Injunction Denied — Compulsory License Granted

Finisar v. DirectTV Group (E.D. Tex. 2006).

A jury found willful infringement by DirectTV.  However, in the post-trial hearing, the court denied Finisar’s motion for injunctive relief and instead granted a compulsory license.

Reasoning from the transcript:

  • Patentee has no irreparable harm because it never made or licensed the invention and DirectTV has money to pay damages. [The court found no presumption of irreparable harm.]
  • Because there are only two major competitors in the "market" (DirectTV and EchoStar), an injunction against DirectTV could create a de facto monopoly in EchoStar’s favor.
  • A compulsory license will adequately compensate Finisar — "especially since Finisar never had the will nor the means to implement the patent itself."
  • Hardship to DirectTV would be enormous. Thousands of employees out of work . . . 15 million lose the ability to watch TV . . . ripple effect . . . "some would say this is a blessing."

Documents:

  • Kathi Lutton and Ruffin Cordell of Fish & Richardson have provided several key documents here.

23 thoughts on “Injunction Denied — Compulsory License Granted

  1. It matters because the government does not have to satisfy the “public use” prong of the Vth Amendment. It also matters in that the remedy provided by s. 1498 does not include injunction. In short, the government can practice any patent it wants, and pay a reasonable fee.

    I think this is an adequate safety valve built into the pre-MercExchange patent law.

  2. “A patentee cannot enjoin the government from infringing, and the takings clause of the Vth Amendment does not apply to patent rights. This also applies to the magical car run on water.”

    Nevertheless it doesn’t matter because:

    “Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.”

    28 U.S.C. § 1498

  3. Regarding the $5 million per pill hypothetical: there is a public interest exception to permanent injunction, and it is for public health. Federal Circuit acknowledges that, and nobody is saying otherwise.

    Besides, if the pill is really magical, the government can step in and produce it. A patentee cannot enjoin the government from infringing, and the takings clause of the Vth Amendment does not apply to patent rights. This also applies to the magical car run on water.

  4. Doug,

    35 U.S.C. 154 says: “Every patent shall contain … a grant to the patentee … of the right to exclude others from making, using, offering for sale, or selling the invention….”

    The statute refers to a “right to exclude” not a “right to compensation.” Why do we call a patent a “right to exclude” if, in reality, it is merely a right to compensation as you seem to suggest?

  5. With due respect, adverse possession is a poor answer to a serious question. The typical defendant claims that there has been no infringement. Adverse possession always requires an open and notorious occupation of a parcel. The time required to establish a claim for averse possession also renders it a poor answer. Perhaps the poster should have posed a hypothetical involving a holdover tenant or specified that the suit took place 1 year later. In any event, the snarkiness of the response was neither appropriate nor helpful.

    As for the rest of the post, I vehemently disagree. One has only to look at the controversy concerning the compulsory licensing of drug patents and Article 31 of TRIPS to see that such an argument is immensely disfavored and lacks precedent in non-emergency situations like Finisir and DirecTV. The predent cited in the Finisir case is pretty shaky. The “compulsory” license at the root of the original case arose because the patent owner had made certain “assurances” that the court ruled fell short of an estoppel barring the patent owner from all relief, but required a equitable license in lieu of an injunction. I do not see such “assurances” in this case, and the precedent comes out of the Second Circuit rather than the Federal Circuit or CCPA. Unless Finisir is particularly happy with its future royalty rate, I would expect the grant of a compulsory license to appear as a question on appeal.

  6. Re Anonymous:

    We have something for the housing scenario you discuss, its called adverse possession.

    Real property has always been very very different than intellectual property, for the simple reason that one person’s exclusive possession of real property necessarily prevents another from possession of the same.

    Intellectual property, be it patent, copyright or trademark, can be possessed by multiple parties at once. Thus the law creates an express right to exclude others in patent and copyright, and a right to prevent others from creating likelihood of confusion or diluting a famous mark in trademark law.

    Now Ebay may have muddied the waters as to how the right to exclude others can be enforced, but I think that’s something different from what’s going on here.

    Even in cases when permanent injunctions are granted, it is common for the judge to stay the injunction during appeal (while granting ongoing damages/royalties during the appeal).

    Moreover, if you look at the patent damages statute (35 usc 284), the patent injunction statute (35 usc 283), and the pateht latches statute (35 usc 286), its clear that nothing in these statutes prevents a court from simply granting damages for use of the patented invention by the infringer — there is no time limitation saying “up through the trial.” Thus, nothing in the statute seems to exclude the court from granting damages for the infringer’s use of the patented invention now and in the future.

  7. Counter scenario:

    You purchase a second house as an investment property, but decide that you do not wish to be a landlord. I surreptitiously move my entire family, including my mother-in-law and infant children, into your second house. You discover that I am squatting in your second house and sue me for, say, unjust enrichment, i.e., the rental value of my past occupation, and ask for an eviction. Should I be able to pay the rental value and resist the eviction by arguing that you are not “working” the asset and that I and my unquestionably extensive family would be hard pressed to find alternate accommodations? Better still, should I be able to obtain a judicially crafted lease at a judicially set reasonable rental rate for so long as I choose to occupy the house?

    It’s a fanciful argument, but I think it highlights the both the propaganda and the substance surrounding the issue. Second homewoner trolls artificially shrink the available real estate stock, drive up real estate prices, lock up an asset without “working” it, and deprive hardworking families from the opportunity to own a share of the American Dream(tm) [queue the Battle Hymn of the Republic]. We must stop this outrageous practice at once by judicially and legislatively punishing these second homeowner trolls, for it is only the second homeowners who own multi-million dollar summer homes who truly promote the progress of private property and capitalism.

    Point being: If a patent owner holds a valid patent, then the market should decide the value of that patent. I can point to thousands of vacant homes that have been on the market for periods that sometimes extend for years, yet we would not tolerate squatting and litigated sales prices or rental prices between private entities (Kelo notwithstanding, at least in my fair state).

  8. Next scenerio:

    Big Bad Oil Company invents the automobile engine that gets 50 miles per gallon of tap water and gets a patent.

    Big Bad knows that if this technology is implemented its business is ruined, so it refuses to license anyone and shelves the project.

    Honota Motor Company begins producing cars in its US plant with this engine and Big Bad sues.

    Does Big Bad get an injunction?

    The point I’m raising is: how do we “balance the hardships” in injunction dases where the Constitution says to PROMOTE progress? When is national interest more important than an inventor’s profit?

    Some would say never. Some would say always. This is the problem judges face now. Maybe not in every case. It’s alot easier to say people don”t have a right to sat tv than to say they don’t have a right to a cancer cure. Where do we draw the line?

  9. Let’s look at the “balancing of the hardships” in another scenerio.

    Let’s suppose an “individual inventor” invents a pill that cures all forms of cancer. No doubt that it works. The inventor decides not to produce the product but offers a license to any drug company that will pay a royalty of $5 million per pill.

    Big Pharma Company willfully infringes the patent.

    Is there any court that would grant an injunction or grant the offered royalty rate?

    Actually, this hypothetical raises all sorts of interesting issues. I wouldn’t think of this as a slam dunk case for requiring permanent injunctions.

    First, do we really want a court to enjoin the infringment as a normative matter? Even assuming that the patent is new and non-obvious, doesn’t this hypothetical present the case where the long-term cost of confiscation of the patent (i.e. loss of faith in the patent system, less research, and less disclosure) might very well be outweighed by the immediate benefits?

    Second, your hypothetical is rather incomplete. Why is the inventor demanding $5 million per pill? This is either (1) he correctly thinks that the profit-maximizing monopoly price the market will bear is at least $5 million; or (2) he thinks that it is the profit-maximizing price, but he is in fact wrong; or (3) he is malicious and prefers people die rather than make more profit for himself. If it is (1), there is no reason a court would not grant the royalty demanded, unless the court makes a mistake in second-guessing the inventor. If it is (2), the court is only correcting a mistake in judgment–not the best thing in a free-market economy, but at least it works out well. If it is (3), I’m not sure the patent system really ought to facilitate this kind of malice.

  10. I believe that the term “compulsory license” has been misused here. A compulsory license is something that the state does. It is statutory, and the fees are determined by statute. This does not appear to be the case here.

    Am I wrong?

  11. Let’s suppose an “individual inventor” invents a pill that cures all forms of cancer. No doubt that it works. The inventor decides not to produce the product but offers a license to any drug company that will pay a royalty of $5 million per pill.

    Big Pharma Company willfully infringes the patent.

    Is there any court that would grant an injunction or grant the offered royalty rate?

    I don’t know but, gee, I can think of an easy way to distinguish this hypothetical from the disastrous consequences of “having your TV screen go dark” while you figure out which cable provider to subscribe to.

  12. “He did what the judge in the RIM case should have done, saved an industry against a patentee who looked like and smelled like a “troll”.”

    Saved an industry? Smelled like a troll? I smell some knee-jerk emotionally charged rhetoric lacking in substance.

    If he grants the injunction, Dish gets a monopoly on sat tv, the DOJ is ticked and 15 million DirectTV users tv screens go dark.

    Patents are legal monopolies. I could care less about the DOJ’s emotions or subscribers to DirecTV. The subscribers can sue DirecTV and get their money back if they have a problem. That’s called “justice.”

  13. This case brings up a point I’m not sure I’ve seen before.

    What if a “non-practicing” owner of a patent simply sells that patent to a player in the industry — does THAT change what can be done with the patent in terms of injunctions? Or is it forever tainted by the fact of its origin?

    What’s bizarre about the compulsory license in this case is that it seems to preclude the possibility of such a sale to a competitor, at least at this stage of the game. But what if Finisar had sold the patent to Echostar before any trial (or during the trial?) — would that have changed everything? What if Finisar as a company sells itself to another company, such as Echostar? At what stage does the patent magically lose or gain its injunction potency?

  14. Let’s look at the “balancing of the hardships” in another scenerio.

    Let’s suppose an “individual inventor” invents a pill that cures all forms of cancer. No doubt that it works. The inventor decides not to produce the product but offers a license to any drug company that will pay a royalty of $5 million per pill.

    Big Pharma Company willfully infringes the patent.

    Is there any court that would grant an injunction or grant the offered royalty rate?

  15. As a humble European I can’t comment on whether the Judge is allowed to grant compulsory licences.

    I will though mention in passing that whilst the UK compulsory licensing provisions were amended to comply with TRIPs, if this case is correct US law appears to breach Article 31 of TRIPs which states that:

    “Where the law of a Member allows for other use of the subject matter of a patent without the authorization of the right holder, ….
    (b) such use may only be permitted if, prior to such use, the proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time”.

    There is an exception to this if the compulsory licence is to remedy anti-competitive behaviour but I’m not convinced that applies here.

  16. “I agree that the judge went too far in granting a compulsory license. But even if the judge didn’t, would it really make much of a difference?”

    In this case yes- it would have made a HUGE difference. Without the exclusive licence Finisar could give Echostar an exclusive licence tomorrow – Echostar could sue Direct TV for infringement the day after. The facts of the case on infringement are identical so Echostar would have a near guaranteed victory and unlike Finisar- Echostar would almost certainly win the injunction and possibly put their only competitor out of business.

    The judge argues that there is no reason to think that Finisar will be successful in getting an exclusive licence. He says that whilst a positive court decision will be a useful bargaining tool its no guarantee that the patent will win against other infringements in future and it isn’t an automatic ticket to obtaining a licence since it wouldn’t necessary convince parties that they will enjoy exclusivity. On the facts if the case he must be wrong- Echostar would win an immediate infringement case. The judge himself details how much catastrophic damage an injunction would cause Direct TV, so why would their only competitor not pay big bucks for a near 100% certainty of inflicting that damage on them?

    If this verdict is correct that it seems to me that non-manufacturers in litigation will have to enter into convoluted licensing deals with a major third party player before judgment setting out that an exclusive licence will be given if infringement is found.

  17. “Denying injunctive relief is not the same as granting a compulsory license.”

    But isn’t that what it functionally boils down to in some cases? I agree that the judge went too far in granting a compulsory license. But even if the judge didn’t, would it really make much of a difference? Whether you’re paying $1 a box or 3x that for willfulness, you’re still in the market.

    Perhaps the licensee was only willing to license as part of a bundle of patents or other undesirable conditions. By simply going ahead and infringing and paying damages (if you are even found to be infringing), you could effectively unbundle that licensing package.

    Or more generally, it may simply be worth the risk and potential expense to be in the market. The damages in this case look fairly steep, but it may be a reasonable price to pay to be in the market. For example, what’s $100M compared to the cost of launching some nuber of satellites? How big of a hit is $1.60 per box for a business model that brings in $30/month/box? Factor in the uncertainty in the district court even finding infringement, or reversal by the CAFC, and you’ve got a recipe for business plans and investment built around willful infringement.

    I don’t think I can agree with the “[a]nything that puts the Lemelsons of the world back in their place is fine by me” mentality – this initially seems to be too blunt an instrument. However, it is equitable doctrine, so perhaps further development of the issues will hone in more to what it seems people (including the SCOTUS) are concerned about: patent trolls. But at the very least, it looks like we’re headed towards a “working the patent” requirement, which isn’t promising for independent inventors seeking to license or sell their inventions.

  18. The judge had a tough decision. If he grants the injunction, Dish gets a monopoly on sat tv, the DOJ is ticked and 15 million DirectTV users tv screens go dark.

    He did what the judge in the RIM case should have done, saved an industry against a patentee who looked like and smelled like a “troll”. Does anyone believe that if eBay came before RIM that the RIM case settles for anything close to what it did?

    Finisar’s argument for the injunction is a crock. Does anyone believe that if Dish had a chance to own or have an exclusive license to practice a patent that would have put DirectTV out of business it would not have jumped at the chance? Where was there any evidence of Finisar making such a licensing attempt that it now is claiming the court eliminates its chance of doing?

    Maybe it’s time non-users of their inventions are forced to allow commercial entities to implement new technologies on reasonable terms instead of hold-up terms. Anything that puts the Lemelsons of the world back in their place is fine by me.

  19. Denying injunctive relief is not the same as granting a compulsory license. The Supreme Court did not mention compulsory licenses in eBay and I do not believe the trial judge has the authority to grant a compulsory license.

    That a patentee cannot enjoin infringment does not mean the patentee must grant a license. Nor does it mean the infringer must take a license.

    The new rule may ultimately benefit patentees financially since any use of a patented invention after a judgment of infringement is automatically willful infringment.

    If there is no license and the infringer continues to infringe, it will almost certainly be found liable for treble damages plus attorney’s fees and costs in any future litigation. This fact has the effect of increasing the amount of the royalty the patentee can demand for a license.

    Assuming a license is negotitated, the amount of the royalty is not the reasonable royalty found in the first case, but the amount a court would award based on willful infringement in the second case. Thus, a reasonable “compulsory” royalty for a willful infringer should be three times the amount of an ordinary reasonable royalty.

    If the infringer doesn’t accept a license at the reasonable compulsory royalty rate and forces the patentee to file suit again, the reasonable compulsory royalty would itself be subject to trebling. Thus, a willful infringer who avoids an injunction but continues to infringe could be found liable for nine times damages.

    The hypothetical reasonable royalty negotiation still applies. The time of the negotiation, however, is not the time of the original infringement in the first suit, but the time of the willful post-judgment infringment for which damages are sought in the second suit.

  20. I absolutely disagree with the conclusion that this is an adequate application of eBay.

    The patent statute, unlike the copyright statute, does not provide for the compulsory licensing of patent rights. I see no reason why the denial of a permanent injunction should be combined with a compulsory license as opposed to a continuing stream of damages — with the possibility of multiplication for willful infringement –.

    I have read the final judgment, but not the hearing transcript (yet), and I find it disturbing that there is no discussion of design-around options and the essential facilities doctrine, especially in view of the aforesaid lack of a statutory authorization for compulsory licensing. I also find it disturbing that the court has effectively set the licensing rate for this property for both DirectTV and EchoStar by granting a license with well disclosed terms to the former entity. The court certainly has this power, but that power does not spring from the eBay decision and, from what I have seen so far, it has not performed the analysis required to enable it to impose the published result.

  21. Well, it looks like the critics are right. Under recent interpretations of eBay, if you’re thinking of infringing, be sure to do it in a big way in order to avoid the threat of injunctive relief. Money damages seem to offset pretty much any allegation of irreperable harm (perhaps a la Tort law, in which money damages cure all ills), and if you’ve really thrown yourself into your infringing activities, you can successfully allege hardship to the infringer.

    It seems now that the incentives to license are (a) simply avoiding the cost of litigation, and (b) avoiding treble damages due to willfulness. (a) might be alleviated by either putting up a token defense in hopes of minimizing your expenses. (b) might be harder to deal with.

    And if a patent holder doesn’t want to license technology to you on favorable terms (patent pools, etc.), it’s starting to look like you can get a compulsory license anyway.

    Perhaps I’m being too pessimistic here. I understand that many are happy to have this tool against the patent troll “hold ups,” but where do the real limits on eBay stand? Are inventors (particularly independents) going to lose control of their technologies?

Comments are closed.