New PatentlyO Law Journal Essay: eBay, the Right to Exclude, and the Two Classes of Patent Owners

New PatentlyO Law Journal article by retired Chief Judge of the Federal Circuit Court of Appeals Paul R. Michel and John T. Battaglia, Esq. 

Introduction:

The entire point of a healthy patent system is on spurring invention and investment, by rewarding inventor and investor alike, big or small, with exclusive rights of limited duration, for their inventive risks and contributions. Otherwise, without such patent rights—or with fewer such rights—the incentives to invent diminish, or such inventive resources will re-locate.

Two Different Patent Laws: One for Manufacturers, Another for NPEs

With that backdrop, we address the disparate-treatment problem that currently defines the U.S. patent system. Those entities that manufacture a product claimed by a patent, and successfully enforce that patent in court, often still obtain an injunction, consistent with the “right to exclude others” that Congress granted to “[e]very patent. But for nearly 15 years, those entitles that invest in invention rights and buy and license patents—be they university research arms or non-practicing licensing entities (NPEs or so-called “trolls”)—often haven’t bothered even seeking injunctive relief in litigation. Why?

The answer is that the federal courts over time have misunderstood and misapplied the Supreme Court’s landmark 2006 decision in eBay Inc. v. MercExchange, L.L.C.

Read more at Paul R. Michel and John T. Battaglia, eBay, the Right to Exclude, and the Two Classes of Patent Owners, 2020 Patently-O Law Journal 11 (2020).

Prior Patently-O Patent L.J. Articles:

  • Thomas F. Cotter, Two Errors in the Ninth Circuit’s Qualcomm Opinion, 2020 Patently-O Patent Law Journal 1 (2020). (Cotter.2020.TwoErrors.pdf)
  • Jasper L. Tran & J. Sean Benevento, Alice at Five, 2019 PatentlyO L.J. 25 (2019) (Tran.2019.AliceatFive.pdf)
  • Bernard Chao, Implementing Apportionment, 2019 PatentlyO L.J. 20 (Chao.2019.ImplementingApportionment)
  • Jeremy C. Doerre, Is There Any Need to Resort to a § 101 Exception for Prior Art Ideas?, 2019 PatentlyO L.J. 10. (2019.Doerre.AnyNeed)
  • Colleen V. Chien, Piloting Applicant-Initiated 101 Deferral Through A Randomized Controlled Trial, 2019 Patently-O Patent Law Journal 1. (2019.Chien.DeferringPSM)
  • David A. Boundy, Agency Bad Guidance Practices at the Patent and Trademark Office: a Billion Dollar Problem, 2018 Patently-O Patent Law Journal 20. (Boundy.2018.BadGuidance)
  • Colleen Chien and Jiun-Ying Wu, Decoding Patentable Subject Matter, 2018 PatentlyO Patent Law Journal 1.
  • Paul M. Janicke, Patent Venue: Half Christmas Pie, And Half Crow, 2017 Patently-O Patent Law Journal 13. (Janicke.2017.ChristmasPie.pdf)
  • Paul M. Janicke, The Imminent Outpouring from the Eastern District of Texas, 2017 Patently-O Patent Law Journal 1 (2017) (Janicke.2017.Venue)
  • Mark A. Lemley, Erik Oliver, Kent Richardson, James Yoon, & Michael Costa, Patent Purchases and Litigation Outcomes, 2016 Patently-O Patent Law Journal 15 (Lemley.2016.PatentMarket)
  • Bernard Chao and Amy Mapes, An Early Look at Mayo’s Impact on Personalized Medicine, 2016 Patently-O Patent Law Journal 10 (Chao.2016.PersonalizedMedicine)
  • James E. Daily, An Empirical Analysis of Some Proponents and Opponents of Patent Reform, 2016 Patently-O Patent Law Journal 1. (Daily.2016.Professors)
  • Tristan Gray–Le Coz and Charles Duan, Apply It to the USPTO: Review of the Implementation of Alice v. CLS Bank in Patent Examination, 2014 Patently-O Patent Law Journal 1. (GrayLeCozDuan)
  • Robert L. Stoll, Maintaining Post-Grant Review Estoppel in the America Invents Act: A Call for Legislative Restraint, 2012 Patently-O Patent Law Journal 1 (Stoll.2012.estoppel.pdf)
  • Paul Morgan, The Ambiguity in Section 102(a)(1) of the Leahy-Smith America Invents Act, 2011 Patently-O Patent Law Journal 29.  (Morgan.2011.AIAAmbiguities)
  • Joshua D. Sarnoff, Derivation and Prior Art Problems with the New Patent Act, 2011 Patently-O Patent Law Journal 12 (sarnoff.2011.derivation.pdf)
  • Bernard Chao, Not So Confidential: A Call for Restraint in Sealing Court Records, 2011 Patently-O Patent Patent Law Journal 6 (chao.sealedrecords.pdf)
  • Benjamin Levi and Rodney R. Sweetland, The Federal Trade Commission’s (FTC) Recommendations to the International Trade Commission (ITC):  Unsound, Unmeasured, and Unauthoritative, 2011 Patently-O Patent Law Journal 1 (levi.ftcunsound.pdf)
  • Kevin Emerson Collins, An Initial Comment on King Pharmaceuticals: The Printed Matter Doctrine as a Structural Doctrine and Its Implications for Prometheus Laboratories, 2010 Patently-O Patent Law Journal 111 (Collins.KingPharma.pdf)
  • Robert A. Matthews, Jr., When Multiple Plaintiffs/Relators Sue for the Same Act of Patent False Marking, 2010 Patently-O Patent Law Journal 95 (matthews.falsemarking.pdf)
  • Kristen Osenga, The Patent Office’s Fast Track Will Not Take Us in the Right Direction, 2010 Patently-O Patent L.J. 89 (Osenga.pdf)
  • Peter S. Menell,  The International Trade Commission’s Section 337 Authority, 2010 Patently-O Patent L.J. 79
  • Donald S. Chisum, Written Description of the Invention: Ariad (2010) and the Overlooked Invention Priority Principle, 2010 Patently‐O Patent L.J. 72
  • Kevin Collins, An Initial Comment on Ariad: Written Description and the Baseline of Patent Protection for After-Arising Technology, 2010 Patently-O Patent L.J. 24
  • Etan Chatlynne, Investigating Patent Law’s Presumption of Validity—An Empirical Analysis, 2010 Patently-O Patent L.J. 37
  • Michael Kasdan and Joseph Casino, Federal Courts Closely Scrutinizing and Slashing Patent Damage Awards, 2010 Patently-O Patent L.J. 24 (Kasdan.Casino.Damages)
  • Dennis Crouch, Broadening Federal Circuit Jurisprudence: Moving Beyond Federal Circuit Patent Cases, 2010 Patently-O Patent L.J. 19 (2010)
  • Edward Reines and Nathan Greenblatt, Interlocutory Appeals of Claim Construction in the Patent Reform Act of 2009, Part II, 2010 Patently‐O Patent L.J. 7  (2010) (Reines.2010)
  • Gregory P. Landis & Loria B. Yeadon, Selecting the Next Nominee for the Federal Circuit: Patently Obvious to Consider Diversity, 2010 Patently-O Patent L.J. 1 (2010) (Nominee Diversity)
  • Paul Cole, Patentability of Computer Software As Such, 2008 Patently-O Patent L.J. 1. (Cole.pdf)
  • John F. Duffy, The Death of Google’s Patents, 2008 Patently O-Pat. L.J. ___ (googlepatents101.pdf)
  • Mark R. Patterson, Reestablishing the Doctrine of Patent Exhaustion, 2007 Patently-O Patent L.J. 38
  • Arti K. Rai, The GSK Case: An Administrative Perspective, 2007 Patently-O Patent L.J. 36
  • Joshua D. Sarnoff, BIO v. DC and the New Need to Eliminate Federal Patent Law Preemption of State and Local Price and Product Regulation, 2007 Patently-O Patent L.J. 30 (Download Sarnoff.BIO.pdf)
  • John F. Duffy, Are Administrative Patent Judges Unconstitutional?, 2007 Patently-O Patent L.J. 21. (Duffy.BPAI.pdf)
  • Joseph Casino and Michael Kasdan, In re Seagate Technology: Willfulness and Waiver, a Summary and a Proposal, 2007 Patently-O Patent L.J. 1 (Casino-Seagate)

38 thoughts on “New PatentlyO Law Journal Essay: eBay, the Right to Exclude, and the Two Classes of Patent Owners

  1. 8

    Good solid paper. A couple of thoughts. 1. The paper might have mentioned there were in fact TWO Cert. questions in the eBay SCOTUS case. The first being the eBay straw man “CAFC categorical rule blah, blah, blah,” and the second being the sua sponte SCOTUS cert question: “Whether the Continental paper bag case should be reversed” in response to Merc’s crucifying opposition to the (Carter Phillips) eBay cert petition (a tour de force written by the late Scott Robertson). The point about the Bag case being affirmed 9-0 in the Thomas HOLDING, is more dispositive (of greater legal weight?) of the NPE issue when the reader knows that very issue was a Cert question for the Court to decide. And it did decide the question: Bag case Affirmed. In other words, quote from the Bag case and cite Continental Paper Bag, affirmed, eBay v. MercExchange as THE holding. Because that indeed was the holding to the second cert question presented in the eBay SCOTUS case. Kennedy joined that answer (Bag affirmed), no matter what his concurrence purports to muddy up.

    As to the Kennedy concurrence – as a rule of law (policy really) – it contains many open ended and perverse (unintended?) consequences. First, it rewards anti-competitive behavior to saturate the market with “free” (open source) infringing product (convoyed sales, features, leverage in the case of the network effect internet companies) to drive the innovator from the market. See, Google v Oracle. If you can lever your market power to drive the start up from the field you get the bonus reward of a second class ownership class – no injunction patent. That is powerful and quite obvious incentive and no CEO of a momentum, growth, network effect driven company could do otherwise (use all power, influence, reach, etc to drive the innovator out of market) – it’s baked into the Kennedy (unintended) logic cake. Unfortunately most (all?) of the Federal bench – being from law firm/government business backgrounds – well . . . that might be an incomprehensible point. It’s just not in their wheel house of experience of how the world works where the rubber hits the road so to speak (Judge Michel being the rare and laudable exception).

    Second, Kennedy is silent as to the ramifications of the ‘never ending case’ and Justice Story would not approve. “Equity,” that is, the LAW of equity, according to Story on Equity, steps in to resolve the issue of never ending legal claims litigation. Indeed, the injunction, is the linch pin of property law, which the paper makes pursuasivly clear. The injunction IS the market value for the claimed property. Ok, so how much is the design around, what’s it going to cost us in terms of momentum, loss of network effect, user growth, is there something better, faster cheaper that doesn’t infringe, emerging competition, enterprise value, can we move on to the ‘next big thing,’ etc. In other words, an important self introspection by the infringer of the infringing adjudicated (this is post trial stuff here) conduct. The Kennedy concurrence – contains a static world view – which is divorced from the reality of innovation, enterprise, and the raptor like business reality of network effect (and other) concerns. A business decision being provoked by the order, but a business decision nonetheless, which a Court has no business pontificating it’s logic, economic reasoning, imputing or impugning party motives, etc no matter how well informed it might feel. Just call the balls and strikes – the market will function. There is no “patent hold out” fallacy for the Court to remedy. Roberts and Scalia were all over that “hold out” falsehood.

    Another point being, that the injunction must be issued with specificity under the federal rules, and that scope too is subject to appeal and review by CAFC and these so called injunctions were not jumping out like snakes in the grass but were the result of years of litigation, appeal, review, and 90%? of the orders were suspended pending appeal ( a great point made by Seth Waxman during oral argument that moved Kennedy IMHO).

    Well enough. A great and overdue paper – looking at the holding of the case – and not the Kennedy concurrence which is unworkable, contradicts Story, and has ramifications that create more NPE enforcement not less as the shifted (devalued) and the economic dynamic is creating less market competition and more NPE enforcement. The unintended consequence of following Kennedy and not the holding of the case.

    All the best, Tom.

  2. 7

    Bravo. Judge Michel and John Battaglia have it exactly right. It is time for district courts to stop mis-reading eBay. There is no categorical rule against injunctions. SCOTUS was clear: “[S]ome patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves.”

    1. 7.1

      Even the article concedes that courts have not interpreted eBay as representing a “categorical rule against injunctions.” Rather, it says 16% of NPEs have successfully obtained an injunction, and in the authors’ opinion, that was too low.

      What *I* would like to know is what conflicts of interest might the authors have? Does Battaglia represent NPEs? Does Michel now represent and/or consult with/for NPEs? Is this mere advocacy masquerading as scholarship? Unclear from the article, but certainly misleading if the answer is “yes” and they failed to disclose it.

      1. 7.1.1

        Interesting that only you ask that author bias question here, and none of the those who regularly ask when they don’t like an article.

        1. 7.1.1.1

          … as well as the reverse…that he asks ONLY here (on an article it can be presumed that HE does not like).

  3. 6

    Is ARM a manufacturer or an NPE or something in between. After all, it is the dominant innovator, world-wide, in the technical field of pcb’s for mobile phones, isn’t it?

    link to en.wikipedia.org

    Would the Federal Circuit decline to give it injunctive relief from infringement? If so, why?

    1. 6.1

      No, ARM sells or licenses actual products – highly detailed commercial chipset circuit layouts – and was ARM not just bought by a chip-maker?
      They would be more likely to be denied an injunction for patent infringement for a different reason – the public and economic impact on all the products made with their designs. As in, for example, the injunction denial in the $2 Billion patent decision in the recent blog below.

      1. 6.1.1

        Makes sense, Paul. Nevertheless, I’m wondering how important to your answer are the words “Highly detailed”. Suppose instead that ARM owns a bunch of patents in which there are highly detailed drawings of a chipset, they license those patents to chipset makers, but don’t themselves make any such chipsets. Is that not enough to put them in the category of “NPE”?

        As to who currently owns ARM, I was under the impression that it is still Masatoshi Sen’s investment vehicle, Softbank?

        1. 6.1.1.1

          I think that the characterization of Non Practicing Entity means just that: that you are not engaging in the positive act of practicing an item covered by a patent.

          Of course, any astute attorney can (and should) immediately recognize the disassociation — and quite apparent obfuscation — between the actual negative right nature of a patent and any such positive practice.

          Instead of actually recognizing and incorporating this point into the discussion, we have the oh-so-typical, even if “polite” to each other, glad-handling and sniping from the sidelines LACK of critical thinking.

        2. 6.1.1.2

          … the very definition of ad hominem, focusing on the person (here, owner) as opposed to the underlying legal point (US Sovereign choices as to the fundamental nature of the patent right), and since the “dialogue” is between like-minded folk, and kept “polite,” this is to be taken as somehow meaningful?

  4. 5

    Just want to point out that not all NPEs are classified as trolls. Trolls are a specific class of plaintiffs (which, in theory, could include practicing entities). I know there is no universal definition, but in my mind a troll is a plaintiff that sues on a shaky set of claims (often not closely related to the actual invention described in the specification) that rely on the expense of the legal system to extract rents from their victims rather than the strength or validity of the claims.

    A lot of NPEs, more broadly, may be landlord-esque parasites, but does not make them trolls.

    1. 5.1

      A more appropriate distinction/definition is that NPEs may well have invented, but do not perform, i.e., use, make or sell the patented invention. That includes many universities. They may choose to sell or license their invention. That does not make them a patent troll.
      In contrast the term PAEs (patent assertion entities) [which can encompass the use of the term patent trolls] almost entirely refers to those entities that have no business other than buying patents of others, obtaining litigation funding, and suing on those patents. They can and do obtain legal [damages] compensation if they win. But, the PAE business does not typically meet the long-established normal [and eBay confirmed for patents] criteria for non-statutory judicial equitable relief, and judicial equitable relief is what an injunction is.

      1. 5.1.1

        and judicial equitable relief is what an injunction is.

        This is perhaps the most unfortunate and most egregious spin when it comes to the principles of equity and what a patent is.

        A patent is only a negative property right.
        It is not — in and of itself — a right to practice.

        The basics of equity is to make the transgressed whole.

        When properly viewed, “what an injunction is” should be viewed as the single best manner of making the transgressed whole given the nature of the right transgressed.

        Owner (and what an owner may or may not do in the realm of positive action) should not impinge on the view of what right that is at point actually is.

        1. 5.1.1.1

          +1

      2. 5.1.2

        Thanks Paul. I checked what Wikipedia has to say about equity and injunctive relief. It included this:

        “However, in general, a litigant cannot obtain equitable relief unless there is “no adequate remedy at law”; that is, a court will not grant an injunction unless monetary damages are an insufficient remedy for the injury in question”

        Thinking of the activities of the typical PAE, this seems to me to strike the right balance. Three cheers for that by now 600 year old principle of English law that we call “equity”.

        1. 5.1.2.1

          What exactly — to you — is the injury, MaxDrie?

          Is it even something that is actually provided by a patent?

        2. 5.1.2.2

          Same here Max. that is where our courts got it. Even used the same equity text for many years. But equity does not apply to PTO proceedings, so those only practicing there would not run into it.

    2. 5.2

      This is why I really do not like the term “troll” and try to avoid it. It is one of those words like “strong” (when applied to patent rights) or “anti-patent” that means a dozen different things to a dozen different people. When the EFF describes X as a “patent troll,” that really tells you more about the EFF than it tells you about X.

  5. 4

    The next step is to tell Mary Trump that she cannot prevent others from copying her book because she is not also the publisher.

    1. 4.1

      Salient analogy NOIP.

  6. 3

    When you read academic article conclusions* like: “the federal courts over time have misunderstood and misapplied the Supreme Court’s landmark 2006 decision in eBay Inc. v. MercExchange, L.L.C,” guess which counts, that, or the Federal Circuit’s decisional views?
    *or blog comments
    Also, as demonstrated by the $2 Billion decision in the previous blog, the statutory ability of the District Court to greatly increase damages [up to 3 times] is not being appreciate here. If the damages award and the future (continuing) damages rate is high enough so that there is no profit in continuing infringement it can have the same practical effect as an injunction.
    Not even to mention the un-likelyhood of injunctions that would shut down widely used cell phone or internet features – e.g., remember the reaction of Congress to taking away their Blackberrys several years ago?

  7. 2

    This paper is premised on either the false assumption that there is no correlation between status as a manufacturer or NPE and the criteria in the four-factor test, or the false assumption that patent infringement alone almost always satisfies the four-factor test. The later assumption is simply a rejection of eBay. The first assumption ignores the entire purpose of any test with a binary outcome (e.g., injunction or no injunction) which is to create two groups based on differences in characteristics. Why presume that manufacturers and NPEs have no relevant differences? For example, one of the criteria is an inadequate remedy at law. Clearly, damages will be adequate sometimes. By definition, 35 U.S.C. § 284 provides “damages adequate to compensate for the infringement.” Between manufacturers and NPEs, which group do you think is more likely to have an injury that cannot be compensated with money? If you think continued infringement can never be compensated, then you simply disagree with eBay. Otherwise, it should be no surprise that these groups have different success rates with obtaining permanent injunctions.

    1. 2.1

      NS: Respectfully, the problem is that you are positing from within the unconstitutional, alternative reality eBay universe created out of whole cloth by SCOTUS.

      Only Congress could have created a four-factor (or any factor) test.

      They did not.

      If the Justices want to make new law, they need to take off their robes and run for office.

      1. 2.1.1

        Respectfully, in 35 USC 283, Congress left it to the courts to decide whether to issue injunctions “in accordance with the principles of equity” “on such terms as the court deems reasonable.” The four factor test arguably derives from the “principles of equity.”

      2. 2.1.2

        Wrong path, Pro Say.

        This IS an instance in which Congress DID share its ordained Constitutional authority.

        The better path is to realize how the principles of equity are being mis-spun in view of both the nature of the right transgressed, and the nature of equity to first make the transgressed whole.

        Congress HAS invited the judicial branch to apply its rules if equity in this case.

        With emphasis added:

        Courts “may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.”
        35 U.S.C. § 283.

        Not just the basis of equity (as making the transgressed while), but the purpose of this sharing of authority is a critical limitation on the courts’ actions.

        Separation of Powers doctrine carries strict constraints under Constitutional Law.

        Many here (and rather unsurprisingly, those typically who have sought to weaken patent rights), will refuse to understand the actual underlying context, and instead seek to subvert this as being an open-ended “the courts can do whatever they feel.”

        That is simply not in accord with the better (and larger) understanding of law.

        1. 2.1.2.1

          (Autocorrect misfire: while => whole)

    2. 2.2

      “Damages will be adequate sometimes” is an understatement candidate for NPEs, who have no interest in anything else than their money recovery. In fact, an NPE actually getting an injunction would cut off the NPE’s settlement royalties for all future infringements! They have no product or market to protect from competition.

      1. 2.2.1

        If the infringing company does a poor job designing and/or manufacturing the product the industry may conclude that the technology taught by the patent is at fault thereby damaging the value of the patent.

        And the inventor won’t be able to stop them.

        That’s an idea. If you want to destroy an independent inventor’s patent (and he is an NPE) set up a company (that is not identified as yours) and come out with a really crappy infringing product.

        It may be cheaper than the defending lawsuits and the IPRs and there won’t be any royalties to pay.

        1. 2.2.1.1

          Except that the model of trolls is not based on the quality of products. It is based on leveraging the burden of litigation, and the threat of interfering with the ongoing business of the target.

          I was once involved in a patent-troll case. The troll invented something useless, then claimed a whole industry was using his patented technology. The industry had zero interest in his patent and its technology, but paid him off to buy peace. I doubt that someone manufacturing a crappy version of his patent would have affected the dynamic at all.

      2. 2.2.2

        Turning this into a purely “money recovery” mode does not address the actual nature of the right transgressed, and if a direct ploy of the Efficient Infringer mantra.

        Paul – you err at the foundation of the issue.

      3. 2.2.3

        A monetary remedy may not be an adequate remedy for an NPE if the court gets the amount wrong. Reasonable royalty evaluations are expert “guesses” that may be wrong, especially if the court adopts the “guess” of the infringer’s expert. Perhaps the best way to determine a proper royalty is to impose an injunction (with sufficient time for the infringer to design around if desired) and see what the infringer is willing to pay in the face of that injunction.

    3. 2.3

      Remedy need be aligned to the right transgressed.

      You, NSII, and Paul delight in obfuscating about that right transgressed.

      I have to wonder if you have ever posted on the side of being pro-patent.

  8. 1

    I wish there were two classes of patent owners. Unfortunately the courts treat actual inventors the same as patent trolls. The problem is we don’t have billion dollar hedges funds and hundreds of patents to play the game.

    1. 1.1

      How do the differences between inventors and patent trolls apply to the four-factor test?

      1. 1.1.1

        Good question, but I do not recall the eBay 4 factor test being tested for an injunction applied to a winning patent suit where the patent owner was the inventor but not also the owner of a company making or selling the patented product? Is it because suits by such inventors themselves are not very common these days?

        1. 1.1.1.1

          More obfuscation.

          The nature of the actual right transgressed is simply not a function of who owns that right.

          Our grand US Sovereign experiment right from the start stressed the nature of the patent right as being a fully alienable right.

          This type of “who owns” focus obfuscates the nature of the right transgressed.

          Indulging in the boogeyman of “Oh Noes, Tr011s” is the propaganda of the Efficient Infringers.

          That the courts have bought into that propaganda is very much part and parcel of the problem.

          1. 1.1.1.1.1

            Correct. This is falling down the rabbit hole of ‘optimal use’ AKA Justice Breyer’s world view of government’s role in your life. Scenario, owning a car and your room mate decides to use it for uber, you sue – prove title, etc., and demand restraining order to stop using my car for uber and the court decides – Meh, here is a royalty for the car usage – determined by the most scientific and expert methods – and let’s suppose by magic wand – is the exact to the penny compensation for the use and continuing use – efficient infringement.

      2. 1.1.2

        Wrong question.

        This spin presupposes that the express purpose of the sharing of Constitutional authority imparts NO basis into the use of power by the Judicial Branch.

        It is NOT the “free-for-all” that you want to suppose that it is, NS II.

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