Patents Injunctions and Patent Trolls – eBay v. MercExchange

Numerous reports and commentaries have appeared concerning the US Supreme Court decision on the patent injunction case involving eBay and MercExchange (slip opinion, eBay v. MercExchange ___ U.S. ___, No. 05-130 (2006)).

Why the Supreme Court sided with eBay ( points to the holding in the case which is that injunctive relief is only to be granted by a court in a patent infringement case if the plaintiff can prove these elements of a four-part test:

1. That it has suffered an irreparable injury;
2. That remedies available at law are inadequate to compensate for that injury;
3. That considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
4. That the public interest would not be disserved by a permanent injunction

In Supreme Court Vacates eBay Injunction (Patently-O) we find written:

The opinion notes that from ‘at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases.’ According to the Chief Justice, this long tradition of injunctive relief should be awarded great weight.”

That particular opinion of the new Chief Justice (concurring with Scalia and Ginsberg) drops him about 50 points in our rankings (on a scale of 100) because it shows that he is totally out of tune with modern developments in patent infringement suits, and that is not a good sign for a Chief Justice who may be around a while yet, and who is not as old as the majority of the Supreme Court Justices, so that he should really know better.

More realistic and up-to-date with the state of things in the patent troll industry is the Kennedy opinion (with Stevens, Souter and Breyer concurring), which states:

In cases now arising trial courts should bear in mind that in many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases. An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees. . . . For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.”

Supreme Court backs eBay on injunction issue ( quotes Berkeley Law Prof Robert Merges who hits the nail right on the head:

What’s happening today, particularly in the electronics industries, is a widespread misuse of the patent system,” said Robert Merges, a University of California, Berkeley, law professor who filed a friend-of-the-court brief in the case on behalf of Web portal Yahoo Inc.People have been looking for tools to deal with it, and I think we just got a big one.”

This decision may help to slow down the ever-increasing tide of patent troll suits, although we are sceptical since it is only a “technical” victory for eBay, whereas the threat of injunction has still not been removed, and the entire Supreme Court holding is still a far cry from what is necessary to correct the current flawed patent law system, which requires a point-blank rejection of software and business method patents altogether.

The European legal community has understood this issue (see here and here and here).
The American legal community has not understood this issue.

We see this lack of understanding in Thomas’ majority opinion, as reported by ZDNet in Supreme Court rules in favor of eBay:

When eBay lost its patent infringement suit, the district court denied MercExchange an injunction, in part because the company appeared willing to license its patents and did not practice its patents in commercial products.
The Supreme Court shot down that reasoning, saying such “broad classifications” don’t mesh with the law. “Some patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves,” and they should be given equal opportunity to obtain injunctions, Thomas wrote.
Even so, judges should consider the broader implications of issuing injunctions to such patent holders because “an industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees,” Justice Anthony Kennedy wrote in a concurring opinion signed by Justices John Paul Stevens, David Souter and Stephen Breyer. In such cases, “legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest,” they wrote
. “

When merely ideas are patentable and actual products are not required, then the alleged discovery or invention is merely a mental thought, and in our opinion not subject to patent protection under the US Constitution.

The Supreme Court Justices definitely do not understand the issue that there is a difference between a “patent” for a discovery or invention, as foreseen in the US Constitution, and an “idea” written on paper and submitted to the USPTO, broadly claiming rights to the actual discoveries or inventions later produced by others.

Sorrowfully, we expect to continue to see a continued explosion in the number of patents filed with the USPTO – until both the USPTO and the economy in general are simply snowed under and helplessly clogged by the mass of software and business method patents and patent applications as well as the subsequent and inevitable patent infringement cases, which are bound to skyrocket in number to conform to the number of patents granted.

In fiscal year 2003: “the USPTO received approximately 355,000 patent applications and issued approximately 160,000 patents“.

This means, by the way, that a patent troll has a nearly 50% chance of getting a patent application approved. And once that patent is in hand, the patent infringement proceedings can begin.

When the system starts to grind to an inexorable halt, which is inevitable under the current patent law, something will happen to correct the system – and we expect that something to be future Congressional legislation which bars or greatly limits business method and software patents.

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