eBay v. MercExchange Unanswered Question

Here are a handful of unanswered questions that leave us a bit in limbo post-ebay.

  • What (if any) presumption of irreparable harm is associated with an infringed patent? (in z4 no presumption was found)
  • How should willfulness of the infringement factor into the injunction analysis? If it “should” be factored-in, which of the four factors would it fall under? (In z4, willfulness was not considered a factor).
  • The Supreme Court ruled that a plaintiff’s willingness to license its patents and its lack of commercial activity in practicing the patents could not be sufficient to establish that the patent holder would not suffer irreparable harm if an injunction did not issue — but to what extent can those weigh in favor of an injunction.
  • Those of us having a law & economics background have difficulty with the concept of irreparable harm because the basis of idea that “most patent-related injuries can be fully compensated by some ex post cash payment” (Lichtman).  Couple that with Professor Laycock’s ground-breaking worth on the Death of Irreparable Injury where he shows that irreparable injury jurisprudence is for the most part a sham that does not alter the outcome. Bottom line, when will there be irreparable injury? What we do know is that failure to work and a willingness to license do not preclude a finding of irreparable harm.
  • How will irreparable for permanent injunction differ from the analysis during a preliminary injunction determination?
  • Once an injunction is denied, how will we calculate damages and is ongoing infringement willful?

20 thoughts on “eBay v. MercExchange Unanswered Question

  1. Oh Nick, your concern for the innocent infringer is touching. “If the designers had known they were infringing at the design stage they could have designed around or negotiated a relatively small license fee.” Two points come to mind from this statement: one, many infringer do know they are infringing but choose to do so anything. With all this nonsensical talk recently about patents being a lottery, what greater lottery is there than infringing a patent and banking upon the patentee either not filing suit, settling for the same or lower royalties than one negotiated at the start, or winning in some fashion at trial anyway. Patents are not secret (which is the whole point), so this “if only they had known” defense is rather untenable since any close assessment of infringement would steer any reasonable corporation to license (or stop).
    Two, your option for the patentee to accept a “relatively small license fee” is telling. Why small? Why not relatively big if without the invention the product could not exist? I suppose the guy who invented the wheel would be hard pressed getting his due in a patent infringement suit regarding a car with its thousands of inventions…. Oh those trolls are so very clever. I guess, using your analogy, these same trolls could borrow your car every night while it sits unused in the driveway and it would be okay (they’d have to fill up the tank and clean out the ashtray though). I gest of course but still, property is what is it- a right to exclusionary possession.
    As to the discussion about patents in general, it is not always a simple balance sheet issue nor some dumb small inventor happy enough to brandish the patent on the wall of his den. Many need to file patents to protect their ideas which once on the market would be copied in a flash in the absence of IP protection. For the small guy up against established large corporations, it would be ridiculous to expect otherwise if the product is attractive.
    Seems all this talk about patent value depends solely upon licensing or commercial success of a produced embodiment of it. If the patent keeps the copycats (“copy trolls”) out regarding a successful product, it has enormous value. But how do you quantify that?

  2. The analogies that people have been making between patent law and other types of property are not very helpful because IP law is non-exclusive. Two people can build the same invention while two people can’t drive the same car. This is why personal property and real estate have always been treated differently by the law. The founders recognized this when they authorized a LIMTED monoply to “promote progress in science in the arts.” From the beginning the patent system was about promoting the greater good of society, not protecting some sacred right of the inventors. Unlike in France, we have never recognized absolute moral rights as the basis of our IP law (well there are some exceptions now, but not with patents).
    So the important question here is what promotes the greater good? The patent law we have did this 200 years ago when every patented invention was a single product. But a complicated electronic device (like, for example, a blackberry pager) contains hundreds of inventions—some that may be patented and some that may not. Given the vast number of issued patents and the ambiguities of claim language, designers of such devices usually don’t know they are infringing patents. Then once the device is a success the patent trolls come out and try to extort more than their fair share. If the designers had known they were infringing at the design stage they could have designed around or negotiated a relatively small license fee. But once the product is very successful, they have to either pay the extortion or face the risk of losing their successful product. How can this be for the greater good? Why should a patent for once invention out of 100 needed for a product be worth $600M? While the traditional patent system may work well for the single-patent invention such as certain chemical patents, it doesn’t work for many of the complicated devices of the modern age.

  3. While people have often commented that patents seem to be infringed less in Japan
    than in the US, people usually then start explaining this away as “cultural”. Perhaps however, it is more to do with the criminality of the act of infringement in Japan. To whit:

    Chapter XI Penal Provisions

    196. Offense of infringement

    Any person who has infringed a patent right or an exclusive license shall be liable to imprisonment with labor not exceeding five years or to a fine not exceeding 5,000,000 yen.

    Now while 5 million yen isn’t a particularly large sum, five years in the notoriously bad Japanese prison system with labour thrown in on top is a rather heavy disincentive…

  4. Come on, Eric. Property property not sacred? A man’s home isn’t his castle? What several decimal fraction of one percent of land owners in the US have lost their home to eminent domain (all of course were financially compensated)over the past 200 years? Do you personally know of someone who had their car commandeered in a police pursuit (William Shatner not included)?

    Still, I think we are on the same page. If a corporation can steal any patent idea and the worst case scensario would be large royalty payments but still, they’d get some lucrative product on the market, and keep it there, they’d do it in the absence of a permanent injunction threat.
    I still have heard no answer for a continued infringement where there’s no PI. Does the patentee have to file suit again? Does he get additional royalties from a court order extrapolated from the damage award up to the trial?
    As to jail time for willful infringement, I’d settle for willfulness being manatory enhanced damages AND a mandatory permanent injunction. Not every infringing corporation are predatory, there actually are innocent infringers who simply missed. But where the infringement was willful, I see too many Fed Cir cases upholding a total denial of any enhanced damages, which is wrong. Theft is theft.
    Is that enough? Has anyone heard of anyone going to jail for perjury and spoliation of evidence in a civil suit? Having any civil case misconduct morph into a criminal one is not a risk large corporations think about during discovery.

  5. In the very famous Russian novel by Il’f and Petrov “Zolotoi telenok” (“The Golden Calf”) there is a character “zits-predsedatel” (substitute-chairman) Funt. This character did nothing else but served jail time (as the front for various shady companies) under several czars and revolutionary regimes. That was his full-time corporate job.
    Funny indeed…

  6. I think that the cheapest and the most effective way of dealing with illegal corporate behaviour is by criminalizing it: introducing some small jail terms for willful stealing of IP and lying to courts at patent trials.
    Judge Spencer from RIM-NTP patent saga wouldn’t have to impose huge penalties on RIM and threaten permanent injunction if couple of RIM executives, starting with its CEO, of course, were to spend just a few weeks in real jail for lying to the court and falcifying the evidence.
    Then all big corporations would voluntarily negotiate a fair licensing deal with small patent holders BEFORE incorporating relevant patents into their mass-manufactured products.

  7. Private property is not sacred. If society wants to build a highway on my land it can be compulsorily acquired. And my vehicle may be commandeered by police in pursuit of criminals. However these acts are wrapped in due process, while the rule of law appears to be breaking down when it comes to some big corporations respecting the intellectual property of others.

    Forced disclosure of unhygienic IP practices at the point of sale, protecting end users, is the cheapest way of discouraging such bad corporate behaviours. But what civilised society seems to be saying is ‘let the law of the jungle prevail against start-ups’, since mom and pop must bet the farm to enforce their patent. (They can of course use contingency fee lawyers at a loss of 40 percent!) And the evidentiary burden of disproving a corporation’s falsified evidence can be enormous, since those who commit this crime are usually not imprisoned, nor are their employers stripped of ill-gotten gains.

  8. To be sure, z4 was a nice chunk but it’s apples and oranges, the issue of damage award and permanent injunction separate creatures. Would a court say to the patentee that he scored a homer on his damage claim so give the infringer a break and let him go on infringing? I just can’t see the two being so related.

  9. Eric Wilson: You must be an investigative journalist, not a freelance one, since you seem to have leaked the manifest of many large corporations (many, but, yes, not all). You gest? Maybe, but they don’t. This is exactly what they do. If it makes a balance sheet business sense to infringe, with the risk no worse than at the end of the litigation (if there even is one)of having to pay the same royalties as licensing, plus some legal fees,many simply will. Only the threat of an injunction keeps many on a leash.
    Property rights are in fact sacred and being forced to share what one owns is hardly what the framers had in mind. Yet allowing the infringer to continue infringing because, gee, the poor guy would be harmed more than the patentee is bizarro world logic. Sounds to me practically like an extension of the Court’s eminent domain reasoning, seizing one’s property for the alleged greater good of the community, here of course being the corporate community who simply doesn’t want to spend the money to come up with their own invention.
    I can see some logic in the reasoning of balancing irreparable harm as regards to non-willful infringement, even if I don’t agree. But if you are found to be a willful infringer, why should your welfare be given equal weight as that of the innocent patent holder?
    And apropos Joshua Larsen’s comment that “economics is so ingrained in the legal culture of our day” (a rather sad comment of surrender), this is in fact very true for the business world, my beef being that it should not regard the courts.

  10. “As an executive in a large corporation, sometimes I have to turn a blind eye to the borrowing of patented ideas – to hobble some opposing start-ups. It’s for the greater good that we prolong our slightly outdated business models, upon which the entire industry relies for return on investment. I do this by conning the market into believing I’m untouchable – that competing against me is useless. This calls for hyper-aggressive litigation – to make an example of all-comers, for others not to follow. But the fun part is branding these smouldering start-ups as ‘patent trolls’.”

    “Embroiling pesky inventors in patent litigation – instead of them working on alternative product development – in itself is a very good thing. I’ve received two promotions, I think, as a result of getting these little blood suckers to take the bait. And I’m not bad at inventing either – my specialty is trial evidence. Dodgy databases, touched up videos, missing emails, thousand-piece obfuscation – that sort of thing – I honestly believe the rest of the company doesn’t fully understand or appreciate all the work I do.”

    “But even if a start-up wins, the payout will likely be much less than the terrible loss of market share would otherwise have cost the company; especially if the start-up produced a superior, well researched product. Besides, by then I will have retired with my stock options – may they rest and vest – so where’s the harm? Life is good.”

    “So let’s not forget what makes the patent system great – not advancing the sciences or arts but corporate profits for my stockholders… Of course some of my colleagues think I’m a rotten apple, but that’s just a cross I have to bear; at least Wall Street loves me.”

    I gest of course. In fact, I’m a freelance journalist (and software inventor) contributing to a multinational news organization, which regularly pays its contributors because it wants more good IP from them and more trusted contributors in future. In this shared IP environment, disputes are fairly rare. One reason is because libel laws force IP integrity into the finished product, which means using reliable sources and doing the right thing by the information, with coss-checking by editors, is paramount.

    So this is what the patent system needs: Laws to make products containing unhygienic IP less attractive: “Warning, this product infringes patent 123456789, subject to appeal. Price and configuration may not be final. Use at own risk”. Prominent product labelling and codes of conduct for engaging small inventors, could do more to fix the patent system than a thousand new rules of interpretation. And the market is entitled to know, at the point of sale, what IP has gone into the products it imbibes for which title is potentially uncertain, and why. That kind of disclosure obligation alone should be enough to keep most big boys’ noses clean, without big injunctions.

  11. Private property is the sacred foundation of this society allowing it to function.

    Who would buy a house knowing that every squatter could move in with you if, for example, you underuse your living space ?
    Who would invest in a new promising invention knowing all the way that every large corp can manufacture and sell it without your permission and with vurtual impunity ? (The current damages law is just that – impunity for very large infringers)
    The EBay decision is starting to look like the begginning of the end of all independent invention in this great country (in other countries of the world independent invention is already dead)
    And independent invention includes telephone, radio, phonograph, airplane, laser, xerox, among other things…

  12. I understand that eBay amounts to a large change in the patent law. But with the way this decision fits within the larger scheme of property law, I do not understand how this decision can be so shocking.

    In most areas of modern property law, injunctions are far from automatic. In the law of nuisance for example, a balancing test is almost always used. Most of the real and personal property analogies used in comments on this topic ring very hollow.

    If one subscribes to a Lockean theory of property in regards to patents (where the invention would be an extension of the inventor’s personality), then perhaps automatic injunctions are warranted. However, economics is so ingrained in the legal culture of our day, I believe this argument would be quite frivolous.

  13. Tom, I think you are right that progress can be promoted simply by the public disclosure. Others can build upon the disclosed invention.

    However, if that is the case, how can we justify the current law that allows patent holders to prevent others from conducting experiments on the invention. See Monsanto v. Scruggs.

  14. Eric, just what does “bad” patent mean in the context of one which underwent scrutiny first at the PTO, then by way of the standard aggressive US patent litigation where invalidity and unenforceability are universally applied infringement defenses. So what, the patent survives but someone (read, the infringer) still thinks it’s “bad”? Permanent injunctions comes only by way of victorious litigation which will invariably weed out the “bad” patents.
    Tom’s right about the inducement to share one’s knowledge publically being the prime directive of the patent system. Not everyone has the funds to commercially exploit their patent, and in fact many small inventors can’t even afford to get a patent in the first place. Forcing them to somehow sell an embodiment of it simply to enforce their statutory rights is absurd. And unfair.
    The fact remains that this issue brings out both camps- the ones who believe in the patent system, with all its flaws (real or imagined), and the ones who believe that all patentees, save the large corporations, are trolls extorting settlement money from those same large corporations who commmercially exploited the idea (of course being neither the first to have conceived of the invention nor having received a patent on it). Patents level the playing field not by way of litigation damage awards but by exclusion via permanent injunctions. If you don’t like some the patents coming out of the PTO, lobby your congressman to stop taking away a large portion of the funds the PTO generates and invest that money in more examiners, more resources, etc. This whole issue is a administrative problem, not a statutory one. The Court got it wrong.

  15. Ah, but here’s the rub: Eric assumes that the arts and sciences are not advanced unless a patentee practices. I say that just making a disclosure in a patent meets the intent of the Constitution because an advance in technology has been disclosed for all to see and build upon. The fact that the person holding a patent has a limited term monopoly does not mean that others cannot learn from the disclosure. Learning of new things (such as those disclosed in patents), not just selling something that is patented, is advancing the arts and sciences. If a person doesn’t disclose his invention because he does not seek a patent that cannot be enforced, then there can be no advancement because the knowledge that would be embodied in the patent disclosure is kept secret.

    I recently re-read Graham v. John Deer, 383 US 1, in which the Court described the initial intent of the patent system, although couched in terms of what is patentable. The Court wrote that Thomas Jefferson saw the patent system, in particular the “limited private monopoly,” as offering a reward or an inducement for inventors to bring forth new knowledge. I believe that the monopoly to which Jefferson refers requires enforcement of the statutory right to exclude. Without enforcement, what incentive is there for someone to seek a patent?

  16. The problem that Fredric’s argument is that the Constitution conflicts in interpetation of the exclusion clause of patent law. The Constitutional purpose of a patent is to advance the arts and sciences, which a patent that is “bad” or entirely excluded from practice does not. Hence the conflict that the Supreme Court is faced with. Do patentees who have no intent to practice (or allow to be practiced) have any right of exclusion? The statute says yes, this runs against the intent of the Constituion, as the arts and sciences are not advanced (except on paper).

  17. Correct me if I am wrong but doesn’t the face of the patent say it grants the right to “exclude others from making, using, offering for sale, or selling the invention” and so forth? How does the Supreme Court cavalierly change a statute over 200 years old which so burdens the patentee? Where the infringer is found through a court of law to infringe these rights, he must stop, as intellectual property rights are no less than any other property rights, e.g. if you are found to have built a structure on someone else’s property, by law you have to tear it down in the absence of an agreement with the owner. Clearly the R.I.M. case, where they were required to pay an extraordinary sum in settlement to avoid an injunction by way of dead man walking patents has pushed the Supreme Court to this reactionary decision. If you infringe someone else’s rights, you stop. Why should it be so complicated? Surely we should not sanction economical considerations migrating into an obvious (and fair)reading of a two century old law.
    In any event, Dennis raises some very good and interesting questions. Indeed, if the infringement is willful, and the infringer continues even after being an adjudicated willful infringer (no advice of counsel defense there), is that “double” willful infringement? Should the patentee have to go through litigation yet again to collect his royalties? This decision is really under the ‘what were they thinking?’ columns.

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