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AMERICAN BAR ASSOCIATION
ADOPTED BY THE HOUSE OF DELEGATES
February 13, 2006
RECOMMENDATION
RESOLVED, that the American Bar Association supports the granting of a
permanent injunction enjoining a patent infringer from future infringement of a
patent that has been adjudicated to be valid, enforceable and infringed, in
accordance with the principles of equity on such terms as the court deems
reasonable;
FURTHER RESOLVED, that the Association opposes consideration of the
extent to which the patent owner has practiced the patented invention or has
licensed others to do so, except when determining whether grant of a permanent
injunction would adversely affect public safety, public welfare, the national
security, or the like.
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REPORT
The Section of Intellectual Property Law asks for approval by the House of Delegates of
this Report and Recommendation, which will support the Section’s request for approval
for the Association to file a brief amicus curiae in the U.S. Supreme Court in support of
the respondent in the case of eBay Inc. v. MercExchange L.L.C., No. 05-130 (“eBay”).
This report is being submitted as a late report because the grant of certiorari by the
Supreme Court occurred on November 28, 2005, after the November 16 deadline for
filing of Reports with Recommendations for consideration by the House of Delegates.
The report cannot be considered at a time later than the Midyear Meeting, 2006, since the
deadline for filing the amicus brief in the Supreme Court is March 10, 2006.
The Recommendation is that the Association support the granting of a permanent
injunction enjoining a patent infringer from future infringement of a patent that has been
adjudicated to be valid, enforceable and infringed, in accordance with the principles of
equity on such terms as the court deems reasonable.
The Recommendation further supports the granting of a permanent injunction enjoining
patent infringement by the infringer in all such cases of adjudicated infringement, “except
in rare instances, such as where the injunction would adversely affect public safety,
public welfare, or the national security.”
Finally, the Recommendation expresses the opposition of the Association to
consideration of the extent to which the patent owner has practiced the patented invention
or has licensed others to do so, except when determining whether grant of a permanent
injunction would adversely affect public safety, public welfare, or the national security.
The Council of the Section of Intellectual Property unanimously approved this resolution
and the accompanying report on February 3, 2006. The Section believes that the
resolution supports the granting of permanent injunctions in patent infringement cases in
a manner that is consistent with existing statutory law (35 U.S.C. 283) and jurisprudence
of the U.S. Supreme Court and U.S. Courts of Appeals, including in particular the U.S.
Court of Appeals for the Federal Circuit (“the Federal Circuit”), which has jurisdiction of
all appeals in patent cases. Specifically, the Section believes that the Federal Circuit
correctly decided MercExchange L. L. C. v. eBay, Inc., 401 F.3d 1323 (Fed. Cir. 2005).
Accordingly, the resolution expresses policy that supports the filing of a brief amicus
curiae in support of the respondent MercExchange L.L.C. in the eBay case.
The Copyright and Patent Clause of the Constitution, Art. I, §8, cl. 8, provides
“Congress shall have Power … [t]o promote the Progress of Science and Useful Arts by
securing for limited Times to Authors and Inventors the exclusive Right to their
respective Writings and Discoveries.”
In furtherance of this power, Congress has enacted statutes that provide means by
which inventors may enforce the exclusive rights called for in the Constitution.
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Section 154 of title 35, United States Code, establishes the patent right as a right
to exclude others from making, using, selling or offering to sell, or importing the patented
invention:
Section 154. Contents and term of patent; provisional rights
(a)
In General. (1) Contents. - Every patent shall contain a short title of the
invention and a grant to the patentee, his heirs or assigns, of
the right to exclude others from making, using, offering for
sale, or selling the invention throughout the United States or
importing the invention into the United States, and, if the
invention is a process, of the right to exclude others from
using, offering for sale or selling throughout the United States,
or importing into the United States, products made by that
process, referring to the specification for the particulars
thereof.
Section 271 defines acts of infringement:
Section 271. Infringement of patent
(a) Except as otherwise provided in this title, whoever without
authority makes, uses, offers to sell, or sells any patented
invention, within the United States or imports into the United
States any patented invention during the term of the patent
therefor, infringes the patent.
(b) Whoever actively induces infringement of a patent shall be
liable as an infringer.
Section 283 provides for the issuance of injunctions to prevent the violation of patent
rights:
Section 283. Injunction
The several courts having jurisdiction of cases under this title
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.
In Continental Paper Bag Co. v Eastern Paper Bag Co., 210 U.S. 405 (1908) , a leading
case on the law of injunctions in patent cases, the Supreme Court reviewed the Court’s
previous jurisprudence, and observed:
“It shows that, whenever this court has had occasion to speak, it has
decided that an inventor receives from a patent the right to exclude others from its
use for the time prescribed in the statute. 'And, for his exclusive
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enjoyment of it during that time, the public faith is pledged.' Chief
Justice Marshall in Grant v. Raymond, 6 Pet. 242, 243, 8 L. ed. 384, 385.
And, in Bloomer v. McQuewan, 14 How. 539, 14 L. ed. 532, Chief Justice
Taney said: 'The franchise which the patent grants consists altogether in
the right to exclude everyone from making, using, or vending the thing
patented without the permission of the patentee. This is all that he
obtains by the patent.' “
The right of exclusion is not only indispensable to the vindication of the rights of a patent
holder, but it is indispensable to the effective implementation of the power granted to the
Congress in the Patent and Copyright Clause of the Constitution. In Kewanee Oil Co. v.
Bicron Corp., 416 U.S. 470, at 480, the Court described how the right to enjoin a patent
infringer drives the constitutional objective of promotion of invention:
The stated objective of the Constitution in granting the power to Congress to
legislate in the area of intellectual property is to "promote the Progress of Science
and useful Arts." The patent laws promote this progress by offering a right of
exclusion for a limited period as an incentive to inventors to risk the often
enormous costs in terms of time, research, and development.
It follows from the nature of the right to exclude that injunctive relief is absolutely
essential to assure the prevention of future violation of the patentee’s rights. Money
damages alone cannot suffice. As the Supreme Court noted in Continental Paper Bag Co.
v Eastern Paper Bag Co.,
It hardly needs to be pointed out that the right [of the patentee] can only retain
its attribute of exclusiveness by a prevention of its violation. Anything
but prevention takes away the privilege which the law confers upon the
patentee. (Emphasis added.)
The Section of Intellectual Property Law believes that the Court of Appeals for the
Federal Circuit correctly invoked the rule and reasoning of Continental Paper Bag Co. in
reversing the District Court’s denial of an injunction in the eBay case, where it stated
Because the “right to exclude recognized in a patent is but the essence of the
concept of property,” the general rule is that a permanent injunction will issue once
infringement and validity have been adjudged.
However, at the same time that the Continental Paper Bag Co. Court recognized the
essentiality of injunctive relief to effectuate patent rights, it made clear that the grant of
an injunction is not automatic, even following final adjudication of patent validity and
infringement. In this regard, the Court’s opinion concluded with the observation
Whether, however, a case cannot arise where, regarding the situation of the parties in
view of the public interest, a court of equity might be justified in withholding relief by
injunction, we do not decide.”
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The Section of Intellectual Property Law believes that a permanent injunction enjoining
patent infringement by an adjudicated infringer should be granted except in rare
instances, such as where the injunction would adversely affect public safety, public
welfare, or the national security. We believe that the Federal Circuit’s statement in eBay
that “the general rule is that a permanent injunction will issue once infringement and
validity have been adjudged” is consistent with the policy that we advocate. We also
believe that it is consistent with Supreme Court and other federal appellate court
precedent, and that it is an appropriate starting point in formulating the rules for the
administration of injunctive relief in patent infringement cases. The general rule that the
Section supports is expressed in the first “Resolved” clause of the Recommendation:
RESOLVED, that the American Bar Association supports the granting of a
permanent injunction enjoining a patent infringer from future infringement of a
patent that has been adjudicated to be valid, enforceable and infringed, in
accordance with the principles of equity on such terms as the court deems
reasonable;
The general rule provides that following adjudication of validity of a patent and its
infringement, an adjudicated infringer should be enjoined from future infringement. The
resolution further provides that the issuance of (or declination to issue) an injunction
should be made “in accordance with the principles of equity and on such terms as the
court deems reasonable.” The express adoption of language from section 283 o title 35,
U.S. Code, regarding injunctions in patent cases is intended to make clear that our policy
does not call for an “automatic rule”, a per se rule,” or an “irrebutable presumption,” in
favor of an injunction. Instead the policy supports full compliance with section 283,
including application of traditional principles of equity.
The Section does not agree with the representation of the eBay petitioners that, “. . . the
Federal Circuit has commanded, an injunction must follow automatically without
consideration of the traditional prerequisites for the grant of equitable relief. (Reply Brief
of Petitioner, p. 1). For example, the Federal Circuit recently affirmed the denial of a
permanent injunction after a finding of infringement (presumably because
of the traditional maxim of equity that injunctive relief should be denied when it would
be impractical to administer). Fuji Film Co. v. Jazz Photo Corp., 394 F.3d 1368, 1380
(Fed. Cir. 2005).
The Section believes that the Federal Circuit is applying traditional principles of equity
and other requirements for granting equitable relief. The court need not write extensively
on routine equitable issues that arise in every patent infringement case in which the patent
(a) is not invalid or unenforceable and (b) has been infringed. The Federal Circuit need
not rewrite the obvious in most cases in which the patentee has prevailed after trial and is
seeking a permanent injunction.
The second “resolved” clause in our recommendation addresses exceptions to the general
rule:
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FURTHER RESOLVED, that the Association supports the granting of a
permanent injunction enjoining patent infringement by the infringer except in rare
instances, such as where the injunction would adversely affect public safety,
public welfare, or the national security;
This portion of the recommended policy calls for exceptions to the general rule of
injunctions in patent cases in “rare instances.” This policy expressly recognizes certain
circumstances that constitute such rare instances, namely those “where the injunction
would adversely affect public safety, public welfare, or the national security.” The
inclusion of the prefatory term “such as” before these enumerated circumstances is
intended to make clear that these examples are just that, and are not exclusive.
Petitioners and their supporters assert—erroneously in our view—that the Federal Circuit
has narrowly circumscribed the circumstances that justify the denial of a permanent
injunction in patent cases. For example, the Reply Brief of Petitioner on the Petition for a
Writ of Certiorari opens with the statement
“In their petition, eBay, Inc., and Half-com, Inc. (“eBay”) have demonstrated that the
Federal Circuit’s holding in this case set out, with a minor exception for public health
risks, an irrebutable presumption that a permanent injunction should follow a finding of
patent infringement.”
The Section does not agree with this interpretation of Federal Circuit precedent, and the
policy that we recommend would not permit it.
Historically, there have only been fewer than 40 cases in which a prevailing owner of an
unexpired patent was unsuccessful in obtaining a permanent injunction restraining
ongoing infringement (except by the United States or its contractors who were supplying
the government pursuant to "authorization and consent" clauses). It is true that almost all
of those cases involved considerations of public health, safety, or welfare. It is therefore
not surprising that the Federal Circuit has cited case law regarding the denial of
permanent injunctions that would threaten the public health, safety, or welfare. The
Federal Circuit was merely referring to circumstances in which permanent injunctions
had been denied in the past -- without suggesting or stating that there could be no other
circumstances for doing so in the future.
In fact, the Federal Circuit affirmed the denial of a permanent injunction on another
ground just two months before the Federal Circuit decided the eBay case. See Fuji Photo
Film Co. v. Jazz Photo Corp., 394 F.3d 1368, 1380 (Fed. Cir. 2005). Although the
Federal Circuit did not use the traditional words of art, the court affirmed the denial of
the permanent injunction in Fuji Film because of the "impracticality of the remedy in
equity," which is one of the classic grounds for denying injunctive relief (permanent or
preliminary). Fuji Film makes it clear that the Federal Circuit has not adopted any rigid
per se rule mandating the entry of a permanent injunction except for reasons of public
safety, public welfare, and national security.
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Our recommendation does not limit the denial of a permanent injunction to circumstances
of public safety, public welfare, or national security, although they have historically been
the common ones.
The constitutional purpose of the patent system -- to promote the progress of the useful
arts -- is in the public interest; and that purpose would inherently be frustrated by the
routine denial of permanent injunctive relief in cases brought by patentees who are not
practicing their patented inventions. Since the Federal Circuit was established in 1982,
its decisions recognize -- as pre-Federal Circuit cases had recognized earlier -- that the
interests of public safety, public welfare, and national security may override the public
interest in the full enforcement of a particular patent in a particular case. The pre-Federal
Circuit cases include other situations in which permanent injunctions had been properly
denied for reasons of equity, e.g., the impracticality of the remedy in equity when a
patented invention had been incorporated into a road, bridge, or building -- resulting in
the denial of a permanent injunction against continuing infringing use that could only be
avoided by abandoning or destroying the completed structure.
It is important to recognize that it is not feasible to attempt to statutorily enunciate each
and every situation in which the public interest may warrant the denial of a permanent
injunction. These circumstances nonetheless will occur, and they are cognizable under
both existing law and the policy that the Section is recommending.
In the Petition for Certiorari, petitioners eBay, Inc. and Half.Com, Inc. state the Question
Presented in the appeal as follows:
“Whether the Federal Circuit erred in setting forth a general rule in patent
cases that a district court must, absent exceptional circumstances, issue a
permanent injunction after a finding of infringement.”
We find an equivalence in an exception that calls for a departure from a general rule “in
rare instances,” as we recommend, and an exception in “exceptional circumstances,” as
the petitioners in eBay represent the position of the Federal Circuit to be. Accordingly,
the Section finds the Question Presented to be a fair statement of the case, and we believe
that the policy that we are recommending to the Association supports answering that
question in the negative.
The third and final component of the Section’s recommendation for Association policy
regarding injunctions for patent infringement addresses the issue of what if any
consideration should be given to whether the patent owner is practicing or “working” the
patent:
FURTHER RESOLVED, that the Association opposes consideration of the extent
to which the patent owner has practiced the patented invention or has licensed others to
do so, except when determining whether grant of a permanent injunction would adversely
affect public safety, public welfare, or the national security.
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The Section believes that this component of the proposed policy, like all its provisions, is
both consistent with existing law, and that the law correctly addresses the issues
involved.
The eBay Petitioners argue that “additional costs of patent litigation that result from the
Federal Circuit’s nearly automatic injunction rule are even more troubling given the
proliferation of patent assertion firms or ‘non-practicing entities.’” (Petitioners’ Petition
for a Writ of Certiorari, p. 27.) A recent report of the Federal Trade Commission
describes non-practicing entities (“NPE’s”) as ones that “obtain and enforce patents
against other firms, but either have no product or do not create or sell a product that is
vulnerable to infringement countersuit by the company against which the patent is being
enforced.” (Federal Trade Commission Report To Promote Innovation: The Proper
Balance of Competition and Patent Law and Policy. Chapter 3, p, 38, (2003)).
In granting the writ of certiorari in the eBay case, the Supreme Court directed the parties
to brief and argue the additional question
Whether this Court should reconsider its precedents, including Continental
Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908), on when it
is appropriate to grant an injunction against a patent infringer.
Since the issue of working the patent was central to the resolution of the
injunctions issue in Continental Paper Bag Co., it appears that the Supreme Court
is prepared to reexamine the issue of the consideration to be given to whether the
owner is working the patent.
Many colleges and universities, business organizations, and individuals make inventions,
patent them, and seek the patent system's financial incentives by licensing (rather then
making and selling) the patented product. The denial of a permanent injunction against
extant infringement would profoundly lower (a) the royalty that prospective licensees
will be willing to pay for a negotiated license, and concomitantly (b) the "reasonable
royalty" that might be awarded by a court pursuant to 35 U.S.C. 284. One who has no
risk of being enjoined after infringing a valid and enforceable patent owned by someone
who does not make and sell the patented invention has little incentive to avoid
infringement or to settle a patent infringement case after commencing infringement.
Since a non-manufacturing patentee is seldom, if ever, able to prove actual damages, that
patentee's monetary recovery is relegated to the statutory "reasonable royalty" for past
infringement; if that reasonable royalty drops profoundly in a world in which no
injunction can be obtained, there will be an irresistible monetary incentive to infringe
patents. Under these circumstances, an infringer would likely be encouraged to attempt a
defense on grounds of invalidity, non-infringement, or unenforceability, knowing that if
he loses, the only risk would be a reasonable royalty that may be inconsequential.
The eBay petitioners and their supporting amici have used pejorative labeling such as
"patent troll" (i.e., the petitioners refer to "'patent assertion' companies" and various of the
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supporting amici use the "patent troll" terminology) – to suggest that the owner of a
patent that has been held valid, infringed, and enforceable by the district court and the
court of appeals could be a "patent troll." While true "patent trolls" are problematic, a
meaningful definition of a "patent troll" is a patent owner asserting a claim of patent
infringement that is fundamentally flawed regarding one or more of the substantive issues
of validity, infringement, and enforceability -- in an effort to coerce the payment of
wholly unwarranted royalties. After a patent has been held valid, infringed, and
enforceable and the issue is whether to enter a permanent injunction, the patentee should
not be considered to be a "patent troll."
For reasons that we have explained, the Section does not believe that, in most cases, the
fact that the patent owner is not working the patent by the direct production of a product
is a relevant factor in a decision to grant or deny injunctive relief. However, there are
circumstances in which it is appropriate to consider the extent to which the patent owner
has practiced the patented invention. As expressed in the policy that the Section proposes,
it is appropriate to consider the extent to which the patent owner has practiced the
invention when such consideration is relevant to determining whether a grant of an
injunction would adversely affect public safety, public welfare, of the national security.
For example, if the owner of a patent on a critical medicine or medical device either (a)
does not make and sell the patented device at all or (b) does make and sell but does not
have the manufacturing capacity to supply the market's needs if an infringer were to be
enjoined, it would be appropriate to deny a permanent injunction at least until such time
that the patent owner or its legitimate licensee can fill the public demand for the product.
This policy is reflected in the jurisprudence of the Court of Appeals for the Federal
Circuit. In its decision in the eBay case, the court noted “to be sure, ‘courts have in rare
instances exercised their discretion to deny injunctive relief in order to protect the public
interest,’” citing Rite-Hite Corp. v. Kelley, 56 F. 2d 1538. 1547 (Fed. Cir. 1995). The
decision in eBay identified its decision in Rite-Hite as an application of that principle:
“Thus, we have stated that a court may decline to enter an injunction when ‘a patentee’s
failure to practice the patented invention frustrates an important public need for the
invention,’ such as the need to use an invention to protect public health. Rite-Hite Corp.,
56 F.3d at 1547.”
The Section believes that, applied to the facts and law involved in the issues relating to
injunctions in the eBay litigation, the policy that we are recommended clearly calls for an
affirmation of the decision of the Federal Circuit.
The eBay case does not present an attractive fact pattern for the infringer's opposition to
an injunction against continued infringement. Accepting the facts as presented in the
petition papers, eBay knew of the patents in suit before the infringement commenced and
sought to buy them (or obtain a license under them), but the parties could not agree on
terms -- so eBay chose to infringe. (Indeed, the jury found that eBay's infringement was
"willful"; the district judge decided, as a matter of judicial discretion, not to award
enhanced damages for the willful infringement, and the Federal Circuit did not reverse
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that decision.) Moreover, plaintiff/respondent MercExchange has another licensee
who will not be obligated to pay future royalties if MercExchange does not obtain a
permanent injunction against eBay. See MercExchange's brief in opposition at 7.
The Federal Circuit concluded that “the district court did not provide any persuasive
reason to believe that this case is sufficiently exceptional to justify the denial of a
permanent injunction.” In fact, none of the reasons cited by the district court appear to be
recognized grounds for denial of an injunction under existing jurisprudence, nor to be
new grounds worthy of recognition.
The district court first states that “a growing concern over the issuance of businessmethod patents, which forced the PTO to implement a second level review policy and
cause legislation to be introduced in Congress to eliminate the presumption of validity for
such patents.” The introduction of legislation to change existing law is not a legitimate
reason for a district court to take it upon itself to implement that change. Indeed, it seems
to underscore the fact that if such a change is to be made, it should be made by Congress.
Similarly, the fact that the PTO implements additional review procedures for business
method patents, as it has for many categories of patents, does not justify discriminatory
treatment of such patents when injunctions are involved.
Another reason that the district court gave for denying a permanent injunction was that
the case was contentious and that an injunction might lead to protracted and expensive
enforcement proceedings. However, as the Federal Circuit noted, “the court’s concern
about the likelihood of continuing disputes over whether the defendants’ subsequent
actions would violate MercExchange’s rights is not a sufficient basis for denying a
permanent injunction.”
Still another reason for the district court’s denial of a permanent injunction was
MercExchange’s expressed willingness to license the patents. The Federal Circuit
correctly reasoned that this is not a basis for denial of an injunction, and that
Injunctions are not reserved for patentees who intend to practice their patents, as
opposed to those who choose to license. The statutory right to exclude is equally
available to both groups, and the right to an adequate remedy to enforce that right
should be equally available to both as well. If the injunction gives the patentee
additional leverage in licensing, that is a natural consequence of the right to
exclude and not an inappropriate reward to a party that does not intend to compete
in the marketplace with potential infringers.
Conclusion
The Section of Intellectual Property Law urges the House of Delegates to approve this
Report and Recommendation to establish Association policy supporting a general rule
that an adjudicated patent infringer will be enjoined from further infringement, except in
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rare instances, such as where the injunction would adversely affect public safety, public
welfare, or the national security.
The policy would also opposes consideration of the extent to which the patent owner has
practiced the patented invention or has licensed others to do so, except when determining
whether grant of a permanent injunction would adversely affect public safety, public
welfare, or the national security.
Respectfully submitted,
E. Anthony Figg, Chair
Section of Intellectual Property Law
February 2006
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GENERAL INFORMATION FORM
Submitting Entity:
Section of Intellectual Property Law
Submitted by:
E. Anthony Figg, Section Chair
1. Summary of Recommendation
The recommendation urges the Association to adopt a resolution to establish
Association policy supporting a general rule that an adjudicated patent infringer
will be enjoined from further infringement, except in rare instances, such as where
the injunction would adversely affect public safety, public welfare, or the national
security.
The policy would also oppose consideration of the extent to which the patent
owner has practiced the patented invention or has licensed others to do so, except
when determining whether grant of a permanent injunction would adversely affect
public safety, public welfare, or the national security.
2. Approval by Submitting Entity
The Section Council approved the resolution on February 3, 2006.
3. Has This or a Similar Recommendation Been Submitted to the House of Delegates or
Board of Governors Previously?
No.
4. What Existing Association Policies are Relevant to This Recommendation and Would
They be Affected by its Adoption?
None.
5. What Urgency Exists Which Requires Action at This Meeting of the House?
The policy expressed in the recommendation will support the Section’s request
for approval for the Association to file a brief amicus curiae in the U.S. Supreme
Court in support of the respondent in the case of eBay Inc. v. MercExchange
L.L.C., No. 05-130. This report is being submitted as a late report because the
grant of certiorari by the Supreme Court occurred on November 28, 2005, after
the November 16 deadline for filing of Reports with Recommendations for
consideration by the House of Delegates. The report cannot be considered at a
time later than the Midyear Meeting, 2006, since the deadline for filing the
amicus brief in the Supreme Court is March 10, 2006.
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6. Status of Matter
The status of the issue is discussed in the preceding paragraph.
7. Cost to the Association (both direct and indirect costs).
Adoption of the recommendations would not result in additional direct or indirect
costs to the Association.
8. Disclosure of Interest
There are no known conflicts of interest with regard to this recommendation.
9. Referrals
This recommendation is being distributed to each of the Sections and Divisions
and Standing Committees of the Association.
10. Contact Person (prior to meeting)
Jack C. Goldstein
Section Delegate to the House of Delegates
Law Offices of Jack C. Goldstein
16 Sugarberry Circle
Houston, TX 77024-7251
Ph: 713-782-7823
Fax: 713-782-9942
jcgoldst@aol.com
11.
Contact Persons (who will present the report to the House)
Jack C. Goldstein (See item 10 above)
12.
Contact Person Regarding Amendments to this Recommendation
Jack C. Goldstein (See No. 11 above)
During the Midyear Meeting, Mr.Goldstein can be reached at the Hyatt Regency
Chicago Hotel, 151 E. Wacker Drive, Chicago, IL (telephone: (312) 565-1234).
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