Patent Injunctions Two Years After eBay

Massachusetts Continuing Legal Education 2008 Intellectual Property Conference June 18 2008 Lee Gesmer Gesmer Updegrove LLP

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Continental Paper (1908)

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never used

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never licensed

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"non-practicing entity" (NPE)

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Supreme Court: no obligation to make use or vend the invention
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patent grant is right to exclude others from making, using or vending
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"Anything but prevention takes away the privilege which the law confers upon the patentee"

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Carbice Corp (USSC 1931): "the [patent] owner can, of course, prohibit entirely the mfg., sale, or use of [the invention]
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Harford-Empire (USSC 1945): •set price for use by others •use and refuse to license •neither use nor license
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U.S. v. Line Material (USSC 1948): "a patent confers a monopoly … so this court decided in Paper Bag"
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Zenith Radio (USSC 1969) "The heart of [legal monopoly]…is legal monopoly is the right to invoke the State's power to prevent others from utilizing his discovery without his consent"
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MercExchange v. eBay (E.D. Va)

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Patent 5,845,265: "Consignment nodes" Thomas G. Woolston Filed: November 7, 1995
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"What is claimed is: 1. A system for presenting a data record of a good for sale to a market for goods, said market for goods having an interface to a wide area communication network for presenting and offering goods for sale to a purchaser, …"
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District Court: • Lack of commercial activity • willingness to license • business method patent
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permanent injunction denied
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Federal Circuit: right to exclude is "essence" of patent property right
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General Rule: Permanent injunction issues, except in "rare instances"
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case must be "exceptional to justify the denial of a permanent injunction"
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"practice" = irrelevant

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eBay v. MercExchange, 547 U.S. 1015 (May 15, 2006)
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U.S. Const. Art. I, §8,cl. 8:

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"The Congress shall have power to:

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"promote the progress of science and useful arts, by securing for limited times to authors and inventors
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…the exclusive right to their respective writings and discoveries"
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35 U.S.C. 261 : "patents shall have the attributes of personal property"
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*

35 U.S.C. 154(a)(1): "the right to exclude others from using, offering for sale or selling throughout the United States"
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but …

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35 U.S.C. 283: "courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity …

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. . .to prevent the violation of any right secured by patent, on such terms as the court deems reasonable."
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Justice Thomas: "right to exclude" distinct from "provision of remedies"
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Four-factor test:

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plaintiff must prove: 5. irreparable harm 6. remedies at law inadequate
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3.

4.

equity warranted considering balance of hardships; and public interest not disserved
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no categorical rule for nonpracticing patentees, but:
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•university

researchers •self-made inventors

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Thomas: "we hold only that"

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"equitable discretion"

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"traditional principles of equity"

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Roberts (Scalia, Ginsburg): • injunctive relief in vast majority of cases • Court is not "writing on a completely clean slate"
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"a page of history is worth a volume of logic"
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Kennedy (Stevens, Souter, Breyer): "right to exclude does not dictate the remedy"
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"nature of the patent and the economic function of the patent holder"
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•"new

era" of patent holding companies •"vagueness and suspect" of business method patents
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•small

component •leverage/bargaining tool
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experience since eBay

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(1)

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z4 v. Microsoft (EDtTx 2006, Davis)
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•Windows

XP, 2000 activation codes •willful infringement, enhanced damages
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eBay: "plaintiff must prove:" irreparable harm …
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Judge Davis: after eBay, irreparable harm not presumed
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•z4

licensor, not competitor •small component •no obstacle to z4 licensing to others
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MS "parade of horribles"•software redesign •re-releases •product delays
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•piracy •industry

wide ripple effect/OEMs
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• •

permanent injunction denied reasonable royalty imposed for past infringement used for ongoing royalty

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(2)

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Finisar v. DirectTV (EDtTx 2006, Clark)

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•willful

infringement •enhanced damages •licensor, not competitor •permanent inj. denied
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$1.60 per set top box

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"it is anticipated that, as sophisticated entities with experience in licensing agreements, the parties may wish to agree to more comprehensive or convenient terms"

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(3)

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Paice v. Toyota (EDtTx 2006)

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• •

hybrid drive trains Prius II, Highlander Lexus RH400
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•irreparable

harm not

presumed •NPE •small component
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•harm

to Toyota reputation •cost of redesign •post-trial offer to license
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• harm

to dealers and suppliers • harm to "burgeoning hybrid market"
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Holding: permanent injunction denied - "ongoing royalty" = $25/vehicle
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(4)

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Paice v. Toyota CAFC decision on appeal (Oct. 2007):
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• jury trial? • on remand:

negotiate before court-ordered license • ongoing royalty rate
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Judge Rader: •remand to parties, or •obtain parties’consent
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ongoing royalty = compulsory license

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"Pre-suit and post-judgment acts of infringement are distinct, and may warrant different royalty rates given the change in the parties’ legal relationship and other factors"
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(5)

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MercExchange on remand to E.D. Va. 2007
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permanent injunction denied a second time

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•finding

of willfulness not dispositive •willingness to license significant factor
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• obtained

licenses through threat of litigation • didn’t seek preliminary injunction • business method patent
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•if

money is all it seeks, money is sufficient remedy •PTO reexam "impacts the equitable calculus" •no B/M "second look" by PTO
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(6,7)

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Visto v. Seven Networks (EDtTX 2006, Ward) Brooktrout v. Eicon (EDtTX 2007, Ward)
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Marshall, Texas

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District Court Judge T. John Ward

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fact parties are direct competitors weighs heavily
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"intellectual property enjoys its highest value when … asserted against a direct competitor in plaintiff’s market"

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"right to exclude is the very essence of the intellectual property at issue"
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Other factors: • goodwill • potential revenues • market share • damages, reasonable/precision
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(8)

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Akamai Technologies v. Limelight Networks (D. Mass, Zobel)
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Graphic

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Akamai: • direct competitors • customer relations • goodwill
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•Akamai

has never licensed •damages/reasonable certainty •alternatives
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Limelight: •Akamai prospered •restraint on monopoly power •preliminary injunction
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non-willful cost to poorer customers • job loss
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What questions remain? What have we learned?
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?

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compulsory license rewards infringer?
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should patent holder be comp’d at higher / different rate after finding of infringement?

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eBay Hearings?

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• • • • •

indemnification? audit rights? choice of law? new products? royalty escalations?
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Alternative? •no forced royalties •new suit •damages; trebling for willfulness; att. fees; interest
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preliminary injunctions?
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Copyright, trademark?

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but we know …

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"automatic" or "semiautomatic" injunction

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presumption of irreparable harm
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non-practicing patentees face steep odds "patent holding companies" face extremely steep odds
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in NPE / noncompetitive cases, threat of catastrophic result is greatly minimized, if not gone
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NTP v. Research in Motion
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$612,500,000 On March 3, 2006
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May 15, 2006

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easier to analyze and calculate risk
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litigation strategies

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Patent holder: •practice •compete •limited license deals •avoid "undue leverage" defense

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•reject settlement offers •name your licensee in

suit •ITC exclusion order?

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accused infringer: •reasonable royalties •equities economic hardships need for product
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• bait

settlement offer (FRE 408?) • public interest (medical, safety, defense) • workaround
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THANK YOU!

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and remember:

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