Earlier this week I attended the IP Business Congress hosted by IAM Magazine at the Palace Hotel in San Francisco, California. The event was well attended by the upper echelon of business and thought leaders. The programs were what you might expect, a healthy mix of things you wholeheartedly agreed with and things that sounded ridiculous or even bizarre. Of course, what is correct and what was bizarre is always in the eye and ear of the beholder.
For example, during one panel discussion the moderator asked the panel to identify something specific that the courts have tackled in recent years that represented something positive for the industry. Judge Rader went first and, not surprisingly, said he thought the courts have brought a lot of positive certainty to the law of damages. John Whealan, Dean of IP Studies at George Washington University, echoed Rader’s belief that damages is one area where the courts have been productive, as did most of the other panelists.
When it became time for Mark Lemley to answer the question he explained that the Supreme Court’s decision in eBay v. MercExchange is the most positive decision of the Court in recent times because it gives district courts discretion with respect to issuing injunctions.
Simply stated, Lemley is wrong and his suggestion that eBay v. MercExhange is at all positive, let alone the best development, strikes me as utterly ridiculous. In fact, the single worst decision in the area of patents over the past decade has been the Supreme Court’s decision in eBay. That eBay is has been a catastrophe seems unquestionable beyond any and all reasonable doubt.
When Lemley says that district courts should be given discretion to issue an injunction in a patent case what he is saying is that it is appropriate and necessary to give district courts the right to refuse a permanent injunction in favor of a victorious patent owner who has demonstrated that the patent claims have been infringed by a defendant. The patent owner who has withstood all challenges to validity of the claims and proved infringement shouldn’t be allowed a court order that mandates that the infringer cease infringing. Absent an injunction there is nothing to prevent the infringer from infringing all over again and ignoring the express terms of the patent grant that they similarly ignored in the first place.
Prior to eBay, when a patent owner prevailed on the merits in a patent infringement lawsuit, there was a well-established rule that an injunction should issue. The Supreme Court changing this rule is exceptionally difficult to swallow when you consider that the patent grant itself is supposed to guarantee to the patent owner the right to prevent others from making, using, selling, offering for sale or importing into the United States infringing devices. The patent by its very nature is supposed to provide the owner with an exclusionary right. But what good is an exclusionary right without an order to respect that right? Is an exclusionary right really a right to exclude at all if someone who has violated the right isn’t ordered to cease all further violation?
A permanent injunction in a patent infringement case does nothing other than conclusively tell the losing party (i.e., the INFRINGER) that they cannot make, use, sell, offer for sale or import infringing devices. Thus, a permanent injunction issued to a victorious patent owner plaintiff does nothing more on a substantive level than reiterate the patent rights provided the patent owner as a part of the patent issued by the federal government. In essence a permanent injunction merely backs up the patent grant with the weight and authority of the jurisdiction and authority of a federal court, which seems appropriate given the infringer trampled on the exclusive right granted by the federal government in the first place.
Of course, a permanent injunction does do a lot more on a procedural level. Of particular importance is the fact that a permanent injunction allows the district court judge to retain jurisdiction of the case and gives the patent owner the ability to return to the district court without needing to file a new patent infringement lawsuit should the infringer keep up with the old infringing ways (i.e., if they continue to ignore the exclusive rights granted by the federal government). Without the issuance of a permanent injunction the prevailing patent owner plaintiff is left to continually sue time and time again to seek redress for ongoing infringement. A well-funded infringing defendant could just keep on infringing and force the patent owner to expend many millions of dollars pursuing the infringer.
Without a realistic threat of a permanent injunction infringement is the smart business decision. After all, how many patent owners will prevail, and even if they do prevail how many will be able to continue to afford to pursue infringement? With no threat of injunction to balance the negotiating positions of the parties, ironically the infringer who has trampled on the federally granted and valid rights is in a far superior negotiating position. This is a terribly unfortunate reality of the Supreme Court’s decision in eBay v. MercExchange.
Ultimately, the question boils down to this: What good is it to have an exclusive right that doesn’t provide the right to exclude?
The patent owner was granted the right to exclude by the federal government. This right to exclude is supposed to mean that the patent owner can prevent infringers from engaging in infringing activities. As the result of eBay the patent owner is ironically in a better position prior to being victorious. Once the patent owner is victorious the owner no longer is entitled to an exclusive right even though they proved that the defendant infringed and that there were no legitimate challenges to validity of the patent claims. In what universe does it make sense that a patent owner has greater rights before they proved they were correct? It is as if Monty Python has taken control of U.S. patent laws.
The true mischief of the eBay decision isn’t that patent owners can’t obtain a permanent injunction, but rather that the Supreme Court has taken the threat of a permanent injunction off the table. This means that infringers have no incentive to deal. Courts have already limited damages available to patent owners over the last decade. The courts have increasingly made it easier to challenge claims as being patent ineligible or obvious over the last decade. Congress has provided additional procedural mechanisms to more easily challenge patents after they have issued. Over the last decade there has been a significant erosion of patent rights. But the single most significant erosion of rights came in eBay.
If infringers had to fear the possibility of a permanent injunction they would be forced to enter into meaningful arms length negotiations with patent owners. Instead, now infringers can merely say “sue me,” which is exactly what they do.
Infringers have no incentive to license, or even consider a license today. Why would you consider a license when the amount of damages that can be awarded is limited, when there are procedural tools available to invalidate at least 75% of claims challenged, when the law of patent eligibility has made the U.S. a far less advantageous jurisdiction than Canada, Europe, China or Australia, and when there is no realistic chance that you will ever be ordered to cease infringing? In this world infringers force patent owners to sue them knowing that there is virtually no chance that they will ever have to pay anything and that they will be able to continue infringing for free without consequences.
Everywhere else in the law we have structured rules that seek to limit transaction costs, minimize uncertainty and maximize the likelihood that an arms length negotiation will result in private citizens (or entities) trading rights and reaching negotiated resolutions outside the judicial process. In patent law we have done the exact opposite. The only alternative for patent owners is to sue because infringers simply refuse to negotiate and they have no fear that they will ever be stopped.
Is this a concerted refusal to deal, which could potentially raise an antitrust eyebrow? Perhaps not, but ask any group of patent owners and there is plenty of anecdotal evidence to suggest there is a de facto, unified refusal to deal that has had a tremendous negative impact on the market for patented innovations. Anecdotal stories told by attorneys who work for infringers suggest that they do, in fact, ignore patent owners until they are sued, which seems to lend credibility to the belief that there is some kind of a unified refusal to deal with patent owners.
Given the near universal refusal to deal with patent owners in any legitimate way, overruling of the Supreme Court’s eBay decision would be the single best way to improve the patent system. Proclaiming that eBay was a good decision, or the best thing that the courts have done for patent law over the last decade, is simply inaccurate.