. Since NTP is claiming only money, if it eventuates that RIM infringed, then RIM can simply pay extra. But if RIM ends up winning, it would be in a hard position to recover from being forced to shut down its entire US business for x months in the interim. That’s the kind of injury that is classically ‘irreparable’. Unless I’m missing something, the balance of equities is so clearly in favour of RIM that it’s hard to see how any interlocutory injunction could issue.’

Looking at all this background, you can see why Patently-O thinks this case is so important.

My view? Well, injunctions cannot be, and should never be, ‘automatic’. Remember the roots of the order in equity – as an equitable remedy, it is and should be discretionary, and the court can and should take into account the balance of equities. And an ‘automatic’ right to an injunction could lead to some very undesirable incentives and results:

‘[A]n absolute entitlement to injunctive relief can and does permit unscrupulous patent owners to “hold up” defendants by threatening to enjoin products that are predominantly noninfringing and in which the defendant has already made significant irreversible investments. . . .

A microprocessor may include 5,000 different inventions, some made by the manufacturer and some licensed from outside. If a microprocessor maker unknowingly infringes a patent on one of those inventions, the patent owner can threaten to stop the sale of the entire microprocessor until the defendant can retool its entire plant to avoid infringement. Small wonder, then, that patentees regularly settle with companies in the information technology industries for far more money than their inventions are actually worth.(quoting an amicus brief, signed on behalf of thirty-five of the top patent law professors in the country, in support of eBay’s petition for certiorari, see Patently-O here)

But that does not mean some kind of general rule against injunctions for those who are not themselves exploiting the patent. Such a rule could well hit some Australian patent holders quite hard, if you think about it. With their limited capital, in many cases an Australian research-based company will be much better off licensing – partnering with someone with the resources, the network and the ability to fully commercialise the invention. Patents in this context are a bargaining tool, and to be effective in that role there must be a credible threat of enforcement and the possibility of an injunction. Yes, the court should take into account, as part of the balance of equities, whether the patent holder is using the patent. But an inquiry into the balance should be able to take care of that. We need to take care, in how we frame injunctions, to avoid cutting out the genuine little research guy, – target the troll if you have to, but don’t remove the possibility of the injunction even for a company not actively making products itself.