eBay Casualty: E.D. Texas Court Denies Injunctive Relief to Halt Microsoft’s Infringing Activities

Z4I’m writing a paper on this very topic, but history is happening faster than I can type . . .

z4 Technologies, Inc. v. Microsoft (E.D.Texas 2006)

z4 Tech appears to be the first post-eBay decision denying a permanent injunction after a patent has been valid and infringed. Here, the jury found that the patents were willfully infringed by Microsoft and that there was insufficient evidence to find the patents invalid. z4 then asked the Court to enjoin Microsoft from making, using, or selling its infringing product (Windows XP).

The Court followed the “traditional four-factor test used by courts of equity.” to determine whether to issue an injunction:

I. Irreparable Injury to Patentee: The patentee argued that infringement of a patent created a rebuttable presumption of irreparable harm to the patentee.  The district court dismissed this “creative” argument as lacking precedential foundation:

z4’s arguments for the application of a presumption of irreparable harm are creative, but z4 cannot cite to any Supreme Court or Federal Circuit case that requires the application of a rebuttable presumption of irreparable harm with regard to a permanent injunction.

In fact, the court cited the Supreme Court case of Amoco Production for the proposition that a presumption of irreparable harm in the context of an injunction is “contrary to traditional equitable principles.” 

Because z4 does not create any products, the Court found that z4 the first factor weighed in favor of the willful infringer, Microsoft.

In the absence of a permanent injunction against Microsoft, z4 will not suffer lost profits, the loss of brand name recognition or the loss of market share because of Microsoft’s continued sale of the infringing products. These are the type of injuries that are often incalculable and irreparable. The only entity z4 is possibly prevented from marketing, selling or licensing its technology to absent an injunction is Microsoft. As . . . z4 can be compensated for any harm it suffers in the way of future infringement at the hands of Microsoft by calculating a reasonable royalty for Microsoft’s continued use of the product activation technology. Accordingly, z4 has not demonstrated that it will suffer irreparable harm absent a permanent injunction.

II. Remedies Available at Law (Is Money Sufficient?): Here, the court cited Kennedy’s concurring opinion from eBay:

Justice Kennedy specifically mentioned the situation where a “patented invention is but a small component of the product the companies seek to produce” and states that in such a situation, “legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.” . . .

Here, product activation is a very small component of the Microsoft Windows and Office software products that the jury found to infringe z4’s patents. The infringing product activation component of the software is in no way related to the core functionality for which the software is purchased by consumers. Accordingly, Justice Kennedy’s comments support the conclusion that monetary damages would be sufficient to compensate z4 for any future infringement by Microsoft.

In addition, Microsoft has promised that its new version of Windows (2007) will phase out all the infringing components.  Thus, any ongoing royalty would only last for a couple of years.  “For the reasons stated above, z4 has not demonstrated that monetary damages are insufficient to compensate it for any future infringement by Microsoft.”

III. Balance of Hardships: Microsoft argued that it would be really hard to redesign even a small component of Microsoft office.  From what I have heard about the complicated code noodle, that assertion must be true. Thus, the court found that the balance of the hardships weigh in favor of Microsoft.

IV. Public Interest: Microsoft office is really popular, and “it is likely that any minor disruption to the distribution of the products in question could occur and would have an effect on the public due to the public’s undisputed and enormous reliance on these products. . . . Although these negative effects are somewhat speculative, such potential negative effects on the public weigh, even if only slightly, against granting an injunction.

Commentary: As I predicted earlier, one way to avoid an injunction is to be a very successful infringer.  I would have suspected that Microsoft’s willfulness would have weighed in z4’s favor, but the court did not even mention willfulness in its analysis of the equitable relief factors. 

In a forthcoming paper code-named Injunction Denied, I address the issue of injunctive and monetary relief in patent cases.  In particular, I focus on the situation where equities favor the defendant, and ask the question what monetary remedy a court should then impose? My answer may surprise you. . .

Notes:

  • Download the z4 Decision.
  • The z4 patents relate to antipiracy software. See U.S. Patent Nos. 6,044,471 and 6,785,825.
  • The Eastern District of Texas has been a very hot forum for patent litigation for the past few years.  This case may change that tide.
  • Hat tip to Hal Wegner for the alert.

eBay Casualty: E.D. Texas Court Denies Injunctive Relief to Halt Microsoft’s Infringing Activities

39 thoughts on “eBay Casualty: E.D. Texas Court Denies Injunctive Relief to Halt Microsoft’s Infringing Activities

  1. “methinks the ‘may’ in 35 USC 283 should be read in conjunction with 35 USC 261 which states that ‘patents shall have the attributes of personal property.'”

    I think you’ve got it backwards, Ronald. 35 USC 261 begins with “Subject to the provisions of this title…” So 35 USC 261 should be read in view of other provisions of the title, not the other way around. The title and content of Section 261 make it pretty clear that this is about alienability of patent rights, both before and after a patent is granted. It’s absurd to suggest that Section 261 somehow vests patent rights with the status of natural rights, right up there with “Life, Liberty, and Property.”

    By the way, your front lawn is real property, not personal property. So, your analogy fails.

  2. methinks the “may” in 35 USC 283 should be read in conjunction with 35 USC 261 which states that “patents shall have the attributes of personal property.”

    Imagine if somebody parked their trailer on your front lawn, so you call the cops to get the trailer moved, but the cops refuse.

  3. In a very practical sense I fail to see how the interests of the public at large are negated to any degree in the case of a system for software activation. It is not an integral part of the OS per se. It is a “lockbox” for enabling the use of the associated software…no more and no less. While certainly a more sophisticated lockbox than the ones typically employed by other software publishers, its elimination via a permanent injunction does not preclude in any manner companies such as MS from adopting other lockbox techniques.

    From the standpoint of the public at large, I daresay that virtually all users of MS software requiring the activation scheme currently employed by MS would be more than happy to see it go down in flames, myself included. I am tired of repartitioning a drive and reloading MS XP, only to then discover that my totally legit copy of the software must be reactivated, and not via the relatively simple online process. No, I must place a phone call to an activation center, and then spend time unnecessarily entering numerous string of numbers just to re-unlock the darn thing.

    Instead of calling the invention an intergral part of the OS, it would have been much more accurate to use a lockbox analogy to demonstrate that MS could easily have adopted another approach that was non-infringing.

    The denial of the injunction in z4 under these circumstances is troubling, to say the least.

  4. While this isn’t Fed. Cir. level, seems like the case left open a pretty large issue on appeal regarding the rebuttable presumption of irreparable harm.

    Did Ebay overrule this Fed. Cir. precendent too? See e.g. Richardson v. Suzuki, 868 F.2d 1226 (Fed. Cir. 1987). Richardson quotes Smith International Inc. v. Hughes Tool (argument rejected by z4 court).

  5. Joe,

    I have to agree with Another MS Hater on the point about patents and disclosure.

    I’ve applied for a number of patents in technology, and basically the use I make of them is as protection that allows me to disseminate my ideas. My expectation, based on the law, is that when they take off, I will be able to build a business around those ideas, being the patent holder.

    As an example, a few months after I and my co-inventor filed our first patent, we went to a technology conference and explained our concept. Certainly nobody there indicated that they had heard of any such ideas before, and the participants included representatives from the major companies in the industry. In addition, we posted our paper on our website, where it has been viewed by tens of thousands of visitors. If people came across our ideas, it was far more likely that it was due to those means than it was due to their reading the patents themselves. But it was only the protections afforded by patents that made this public dissemination in any way sensible.

    You also claim that often (or is it typically?) patent holders have had no “causal” impact on the development of technology. yet how can you possibly know this? In the case of my example, how many people at this stage can claim, plausibly, that they have not been “causally” influenced by our public descriptions of our ideas to adopt them? There may be some who came up with the same ideas independently, but except in rare cases, how can this be known, especially when they have self-serving reasons to make that claim?

  6. Joe, I call BS on you…

    Like I said, patents are different.
    95 % of them are total junk (and those 95 % mostly belong to those MSs and HPs of the world – the worst patent system abusers whose CEOs look more like a bunch of crooks to me)
    However, there are quite a few Patents teaching how to make really new stuff.
    One example would be Brent Townshend’s patent(s) on 56k modem – a critical communication patent.
    There is a certain amount of intentional obfuscation and legalese in each patent, but this is done to make patent claims more defensible in court.
    The information about new technology is usually communicated to the industry through private communicatons under NDAs or gets publicly disclosed at some conferences or trade shows. The founder of NTP actually built some working prototypes of early wireless paging technology which was shown to the industry at some trade show well before RIM was founded.
    The much hated (by all memory manufacturers)Rambus actually disclosed all the useful details about their technology to the industry under NDA (only to be accused of unfair practices while the industry stole their patented technology)

    Get to know the facts: each and every truly novel and useful invention is known to the industry well in advance of the patent grant. Those inventors do not invent new things just to sit on their patents – they want their incentions to be built, but most of the time lack resources to do it themselves. Patent is just a way to claim compensation from willful corporate infringers: without patents Townshend might be living under ther bridge and Rambus founders might be collecting a dole..
    Is this what you want ?

  7. “Patent system is supposed to encourage open publication of truly new and unobvious results so that after a short period … of exclusivity they pass to the public domain.”

    The fallacy at the core of that argument is that patents are not written to inform – they are written to obfuscate. Look at the Forgent patent – that patent was in place for years and no one thought it applied to jpeg. It sure as heck did nothing to spread useful knowledge. The NTP patents did nothing to spread useful knowledge and had no causal link to the development of the BlackBerry.

    Where is the evidence that anyone can or does go looking at the patent register to find inspirations for new products or solutions to problems? The patent registry gets checked for problems, not solutions, and that is what it is creating for the economy – problems, not solutions.

  8. Hey, Joe,

    The primary purpose of the patent system is NOT to bring new inventions to life: people would still invent new and useful things even without patents (and will use trade secrets to hide their inventions from others, just like back in the Middle Ages)
    Patent system is supposed to encourage open publication of truly new and unobvious results so that after a short period (people like you would say it’s too long, but those people know nothing about all of the hurdles in the path of underfunded attempts to commercialize any truly novel and useful invention) of exclusivity they pass to the public domain.

  9. “Are you objecting to the granting of exclusivity, or are you one of those (and there are so many) who believes that all inventions should be available for free?”

    No I don’t think that all inventions should be free. I think that:
    1. inventions should be new and non-obvious to be patentable;
    2. the period of exclusivity should be tied to how long it was likely to be before someone else inevitably came to the same result (much less than 17 years for high tech inventions);
    3. the use of injunctions is inappropriate where an invention has been inadvertantly infringed and incorporated into a more complex product (think the jpeg patent dispute).

    There is a fundamental difference between a technical advance and the writing of a creative artistic work – the technical advance was inevitable, the writing of that particular artistic work was not.

    I have in fact personally done original creative technical work and the product I helped create is in regular use around the world. The work we did was not patentable and yet it was done.

  10. As Nathan Myhrvold correctly stated in his recent congressional testimony, MS and other tech behemots came to power not by innovating, but by forcing their monopoly on the market, and in the process, stealing (or buying cheaply via corporate acquisition) all new inventions incorporated in their products.
    This can be said of all of the tech giants, like MS, HP, Apple, Cisco etc. etc. etc.
    These companies are the true abusers of the patent system.
    I’ve read through a lot of patents by MS Research folks. 95 % of them are absolute BS.
    I wouldn’t trade my one patent (still pending) for a 100 of those MS “patents”
    And those guys complain the most about low patent quality…

  11. Joe Smith wrote:

    “The granting of patents allows a period of exclusivity in the hope that it will encourage invention to take place sooner. In today’s world of rapid advances it is doubtful that the benefits from promoting slightly earlier invention match the disadvantages which flow to all from a seventeen year period of exclusivity.”

    If you feel that way, then how would you feel about not granting exclusivity of manufacture, but GUARANTEEING a royalty stream from all those who practice, to the rightful inventor?

    Are you objecting to the granting of exclusivity, or are you one of those (and there are so many) who believes that all inventions should be available for free? (Perhaps unless they themselves should someday come to have an invention.)

    There is clearly a deep seated loathing so many have for those who invent. One sees this in interviews of subjects. There’s clearly a “Why didn’t I think of that?” mentality at work. Which rapidly becomes “Well I’m sure I could have, might have, I suppose I could have thought of it too. Sure why not? The other guy did, so of course I could have also. Why not?” And that train of thought soon degrades into a “Well why should anyone profit off of their invention? The Patent Office must be wrong in recognizing them. Of course! The USPTO is full of idiots. They have to be wrong.” And then, “Well they’re just dirty trolls anyway. They’re trying to destroy society and the patent office is helping them”.

    Interesting psychology.

    What if this were to happen with screenplays or musical compositions? “He’s a symphonic troll! He only writes the symphony, he doesn’t even perform all orchestral parts himself! Troll. I hate musical trolls, they’re destroying society!”

    Or “You only wrote the screenplay, you didn’t act in the movie. Why should you earn anything! Besides, I could have thought up a story like that, sure, in fact I just did after I read your script! It’s just sick that people make money for mere stories. I’m convinced that if all screenplays automatically belonged to the public, why, people would write more screenplays.”

    Interesting. How invention is judged and expected to live by different standards than other creative endeavors, which are in fact HONORED by such things as TONY’s, Oscars, and Pulitzers.

  12. “Ask yourself the question: who has done more damage to innovation in the software industry? Has it been the sparingly few patent holders who have managed to win court cases against Microsoft? Or has it been Microsoft itself, which has copied shamelessly from legions of innovators over the decades, and raked in likely 100 times the profits that those innovators ever pocketed on their own inventions?” — “Tom”

    “Tom”, there is profoundly more truth to your words than even you yourself may be aware of. Just today (though dated June 15th), Mark Stephens who writes by the name Robert X. Cringely, commented:

    “The other attribute that Microsoft has historically lacked is ethics, which also comes directly from the cult of Bill, with its infinite shades of gray. Microsoft has to this point generally thrived by stealing technology from other companies. But now it is at the point where there isn’t that much left to steal, so Microsoft is faced with operating in a whole new manner — actually inventing stuff. This requires discipline — not just discipline to do the work, but discipline not to backslide and steal a little of this and that when the going gets rough.

    In short, for Microsoft to have the barest hope of preserving its monopoly, it has to build a whole new monopoly based on honest, original work devoid of politics, backstabbing, and lies. This means not only does Gates have to go, but for all practical purposes CEO Steve Ballmer should go, too, because he’s as responsible as Gates for this mess.”

    …We live in a new age – all of us: one where bloggers like Dennis Crouch here as well as people like you who partake in the debates they host, can literally shape history in profoundly significant ways, and protect truth & justice from being usurped by the ruthless and powerful. This is in fact happening at this very moment. Bill Gates announcement last week did not come out of a vacuum. It was part of a chain reaction of falling dominoes ignited by another law blogger who appears to be a friend and professional colleague of Dennis’s. Microsoft has been “monitoring” certain events closely since then, and when on the morning of March 21st a certain patent issued (as it was long expected to) it became clear that Microsoft’s house of cards was indeed in jeopardy. That afternoon Jim Alchin was ordered to make an announcement about the imminent delay of Windows Vista ostensibly for “security reasons” but in reality to buy time to potentially strip out already integrated features that would infringe the March 21st patent.

    { Try a Google search on keywords: hastily allchin march 21 }

    In rapid succession came other news from Redmond. As reported by Slashdot.org in

    “IE7 Separated from Windows Explorer”

    ( see here link to slashdot.org )

    That separation was said to be “impossible” by Gates himself in testimony given at their landmark antitrust trial, and was in fact one of the prime reasons why antitrust action was deemed necessary in the first place. Now, it is being implemented – (conveniently) post March 21st, in the name of just-recognized “security defects”, rather than to reduce liability for infringement. And this is but a miniscule part of a bigger crime sheet soon to be revealed, in part thanks to law bloggers like the host of this one. And as “Robert X. Cringely” points out the road ahead from this point forward is messy and unclear for Microsoft. It’s not surprising Bill is jumping ship now.

    So yeah “Tom”, you are so correct in recognizing that some of the biggest “heroes” of the technology and business world in fact committed the most egregious crimes against the true inventors out there. They grossly abused the system using their power and influence, bribed people, even prestigious universities. They fooled the public into believing that “the system is broken”, when in truth they were the ones breaking the system. They slandered honest and devoted government employees with accusations of “Examiner incompetence”, while committing perjury by taking credit for inventions they stole. They lobbied Congress full force to overhaul the US patent system to favor their own interests to the detriment of honest inventors they stole from, while concealing from Congress the abominably un-American schemes they practiced like bringing stolen American inventions to foreign countries to feign having them invented there, again to evade US laws. And they practiced such highwire activities in flagrant violation of SEC requirements mandating the disclosure of even far less exotic risks to their shareholders.

    But just as history will record these things, history will also recognize the people who felt compelled to protect the noble ideals of the Constitution, and prevent the triumph of evil. What Dennis is doing here is the direct descendant of what took place in little wooden buildings, by candle light, in the troubled years leading up to 1776.

  13. eBay v. MercExchange

    Last month, the Supreme Court handed down its opinion on eBay v. MercExchange. I talked about this case in November last year (see here), but didn’t get the chance to discuss it when the Supreme Court opinion was released. Because

  14. Tom and Phil

    Do not confuse the right and the remedy. Just because the right is the ‘right’ to exclude does not mean that damages is not an adequate remedy. The problem with patents is that (1) the USPTO is allowing patents for things that should never have been allowed and (2) the use of injunctions allows the holder of a patent on a minor invention to extract undeserved payment from someone who has unwittingly incorporated the invention into a product. NTP v. RIM is a classic example of both problems.

    Every invention is in some sense inevitable. The granting of patents allows a period of exclusivity in the hope that it will encourage invention to take place sooner. In today’s world of rapid advances it is doubtful that the benefits from promoting slightly earlier invention match the disadvantages which flow to all from a seventeen year period of exclusivity.

    As to the negative effects of patent enforcement consider that Watt’s enforcement of his steam engine patent delayed the industrial revolution by twenty years. That one incident probably did more harm on balance than the good, if any, ever done by patents. The Wright Brothers’ patents set the American aviation industry back to the point where leadership passed to other countries: link to wingsoverkansas.com

    In my view the best thing that ever happened to the computer industry was the dismissal of the Sperry Rand patent enforcment suit.

    link to k9ape.com

  15. It does strike me that describing patents as representing “monopolies” is doing little more than using a derogatory term to describe a property right. If I own a jacket, I have a “monopoly” over its use, correct? Does that really make it a bad thing? If a company owns a plot of land and the buildings on it, that company has a “monopoly” over their use.

    Now I hardly think that we have ABSOLUTE property rights over anything — there are circumstances in which virtually everything we own can rightly be co-opted to some other purpose.

    But, you know, just once I’d like to see some serious argument that a grant of a patent injunction has done real harm to society at large, rather than to the special interests of the infringer loudly complaining about the injunction.

    In the end, though the talk focuses on the injunction, it’s really all about the money, of course, and how much each party gets. And can anyone seriously argue that Microsoft, in particular, is going to be damaged by paying more subtantial monies for the ideas it copies?

    Ask yourself the question: who has done more damage to innovation in the software industry? Has it been the sparingly few patent holders who have managed to win court cases against Microsoft? Or has it been Microsoft itself, which has copied shamelessly from legions of innovators over the decades, and raked in likely 100 times the profits that those innovators ever pocketed on their own inventions?

  16. Joe, if you look in the actual patent statutes, I’m pretty sure you will not find the word “monopoly” anywhere. You will, however, find reference to the “right to exclude” not only in the statutes (Section 154(a) (1)) but in the actual patent document itself. Even the Constitution itself refers to “securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries” and makes no reference to “monopoly.”

    True, patents have been likened to monopolies in the past, but that was mostly done by the Supreme Court during the Justice Douglas days and was used primarily as an excuse to weaken the patent right, typically by appealing to anti-trust considerations. (You’d sometimes hear the unfounded claim that patents are an “exception” to the anti-trust laws. Despite being on the Court during a period that literally took us from two-wing, propeller-driven aircraft to landing on the moon, and from vacuum tubes to integrated circuits, to the best of my knowledge, Mr. Justice Douglas never came across an invention he deemed worthy of a patent. But I digress.)

    The key words here are “right” and “exclude.” These appear in the actual statutes and, if we are to remain intellectually honest, must not be brushed aside. If we are to take these words seriously, how can they be reconciled with the idea that someone must do more than prove infringement before the right will be protected? Again, I see little difference (in principle, anyway) between forcing a proven victim of infringement to further show entitlement to an injunction, and forcing a homeowner to justify why an acknowledged trespasser shouldn’t be allowed to stay anyway. Both ultimately rest on a basic right to exclude, the essence of any property right.

  17. On the TRIPS angle, you would probably find that your biggest problem is not compulsory licensing as such (btw, in the event of a compulsory license or government use authorization, there is some kind of independent prior determination that the infringing use is in some sense a ‘good thing’ from the public interest perspective), but rather compliance with the provisions on enforcement in part III of TRIPS — e.g. remedies should ‘constitute a deterrent to further infringements.’ But this is uncharted territory in TRIPS jurisprudence… bring on a test case…

  18. I’m a bit puzzled as to why people think that just because a patentee doesn’t get an injunction, that the alleged infringer can pay whatever they want in “reasonable royalties.” The infringer is in the middle of a lawsuit, and the court/jury decides what “reasonable” is after the two sides present their arguements. In the z4 case, the decision was $110 M or so against Microsoft. That’s not exactly a free ride. Sure, the courts may have to go another round or two before the patentee actually collects. But, given the record of the Federal Circuit vis-a-vis District Court decisions (> 50% overturned — worse than random), there’s a good arguement to be made that it makes sense in many cases to be cautious about granting injunctions.

  19. yes, i agree the opinions of bwashburn. The patentee have the right to claim permanent injunction in generally. However, the courts have to reach a ballance between the right of the patentee and the public interest. Especially in this case, if the court agrees to injunct microsoft, the consequent is heavier.
    In fact, i feel the essential of patent law is to protect the patentee and the public interest. It must be equity so that it has to reach a ballance.

  20. SCOTUS did the absolute minimum it could in eBay in moving away from automatic injunctions. After the RIM fiasco, The court had the choice of either rolling back the damage done by the Court of Appeal to patent practise or having Congress take a more draconian approach to rolling back injunctions.

    To the commentator who asked, if a patent isn’t property what is it, let me say that a patent is and always has been a government granted monopoly subject to legal limits like any other monopoly.

  21. Further to my previous post:

    As I noted before, the SC decision, while limiting rights to injunction, does not illuminate any meaningful interpretation to the term “may” in § 283.

    So what does in fact the term “may” in § 283 mean?

    Answer: The phrase “courts … may grant injunctions” is analogous to “court shall be authorized to granted injunctions. The term “may” merely implies that the courts have authority, lest someone dispute such authority. Section 283 of the Patent Act is to be compared to the analogous language in Trademark Act (15 USC 1116): “The several courts… shall have the power to grant injunctions according to the principles of equity”. The term “may” in the Patent Act, has the same meaning of “shall have the power” in Trademark Act.

    There’s no question that the SC, having heavily relied on the term “may” in § 283, as committed a grave error in textual analysis.

  22. My understanding from the SC opinion is that once a court finds that the patent holder meets the four factor test, then the court “should” grant injunction. According to the opinion, injunctions “should” be granted, but “only” in accordance with the principles of equity. In other words, the SC did not alter the general understanding that patents give rise to injunctive relief, rather, the court merely elaborated that such injunctions should be limited in accordance with the principles of equity.

    However, the great anomaly in the decision is that it fails to explain how the term “may” fits better with their interpretation of more limited rights to injunction. Regardless of whether the rights to injunction are of broader or narrower scope, there is a general agreement of a minimum right to injunction. Thus, why does § 283 use permissive language that courts “may” grant injunctions in accordance with the principles of equity. Are not courts “required” to grant injunctions once principles of equity are met?

    Given that the SC did not change the proposition that patents give rise to a minimum right to injunction, we are left with an ambiguous “may” in § 283, no less than before.

  23. What if the patentee had claimed “a system comprising an operating system that includes [a novel, non-obvious feature]“? Under these facts, the claimed apparatus is an operating system–the entire accused product. Will courts whittle down patent claims to “the gist” of the claim in order to determine whether the claim covers a small part of the accused product?

  24. Is there a TRIPS problem here?

    This seems like a compulsory license of sorts. It also seems like it is being granted by the government (the Court) to a third party (MSFT). Does anybody see any problem reconciling this denial of an injunction with any part of Article 31 of TRIPS which deals with Compulsory Licensing?

  25. The determination of whether to issue an injunction is now at the trial court’s discretion. We know that the CAFC loves to rerverse trial courts — but with a the new high level of review, will that happen here?

  26. Just one other point.

    Since being a “small part” of a product is now, apparently, a key issue in whether an injunction is allowed, what does this mean for the domain of software, Microsoft in particular?

    Well, take any patentable invention you want, bundle it into some humungous product like Windows, and you will NEVER be faced with an injunction; you will ALWAYS have a good case that the invention is “small” compared to the mighty Windows.

    In other words, infringe at will, knowing that at worst you will have to pay relative peanuts to the few patent holders willing to pursue patent infringement litigation.

    Somehow, I don’t think the intent of the patent system was to make copying as painless as possible to corporate behemoths.

  27. I’m not a lawyer, so I don’t really have a good sense of how these things work, but what strikes me about the decision is how heavily it favored the Justice Kennedy concurrence, rather than that of Thomas, Scalia, etc.

    The clear message of Thomas, Scalia, etc. was that the ultimate result of the use of the four factors test must somehow respect the long history of the employment of injunctions in the past. There’s certainly nothing in this decision that I’ve seen that suggests it’s trying to square itself with that record from the past.

    On the other hand, what the “guidance” of Thomas, Scalia, etc., might really mean, I have to say, is entirely unclear to me. Certainly there’s little in this decision as I see it justified that might not easily be twisted into a justification that simply undoes the possibility of injunctions in large swaths of cases (what expectations for injunctions do universities have now, or inventors like Dean Kamen, who often don’t actually themselve create products utilizing their own invention? And isn’t the claim that the invention in question is only a small part of a larger product almost infinitely flexible? And how small does it have to be before a given court says, Oh, that’s just too small for an injunction!). I simply don’t see how the general suggested constraint that past cases be respected is going to prevent the four factors test from having, in aggregate, vastly different results from the past. Since one would expect that the notion was in any case that courts have in the past simply applied injunctions too automatically, how can one know in advance that previous cases weren’t examples of “too automatic” injunctions, rather than carefully thought out uses of the four factors rule?

    What I suspect will happen in practice with the four factors test, which, it seems to me, can be bent any which way you might want, is that it’s going to be applied in particular cases by courts simply putting their fingers in the political wind of the moment and seeing which direction its moving. Surely this is the worst possible result no matter what, not least because of its arbitrariness. But it’s really worse than that, because those political winds are themselves so easily manipulable. Large corporations can and will very readily launch aggressive PR campaigns to smear the opposition — which is, indeed, what they have already done.

    And I am long past believing that courts aren’t in many ways creatures of politics, when they are not constrained by absolutely bright line law.

  28. If the courts hold that even though the owner of a valid & infringed patent cannot obtain a permanent injunction against an infringer, they still are entitled to “a reasonable royalty” from them; and in the case of real estate seized in the name of emminent domain, if the owner of the seized property can expect to be compensated for the market value of the lost property, then how is it that the proposed changes in Continuation practice can be considered fair or even Constitutional???

    I ask because countless patent appplicants have filed applications in the good faith belief that everything they disclose in their specifications will be afforded an opportunity to be granted protection. If those applicants believed otherwise they would have omitted inventions from their specs at the time of filing. In essence, with the wave of a signatory pen huge swaths of already disclosed inventions would effectively be seized, without even consideration of compensation, and “donated” not even to the public domain, but to the handful of large corporations capable of exploiting those seized inventions. Without question, those corporations subsequently using their windfall inventions will do so to their own financial gain; not to the public’s much less to the rightful inventor’s. So how is that even remotely fair? Or even Constitutional?

    Additionally, if the Continuation rule changes go through, future applicants will only disclose that which they know they can afford to claim (for the moment). Future applicants will thus be compelled to hide portions of their inventions with each filing made. How on earth does this fit in with the Constitutional goal of “promoting the useful arts”? It wreaks of anti-Constitutionality?

    P.S. Bless those of you who are standing up for fairness, and Dennis Crouch and other law bloggers for supplying a platform to keep the system from being subverted.

  29. Although I don’t really like Microsoft, I think the correct decision was made. What would Z4 do if they had gotten an injunction? Take away Microsoft’s market share, doubtful considering the patent is only a small component of Windows XP. Money damages should be enough, but they should make Microsoft pay up big (just cause I don’t like them). I also see a difference between someone living in your house and someone infringing on your patent. Yes, the two are property rights, but I don’t think the two should enjoy the same amount of rights. It’s a big difference to have some stranger living in your house.

  30. Mark, I’m not looking for an argument or flame war, but the thing that bothers me about that line of thinking is this: If we accept that a patent is a property right (and if it isn’t, then what is it?) why does the four factor analysis enter into the picture at all? Consider: If you come back from vacation to find strangers living in your home, do considerations of “public interest” and “inadequate remedy at law” come into play before you get them tossed out? Suppose they can show they “need” your house more than you do or that you’re never home anyway so why complain? Do they get to stay and pay you rent? Why should patents be any different? In fact, given that the essence of a patent is the “right to exclude,” can’t it be argued that an automatic injunction is implicit in the very nature of the “right” specified in section 154(a)(1) and that “exclusion” should be automatic upon proving infringement regardless of the presence of the word “may” in section 283?

    Ah, the weighty questions we get to ponder!

  31. I’m not saying that automatic injunctions are bad or that non-automatic injunctions are good. That’s a policy decision probably best left to Congress.

    I’m just saying that, legally, the SCT made about the only decision it could.

  32. A Random Walk Down The Blogosphere

    It has been a while since I have done this.  I blame the World Cup.  For example, when I left the office for lunch yesterday, I expected to return in under an hour as England surely would have put 2 or 3 goals past Trinidad and Tobago by then right?…

  33. Ah, be careful what you ask for — you might get it.

    Those who have successfully argued for elimination of the automatic injunction rule may find, to their dismay, that without a meaningful “right to exclude”, a patent has little real power or value after all. So why bother getting them? (See, prosecutors, this affects you too.) And why bother spending millions arguing over them? (Hmmm, some of us may have to find real jobs soon…)

    It is a common belief among lawyers and companies that they are so superior in their talents and powers that they will always be able to bend the law to their will, and will still be able to get an injunction when it serves THEIR needs, even if the other guy can’t. More power to them if they can pull it off. However, history has a nasty way of showing that for every one that does, there may be a dozen more who end up wondering how this law that was meant to get someone else, suddenly becomes a major threat to themselves. (Does RICO ring a bell?)

  34. The MercWorx decision is legally unimpeachable. It has always been clear that the 1952 Act did not purport to remove injunctive relief from traditional equitable principles. Hence the “may” in Section 283.

    The Federal Circuit, as it often does (did), pulled the automatic or presumptive injunction out of pretty much thin air. It could still have crafted a four-factor analysis that tilts heavily in favor of the permanent injunction and likely will do so in the future (having few qualms about finding abuse of discretion where it doesn’t like the district court ruling).

    If we want the Patent Act to create a special, automatic injunction, then Congress is now free to act. Similarly, applications of the four-part test can still result in permanent injunctions and probably should.

    The z4 opinion seems pretty rational to me.

  35. First eBay progeny arrives – money is enough

    Dennis Crouch has a detailed analysis of what appears to be the first denial of injunctive relief under the guidance of eBay v. MercExchange. Approximately one month after the Supreme Court issued it’s decision, Judge Leonard Davis of the Eastern…

  36. Dennis,

    The entire concept of “reasonable royalties” becomes very murky if patent holders are denied injunction. Reasonable royalties is supposedly based on hypothetical negotiations between a willing licensor and licensee. However, without the power to exclude, the hypothetical licensor is left with no bargaining power.

    Perhaps, we must redefine, post Merc/Ebay, the standards for reasonable royalties.

    How about the following:

    Reasonable Royalties = Suppose a patent holder could hypothetically enjoin an infringer, and suppose hypothetically the infringer is willing to license in order to avoid such enjoinment, the reasonable royalty is what such infringer would be willing to pay.

    The more I think of it, the more I realize how illogical the Merc v. Ebay decision is.

    One particular lame point in the decision seems to stick out conspicuously. The opinion seems to rely heavily on the term “may” in § 283 as providing for permissive injunctions, as opposed to mandatory injunction. If injunctions are mandatory, the opinion argues, then why the term “may”?

    However, its quite troubling, that the opinion fails to explain how the term “may” becomes more comprehensible under their interpretation that injunctions are available only for plaintiffs that meet the four-factor test. Insofar as a plaintiff meets the four-factor test, why should an injunction still be optional? Shouldn’t patent holders that meet the four-factor test be “entitled” to injunctions as a matter of right? The permissive “may” in § 283 remains just as ambiguous under the reading of the Supreme Court.

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