Injunctive Relief After eBay Inc. v. MercExchange, LLC , … · Injunctive Relief After eBay Inc. v. MercExchange, LLC The opinions expressed herein are not to be attributed to clients

Injunctive Relief AftereBay Inc. v. MercExchange, LLC

The opinions expressed herein are not to be attributed to clients of Fish & Richardson P.C.

Overview

Summary of MercExchange v. eBaySurvey of significant post-eBay rulings Impact of eBay on settlement negotiations Litigation strategies after eBay Life in a world without injunctions

Overview


To promote the Sciences and useful Arts, by securing for limited Times to Authors and Inventors the exclusive right to their respective Writings and Discoveries;

U.S. Const. Art. I, § 8

eBay v. MercExchange (E.D. Va.)

MercExchange sued in the E.D. Virginia for infringement of Pat. No. 5,845,265 (“265 Patent”)Former patent lawyer took his application on Internet baseball card trading and wrote claims that applied to eBayJudge struck most of the case on summary judgmentJury found the ‘265 Patent valid and infringed

eBay v. MercExchange (E.D. Va. – cont.)

Judge denied motion for permanent injunctionApplied traditional 4-factor test:

– No irreparable harm because MercExchange:• Was willing to license • Did not practice the patents• Did not move for preliminary injunction

– Money damages adequate due to willingness to license – Public interest favors neither party

• Business method nature of patents and non-practicing nature of plaintiff

– Balance of hardships slightly favors defendants• Plaintiff’s sole business is to enforce its patents• Injunction could breed multiple contempt proceedings

eBay v. MercExchange (Federal Circuit)Federal Circuit reversed district court’s denial of a permanent injunction

– Panel: J. Bryson, J. Clevenger and J. Michel

Applied the “general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.” 401 F.3d 1323, 1339 (Fed. Cir. 2005)

– Rare exceptions limited to protecting an important public interest, such as public health

– Rejected district court’s various concerns as insufficient

eBay v. MercExchange (Supreme Court)

United States Supreme Court granted certiorari “to determine the appropriateness of [the Federal Circuit’s] general rule” favoring nearly automatic injunctions29 amicus briefs filed by various businesses, universities, professors, industry groups, associations and the federal government


The Supreme Court through Justice Thomas held the traditional 4-factor test for injunctions applies equally in patent cases:

– Irreparable injury– Inadequate remedies at law – Balance of hardships – Public Interest

Rejected any categorical or general rule governing when patentees are or are not entitled to injunctive relief, subject to dueling concurrences


Justice Roberts said “discretion is not a whim” and “a page of history is worth a volume of logic” citing 100 years of jurisprudence finding that injunctive relief follows liabilityJustice Kennedy said patent licensing companies need not apply, citing the economic inequality of the injunction negotiation and specifically called out “marginal” patents in the hands of non-traditional manufacturing businessesVacated and remanded for application of 4-factor test


The Supreme Court remanded to the Federal Circuit, who then remanded back to Judge Friedman in JulyDefendant eBay filed for reexamination, moved to stay the remand proceedings pending outcome of reexaminationPlaintiff MercExchange moved for permanent injunctionHearing on Nov. 17, motions taken under advisement

Overview


Summary of Cases After eBay

eBay decided May 15, 2006Federal Circuit immediately remanded dozens of cases for consideration of the impact of eBaySince eBay, at least 14 cases have addressed whether a patentee is entitled to injunctive reliefFind a complete list at www.fr.comIn general, patentees that do not directly compete with the defendants’ infringing products are not winning injunctions

Injunction GrantedRosco, Inc. v. Mirror Lite Co. E.D.N.Y Sept. 29, 2006 Smith & Nephew, Inc. v. Synthes (U.S.A.), et al. W.D.Tenn. Sept. 29, 2006 3M v. Avery Dennison D. Minn. Sept. 25, 2006 Floe Int'l, Inc. v. Newmans' Mfg. Inc. D. Minn. August 23, 2006 (Stip)TiVo Inc. v. Echostar Communications Corp. E.D. Tex August 17, 2006 Telequip Corp. v. Change Exchange N.D.N.Y August 15, 2006 Wald v. Mudhopper Oilfield Servs., Inc. W.D. Okla July 27, 2006

Injunction DeniedZ4 Techs., Inc. v. Microsoft corp. E.D. Tex. June 14, 2006 Finisar Corp. v. Directv Group, Inc. E.D. Tex. July, 7, 2006 Paice LLC v. Toyota Motor Corp. E.D. Tex August 16, 2006 Monsanto Company v. Scruggs Fed. Cir. August 16, 2006 (FC remand)Voda v. Cordis Corp. W. D. Okla. Sept. 5, 2006

Z4 Technologies, Inc. v. Microsoft Corp.

Product activation software patent valid and infringedE.D. Tex. (J. Davis) denied motion for permanent injunction

– No irreparable harm because no direct competition, and product activation does not drive sales of the accused products

– Balance of hardships favors Microsoft because new, non-infringing product expected in early 2007, immediate redesign wasteful

– Public interest disfavors injunction due to widespread reliance on Microsoft products

Validation of Justice Kennedy’s uneven playing field argument - would simply give z4 too much of an upper handNew feature: compulsory license requiring Microsoft to report damages quarterlyPut burden on patentee to prove each injunction factor

Finisar Corp. v. DirecTV Group, Inc.

Information transmission system patent valid and infringedE.D. Tex. (J. Clark) denied motion for permanent injunction

– No irreparable harm – Finisar did not practice patent– Compulsory license would adequately compensate, particularly in

view of MPEG-2 Standard Portfolio License, viewed as comparable– Balance of hardships and public interest weighed against injunction– Injunction could have created a monopoly by removing one of only

two competitors in satellite TV market, albeit neither is Finisar– Negative effect on thousands of DirecTV employees and 15 million

DirecTV customers

Paice LLC v. Toyota Motor Corp.

Hybrid vehicle patent found valid and infringed– Patentee is technology company in hybrid business for fifteen years– Manufactured prototypes but does not make cars, invested $20

million– Record created in anticipation of eBay

EDTx. (J. Folsom) denied motion for permanent injunction– Court cited lack of direct competition despite licensing activity– Court cited willingness to settle as reason to deny injunction– Court entered compulsory license without litigation of the issue

Plaintiff deprived of exclusive license agreement, foreverSeems contrary to Justice Thomas’ offer that universities and research institutions may qualify for injunctions

TiVo Inc. v Echostar Communications Corp.

Patent for DVR systems found valid and infringedE.D. Tex. (J. Folsom) granted permanent injunction

– Irreparable harm and inadequate remedy at law established by direct competition between the parties and impact on TiVo’s market share at critical time in new market

– Balance of hardships favors TiVo since DVR technology is its sole product, while Echostar’s core product is satellite TV service

– Public interest favors injunction because of interest in maintaining strong patent system, and fact that infringing products are used for entertainment, not public health or a similar key interest

Federal Circuit stayed the injunction pending appeal

Wald v. Mudhopper Oilfield Servs., Inc.

Oilwell mud polymer delivery system patent found valid and infringedW.D. Okla. granted motion for permanent injunctionCited lost sales presumably compensable by damagesCited loss of market share which supports injunctive reliefCited loss of reputation for innovation

Voda v. Cordis Corp.

Angioplasty guide patent found valid and infringedW.D. Okla. denied motion for permanent injunction

– Rejected patentee’s reliance on alleged harm to exclusive licensee, non-party Scimed

– “As patents have the ‘attributes of personal property’ … the person seeking a permanent injunction must demonstrate harm from infringement of those rights that is personal as well.”

Raises interesting questions about whether IP holding companies (even within corporations) may obtain injunctionsFundamentally alters the monetization of patent holdingsRaises concerns about “new economy” of intellectual property

Overview


Impact of eBay on Settlement

Settlement? What settlement?Threat of injunction drives settlement

– Damages are usually a portion of margins, can be absorbed– Prospect of facing cessation of business is catastrophic– Research in Motion is primary example

For competitors, injunctions still available in theory– However, so are counterclaims– “MAD” theory of litigation settles in to limit the fight– At some point, resource drain predominates, cross license follows


For non-competitor cases, plaintiffs still have incentives to settle - cost, risk - but the leverage has shiftedFor defendants, recent decisions fix compulsory royalty license as “punishment”

– Capped at reasonable royalty– No lost profits for non-competitor

Reasonable royalty defined as pre-litigation hypothetical negotiation under Georgia Pacific at least in theory“Worst case” is thus the same royalty that the defendant would pay if case is settled before the case is litigatedWhat incentive then does any defendant have to settle?


In fact, defendants have incentives not to settleMillions for defense, not a penny for tribute

– Patent licensing companies use proceeds to fund additional litigation – Each settlement supports future cases– Model falters if forced to trial in each case

Jury factors always offer possibility of successFederal Circuit reversal rate also offers comfortEnd result is a very full trial calendar for Courts and patent litigators

Overview

Summary of MercExchange v. eBaySurvey of significant post-eBay rulings Impact of eBay on settlement negotiationsLitigation strategies after eBay Life in a world without injunctions

Litigation Strategies after eBay

For Plaintiff/Patentees:Manufacturing/competition obvious keyEconomic theories of intellectual property in preliminary injunction cases reemerge - Hybritech Inc. v. Abbott Labs., 849 F.2d 1446 (Fed. Cir. 1988).

– Patents protect investment in research– Farmer cannot replant if people steal crops– Stress that injunctive rights allow control of property

For non-practicing plaintiffs, consider limited license deals before litigation

– Set royalty rates– Notwithstanding Voda, exclusive license argument may be a winner


For Plaintiff/Patentees:Point to essentiality of patented feature, avoid “undue leverage” argument from J. Kennedy’s concurrenceRapidly evolving technology may support injunctionLoss of market share and reputation - Wald v. Mudhopper Oilfield Servs., Inc.


For Plaintiff/Patentees:Three little letters: I-T-CITC exclusion orders are authorized by different statuteNo damages, essentially injunctive relief in the form of exclusion and cease & desist orders are the only remedyDomestic industry requirement is much lower than the eBaystandard for injunctionsCertain Baseband Processor Chips decision exhibits some sensitivity to eBay considerationsExpect ITC filings to rise


For Defendant/Accused Infringers:Every case becomes a reasonable royalty caseDevelop equities

– Lost employment/economic hardship– Need for products by customer base– Develop evidence of license/failure to license others

Argue that inequitable conduct, other equitable defenses go to remedyDelay in seeking reliefBait the plaintiff into making a settlement offer, notwithstanding Rule 408


For Defendant/Accused Infringers:Caveat defendants “inequitable” conduct

– Ignoring demand letters/lack of good faith may increase likelihood of injunction

– Litigation conduct may become relevant as in willfulness

Public interest may be powerful, again refer back to PI cases– Medical devices– Safety equipment– Defense systems

Imminent cessation of sales may stave off injunctions

Overview

Summary of MercExchange v. eBaySurvey of significant post-eBay rulings Impact of eBay on settlement negotiations Litigation strategies after eBayLife in a world without injunctions

Life in a World Without Injunctions

Clearly the economic playing field has been adjusted– Defendants face no more than royalty cost if the case is lost– Little incentive to settle

No more will the productive elements of society face the leverage of an injunctionImpact on research yet to be determined

– Research institutions rarely sue– Certainly will diminish the value of intellectual property overall– Patent holding companies lose value under eBay


Compulsory licenses are an unintended consequence of eBayDistrict Courts deprived of injunctions would face repetitive litigation to address the continuing tort of infringement

– Collateral estoppel principles would preclude relitigation of liability– Could simply be a summary matter of determining damages– Compulsory licenses avoid repetitive litigation– Compulsory licenses sound like a taking

Terms of such compulsory licenses are completely undefined– Escalation? Minimums? Royalty base definition? Audit rights?

Choice of law? New products?Impact of post-judgment exclusive license undetermined


In practice, few patentees earned injunctionsStay was the norm rather than the exception in non-competition cases

– Standard Havens required a near-eBay analysis in considering stays– Balance of the hardships, public interest, adds likelihood of success

on the merits

Few District Courts refused a stay where no competition existedResearch in Motion escaped an injunction for over three years after it was found liable


Willfulness in this brave new world – Accused infringer now an adjudged infringer– Opinion counsel become scarce – Statute says that when willfulness found, the District Court may

impose enhanced damagesOne possible way to address the compulsory license paradox would be to impose a higher rate for compulsory licenses than for past damages

– Double or treble royalty– Offer the accused infringer the choice as to whether to cease sales– Preserves some of the patentee’s exclusive rights over the property

Questions?

Documents

Injunctive Relief After eBay Inc. v. MercExchange, LLC , … · Injunctive Relief After eBay Inc. v. MercExchange, LLC The opinions expressed herein are not to be attributed to clients