James Madison, father of the Constitution and proponent of strong patent rights.
As the end of 2013 approaches and I look back on what has transpired I am saddened to see that through the year patent rights have continued to erode. It is difficult to comprehend just how far the pendulum has swung. At one time strong patent rights were viewed by our Founding Fathers as obviously necessary. Now any patent rights are ridiculed as a relic of the past that simply stands in the way of innovation. The reality, however, is that patents don’t stand in the way of innovation; patents foster innovation. But so many won’t even take the time to inform themselves. Rather they equate “innovation” with a new consumer product. But to innovate is to do something new. Innovation has nothing in and of itself to do with a new products or services.
What those urging a weaker patent system want is the ability to release products and establish services regardless of whether they are infringing others. But those who infringe are not innovators, at least not in the most broad sense. Sure, they may have improved something, but if they are infringing then what they have done is copy an innovator. How and why that isn’t self-evident is a mystery. Copying is not innovating!
And if patents were getting in the way of innovation then why aren’t we seeing a standstill in the smartphone industry? The arguments made by the anti-patent crowd are ridiculous on their face, yet decision makers just nod their head in agreement as if they speak the gospel. The truth is the smartphone industry started with the iPhone in late 2007. It is just 6 years old! The phones from 2007 look and function nothing like the smartphones do today, and every new version has new improvements, better battery life, stronger structural integrity, glass that is harder to break, operates faster, has better cameras, etc. etc. For an area that is allegedly being suffocated by patents there sure is a lot of readily apparent improvement.
When it comes to DVR, no one can argue with the convenience of being able to record your favorite shows and watch them later. But when the case of DVR patent infringement came to court, the big lesson was that “later” just isn’t going to work. Earlier this month at the Symposium of SIPO/US Bar Liaison Council with ACPAA held at Cardozo Law School, prominent figures in intellectual property law tackled strategic and ethical issues for patent attorneys in the wake of the TiVo v Echostar case. They came to the conclusion that asserting your rights early and often is the best practice for attorneys faced with injunction cases.
In TiVo v. Echostar, Echostar lost on infringement of TiVo’s patented DVR functionality. Judge Folsom issued an injunction and ordered that Echostar stop offering the service and disable all storage to and playback from the hard disk. Unfortunately for Echostar, they did not appeal the wording of the injunction and took no action against the disablement provision. Instead they designed around it by downloading new code to get the set-top box to operate in a different way, in what appeared to be a pretty clean design-around. TiVo filed a contempt motion. Echostar was sanctioned on the grounds that there were not “colorable differences” and their design-around infringed. The dissent argued that not only were there colorable differences but moreover the differences established non-infringement. After two years of back-and-forth and one too many trips to Judge Folsom, the original 70 million that Echostar had to pay for the initial infringement rose to 300 million because of Echostar doing what they thought would get them out of infringing. (Ultimately, Echostar wound up settling for 500 million.)
Since the Supreme Court’s ruling in eBay v. MercExchange, permanent injunctions in patent infringement cases have issued in accordance with a four-factor equitable test. One of the factors considers the presence of irreparable injury, which is harm not quantifiable or remediable as money damages. For the factor to be satisfied – for an injunction to issue – it must be determined that damages associated with ongoing infringement are economically incalculable. This factor, unpopular as it may be among some observers, has regularly been pointed to by Courts as conclusive in their decisions to issue or deny injunctions. Yet the factor is often analyzed only superficially, and even unpredictably.
Due to a lack of clarity about issues that render forward-looking damages quantifiable or not, Courts’ post-eBay analyses of irreparable harm have inconsistently addressed calculability. As a result of this inconsistency, there has been significant uncertainty among litigants regarding the likelihood of injunction following a finding of infringement. This was perhaps most visibly illustrated in the recent (and widely unexpected) denial of an injunction in the Apple v. Samsung matter.
EDITORIAL NOTE: The decisiondenying Apple’s permanent injunctionwas recently followed by theCAFC decision in Presidiothat tilts the pendulum back toward the awarding of permanent injunctions when competitors are involved. Eric Guttag and I have communicated via e-mail about permanent injunctions. Guttag wrote the following article in 2006. I asked if I could republish it here and he agreed. Here is Guttag’s take on eBay v. MerchExchange.
Justice Clarence Thomas delivered the opinion of a unanimous Supreme Court in eBay v. MerchExchange in 2006.
Once upon a time, the view was that “methods of doing business” could not be patented. That view changed forever with the 1998 case of State Street Bank & Trust Company v. Signature Financial Group Inc. [i] In State Street, the Court of Appeals for the Federal Circuit (Federal Circuit) held there was no “business method” exception to patentability: “Whether the [patent] claims are directed to subject matter within § 101 [ii] should not turn on whether the claimed subject matter does “business” instead of something else. [iii]
In certain quarters, the grant of patents on “business methods” has been increasingly viewed with alarm and concern. One concern is that the holder of such patents could permanently enjoin such infringement, thus potentially increasing the bargaining position of the “business method” patent holder. That concern is very real. For example, in the “non-business method” patent context, the Federal Circuit held in the 1989 case of Richardson v. Suzuki Motor Company that, in view of the recognized “right to exclude” under the patent, “the general rule [is] that an injunction will issue when infringement has been adjudged, absent a sound reason for denying it.” [iv]
On Monday the United States District Court for the Northern District of California refused to issue a permanent injunction against Samsung’s continued infringement of Apple’s patents. That ruling was reached despite the fact that Apple’s patents withstood invalidity challenges from Samsung, despite the fact that Apple prevailed in the patent infringement litigation AND despite the fact that the district court found that Apple and Samsung were direct competitors. For my rant on the decision explaining why it was wrong and the damage done to the patent system by failure to grant permanent injunctions to victorious patentees who are competitors see No Permanent Injunction for Apple in Samsung Patent Battle.
On Wednesday, December 19, 2012, in a wholly unrelated case, but one that shares important factual similarity to the aforementioned Apple/Samsung matter, the United States Court of Appeals for the Federal Circuit determined that the United States Federal District Court for the Southern District of California abused its discretion when it refused to award a victorious patent plaintiff a permanent injunction where the patentee directly competes with the infringer. The case is Presidio Components v. American Technical Ceramics. The opinion was authored by Chief Judge Rader and joined by Judge Plager and Judge Wallach.
Perhaps this case will be a turning point, something of a Twisted Sister moment. You know — “we’re not gonna take it, no, we ain’t gonna take it, we’re not gonna take it anymore…” I sure hope so!
Yesterday, the Judge Koh of the United States District Court for the Northern District of California, San Jose Division, denied Apple’s request for a permanent injunction in their ongoing patent war over smartphones with Samsung. The denial of the injunction will allow Samsung to continue to sell devices found to infringe Apple’s patents. See Order Denying Motion for Permanent Injunction.
This outcome is becoming all too commonplace ever since the United States Supreme Court issued its terribly damaging, misguided decision in eBay v. MercExchange. See Happy 5th Birthday eBay v. MerchExchange.Up until that decision a permanent injunction was nearly always granted to a victorious patent owner. That, of course, made perfect sense since the rights that are allegedly granted in a U.S. patent include THE RIGHT TO EXCLUDE! I know it is bad form to yell like that, but it is mind boggling to me still to this day. How can the Justices of the Supreme Court who profess to know everything about everything simply not comprehend something as simple and straight forward as the EXPLICIT TERMS OF THE PATENT GRANT! There I go again. Yelling at those who are so poorly informed as the Supreme Court likely isn’t going to help. It is, however, rather cathartic!
In eBay the Supreme Court determined that the familiar principles of equity as applied to permanent injunctions should apply to disputes arising under the Patent Act, even though the patent right is itself a right to exclude. The translation: the previously applied bright-line rule that resulted in permanent injunctions being issued as a matter of course was erased. That makes sense to no one who has thoughtfully considered the issue. Anyone who disagrees with that comment is either (1) not being honest; (2) hasn’t really considered the issues and equities; or (3) has a vested interest that requires them to engage in intellectually dishonest reasoning. The only reason to get a patent is to exclude others. That is why you pay so much money and why you spend so many years waiting for a patent — to exclude others. And what is an injunction? An injunction is only an order from a district court demanding that the loser (i.e., infringer) cease from ever doing the very thing that the patent says they cannot do.
Last week at the 6th Annual Patent Law Institute presented by the Practising Law Institute last week in New York City I found myself a little star struck; or maybe “surprised” is the right way to characterize it. The term “All Star Panel” is thrown around too liberally in the CLE world and relative to programming at various annual meetings. Having said that, the panel titled “Dialogue Between the Bench and Bar” was comprised of some of the biggest names in the industry, and they didn’t seem interested in pulling punches. Nothing seemed sacred, at least in terms of topics, which lead to a lively and entertaining discussion that lasted 90 minutes without a single question from either the live audience or the webcast audience.
The panel that ended the first day of the program was moderated by Don Dunner of Finnegan, Henderson, who is the unofficial “Dean of Federal Circuit Advocates.” I had the pleasure of interviewing Dunner nearly a year ago and always enjoy listening to his thoughts and soaking in his wisdom. To his left was Chief Judge Randall Rader of the United States Court of Appeals for the Federal Circuit, and to Rader’s left was Seth Waxman former Solicitor General of the United States and now of Wilmer Hale. To Dunner’s right was Judge William Young of the United States Federal District Court for the District of Massachusetts, and to Young’s right was John Whealan, currently of George Washington Law School and former USPTO Solicitor.
The discussion was lively, perhaps even explosive. You could nearly see sparks fly when Chief Judge Rader continued to pepper Waxman with question after question about his opinion on the propriety of parties lobbying the White House in order to obtain a favorable amici brief from the Department of Justice. Rader zeroed in on the slippery slope and obviously is not pleased with the mixing of law and politics, saying: “this is a cause for concern… Politics and law have a divide.”
Many will recall that back in March 2006, the much anticipated patent settlement between Research In Motion, Ltd. (RIM) and NTP, Inc. was finalized for $612.5 million. In the five plus years since that settlement there has been a lot of talk about patent trolls, who are now more frequently referred to by the rather sanitized term “non-practicing entities.” Numerous articles have been written about the plague of patent trolls and many attempts have been undertaken to whittle away at patent rights in an attempt to make it more difficult for non-practicing entities to monetize their patent rights. Meanwhile, practically every independent inventor now believes that they have an invention that some Mega-Giant company is infringing and which entitles them to tens of millions of dollars. After all NTP was successful.
Indeed, over the years since that great NTP-RIM settlement there has been enormous focus on the $600+ million amount, and little on what lead to that settlement and the aftermath of that settlement, which has changed the patent law landscape. In some corners when listening to inventors one might almost start to think that any small company with a patent could easily stand up and take on industry giants. This, after all, was the David and Goliath — NTP v. RIM, right? Not so fast. First, the case was not as simple as it may have seemed. Second, for every David with a patent portfolio, there are numerous Goliaths defending their market shares vigorously. Third, thanks to judicial dislike of patent trolls all non-practicing entities have suffered. In fact, it is now extremely difficult to obtain an injunction as a non-practicing entity.