Injunctive Relief After
eBay Inc. v. MercExchange, LLC
The opinions expressed herein are not to be attributed to clients of Fish & Richardson P.C.
Overview
Summary of MercExchange v. eBay
Survey of significant post-eBay
rulings
Impact of eBay on settlement
negotiations
Litigation strategies after eBay
Life in a world without injunctions
Overview
Summary of MercExchange v. eBay
Survey of significant post-eBay
rulings
Impact of eBay on settlement
negotiations
Litigation strategies after eBay
Life in a world without injunctions
To promote the Sciences and useful
Arts, by securing for limited Times to
Authors and Inventors the exclusive
right to their respective Writings and
Discoveries;
U.S. Const. Art. I, § 8
eBay v. MercExchange (E.D. Va.)
MercExchange sued in the E.D. Virginia for
infringement of Pat. No. 5,845,265 (“265 Patent”)
Former patent lawyer took his application on
Internet baseball card trading and wrote claims that
applied to eBay
Judge struck most of the case on summary judgment
Jury found the ‘265 Patent valid and infringed
eBay v. MercExchange (E.D. Va. – cont.)
Judge denied motion for permanent injunction
Applied traditional 4-factor test:
– No irreparable harm because MercExchange:
• Was willing to license
• Did not practice the patents
• Did not move for preliminary injunction
– Money damages adequate due to willingness to license
– Public interest favors neither party
• Business method nature of patents and non-practicing nature of plaintiff
– Balance of hardships slightly favors defendants
• Plaintiff’s sole business is to enforce its patents
• Injunction could breed multiple contempt proceedings
eBay v. MercExchange (Federal Circuit)
Federal Circuit reversed district court’s denial of a
permanent injunction
– Panel: J. Bryson, J. Clevenger and J. Michel
Applied the “general rule that courts will issue
permanent injunctions against patent infringement
absent exceptional circumstances.” 401 F.3d 1323, 1339
(Fed. Cir. 2005)
– Rare exceptions limited to protecting an important public
interest, such as public health
– Rejected district court’s various concerns as insufficient
eBay v. MercExchange (Supreme Court)
United States Supreme Court granted certiorari “to
determine the appropriateness of [the Federal
Circuit’s] general rule” favoring nearly automatic
injunctions
29 amicus briefs filed by various businesses,
universities, professors, industry groups,
associations and the federal government
eBay v. MercExchange (Supreme Court)
The Supreme Court through Justice Thomas held the
traditional 4-factor test for injunctions applies equally in
patent cases:
–
–
–
–
Irreparable injury
Inadequate remedies at law
Balance of hardships
Public Interest
Rejected any categorical or general rule governing when
patentees are or are not entitled to injunctive relief, subject to
dueling concurrences
eBay v. MercExchange (Supreme Court)
Justice Roberts said “discretion is not a whim” and “a page
of history is worth a volume of logic” citing 100 years of
jurisprudence finding that injunctive relief follows liability
Justice Kennedy said patent licensing companies need not
apply, citing the economic inequality of the injunction
negotiation and specifically called out “marginal” patents in
the hands of non-traditional manufacturing businesses
Vacated and remanded for application of 4-factor test
eBay v. MercExchange (Supreme Court)
The Supreme Court remanded to the Federal Circuit, who
then remanded back to Judge Friedman in July
Defendant eBay filed for reexamination, moved to stay the
remand proceedings pending outcome of reexamination
Plaintiff MercExchange moved for permanent injunction
Hearing on Nov. 17, motions taken under advisement
Overview
Summary of MercExchange v. eBay
Survey of significant post-eBay
rulings
Impact of eBay on settlement
negotiations
Litigation strategies after eBay
Life in a world without injunctions
Summary of Cases After eBay
eBay decided May 15, 2006
Federal Circuit immediately remanded dozens of
cases for consideration of the impact of eBay
Since eBay, at least 14 cases have addressed
whether a patentee is entitled to injunctive relief
Find a complete list at www.fr.com
In general, patentees that do not directly compete
with the defendants’ infringing products are not
winning injunctions
Injunction Granted
Rosco, Inc. v. Mirror Lite Co. E.D.N.Y Sept. 29, 2006
Smith & Nephew, Inc. v. Synthes (U.S.A.), et al. W.D.Tenn. Sept. 29, 2006
3M v. Avery Dennison D. Minn. Sept. 25, 2006
Floe Int'l, Inc. v. Newmans' Mfg. Inc. D. Minn. August 23, 2006 (Stip)
TiVo Inc. v. Echostar Communications Corp. E.D. Tex August 17, 2006
Telequip Corp. v. Change Exchange N.D.N.Y August 15, 2006
Wald v. Mudhopper Oilfield Servs., Inc. W.D. Okla July 27, 2006
Injunction Denied
Z4 Techs., Inc. v. Microsoft corp. E.D. Tex. June 14, 2006
Finisar Corp. v. Directv Group, Inc. E.D. Tex. July, 7, 2006
Paice LLC v. Toyota Motor Corp. E.D. Tex August 16, 2006
Monsanto Company v. Scruggs Fed. Cir. August 16, 2006 (FC remand)
Voda v. Cordis Corp. W. D. Okla. Sept. 5, 2006
Z4 Technologies, Inc. v. Microsoft Corp.
Product activation software patent valid and infringed
E.D. Tex. (J. Davis) denied motion for permanent injunction
– No irreparable harm because no direct competition, and product
activation does not drive sales of the accused products
– Balance of hardships favors Microsoft because new, non-infringing
product expected in early 2007, immediate redesign wasteful
– Public interest disfavors injunction due to widespread reliance on
Microsoft products
Validation of Justice Kennedy’s uneven playing field
argument - would simply give z4 too much of an upper hand
New feature: compulsory license requiring Microsoft to
report damages quarterly
Put burden on patentee to prove each injunction factor
Finisar Corp. v. DirecTV Group, Inc.
Information transmission system patent valid and infringed
E.D. Tex. (J. Clark) denied motion for permanent injunction
– No irreparable harm – Finisar did not practice patent
– Compulsory license would adequately compensate, particularly in
view of MPEG-2 Standard Portfolio License, viewed as comparable
– Balance of hardships and public interest weighed against injunction
– Injunction could have created a monopoly by removing one of only
two competitors in satellite TV market, albeit neither is Finisar
– Negative effect on thousands of DirecTV employees and 15 million
DirecTV customers
Paice LLC v. Toyota Motor Corp.
Hybrid vehicle patent found valid and infringed
– Patentee is technology company in hybrid business for fifteen years
– Manufactured prototypes but does not make cars, invested $20
million
– Record created in anticipation of eBay
EDTx. (J. Folsom) denied motion for permanent injunction
– Court cited lack of direct competition despite licensing activity
– Court cited willingness to settle as reason to deny injunction
– Court entered compulsory license without litigation of the issue
Plaintiff deprived of exclusive license agreement, forever
Seems contrary to Justice Thomas’ offer that universities and
research institutions may qualify for injunctions
TiVo Inc. v Echostar Communications Corp.
Patent for DVR systems found valid and infringed
E.D. Tex. (J. Folsom) granted permanent injunction
– Irreparable harm and inadequate remedy at law established by direct
competition between the parties and impact on TiVo’s market share
at critical time in new market
– Balance of hardships favors TiVo since DVR technology is its sole
product, while Echostar’s core product is satellite TV service
– Public interest favors injunction because of interest in maintaining
strong patent system, and fact that infringing products are used for
entertainment, not public health or a similar key interest
Federal Circuit stayed the injunction pending appeal
Wald v. Mudhopper Oilfield Servs., Inc.
Oilwell mud polymer delivery system patent found valid and
infringed
W.D. Okla. granted motion for permanent injunction
Cited lost sales presumably compensable by damages
Cited loss of market share which supports injunctive relief
Cited loss of reputation for innovation
Voda v. Cordis Corp.
Angioplasty guide patent found valid and infringed
W.D. Okla. denied motion for permanent injunction
– Rejected patentee’s reliance on alleged harm to exclusive licensee,
non-party Scimed
– “As patents have the ‘attributes of personal property’ … the person
seeking a permanent injunction must demonstrate harm from
infringement of those rights that is personal as well.”
Raises interesting questions about whether IP holding
companies (even within corporations) may obtain injunctions
Fundamentally alters the monetization of patent holdings
Raises concerns about “new economy” of intellectual property
Overview
Summary of MercExchange v. eBay
Survey of significant post-eBay
rulings
Impact of eBay on settlement
negotiations
Litigation strategies after eBay
Life in a world without injunctions
Impact of eBay on Settlement
Settlement? What settlement?
Threat of injunction drives settlement
– Damages are usually a portion of margins, can be absorbed
– Prospect of facing cessation of business is catastrophic
– Research in Motion is primary example
For competitors, injunctions still available in theory
– However, so are counterclaims
– “MAD” theory of litigation settles in to limit the fight
– At some point, resource drain predominates, cross license follows
Impact of eBay on Settlement
For non-competitor cases, plaintiffs still have incentives to
settle - cost, risk - but the leverage has shifted
For defendants, recent decisions fix compulsory royalty
license as “punishment”
– Capped at reasonable royalty
– No lost profits for non-competitor
Reasonable royalty defined as pre-litigation hypothetical
negotiation under Georgia Pacific at least in theory
“Worst case” is thus the same royalty that the defendant
would pay if case is settled before the case is litigated
What incentive then does any defendant have to settle?
Impact of eBay on Settlement
In fact, defendants have incentives not to settle
Millions for defense, not a penny for tribute
– Patent licensing companies use proceeds to fund additional litigation
– Each settlement supports future cases
– Model falters if forced to trial in each case
Jury factors always offer possibility of success
Federal Circuit reversal rate also offers comfort
End result is a very full trial calendar for Courts and patent
litigators
Overview
Summary of MercExchange v. eBay
Survey of significant post-eBay
rulings
Impact of eBay on settlement
negotiations
Litigation strategies after eBay
Life in a world without injunctions
Litigation Strategies after eBay
For Plaintiff/Patentees:
Manufacturing/competition obvious key
Economic theories of intellectual property in preliminary
injunction cases reemerge - Hybritech Inc. v. Abbott Labs.,
849 F.2d 1446 (Fed. Cir. 1988).
– Patents protect investment in research
– Farmer cannot replant if people steal crops
– Stress that injunctive rights allow control of property
For non-practicing plaintiffs, consider limited license deals
before litigation
– Set royalty rates
– Notwithstanding Voda, exclusive license argument may be a winner
Litigation Strategies after eBay
For Plaintiff/Patentees:
Point to essentiality of patented feature, avoid “undue
leverage” argument from J. Kennedy’s concurrence
Rapidly evolving technology may support injunction
Loss of market share and reputation - Wald v. Mudhopper
Oilfield Servs., Inc.
Litigation Strategies after eBay
For Plaintiff/Patentees:
Three little letters: I-T-C
ITC exclusion orders are authorized by different statute
No damages, essentially injunctive relief in the form of
exclusion and cease & desist orders are the only remedy
Domestic industry requirement is much lower than the eBay
standard for injunctions
Certain Baseband Processor Chips decision exhibits some
sensitivity to eBay considerations
Expect ITC filings to rise
Litigation Strategies after eBay
For Defendant/Accused Infringers:
Every case becomes a reasonable royalty case
Develop equities
– Lost employment/economic hardship
– Need for products by customer base
– Develop evidence of license/failure to license others
Argue that inequitable conduct, other equitable defenses go
to remedy
Delay in seeking relief
Bait the plaintiff into making a settlement offer,
notwithstanding Rule 408
Litigation Strategies after eBay
For Defendant/Accused Infringers:
Caveat defendants “inequitable” conduct
– Ignoring demand letters/lack of good faith may increase likelihood
of injunction
– Litigation conduct may become relevant as in willfulness
Public interest may be powerful, again refer back to PI cases
– Medical devices
– Safety equipment
– Defense systems
Imminent cessation of sales may stave off injunctions
Overview
Summary of MercExchange v. eBay
Survey of significant post-eBay
rulings
Impact of eBay on settlement
negotiations
Litigation strategies after eBay
Life in a world without injunctions
Life in a World Without Injunctions
Clearly the economic playing field has been adjusted
– Defendants face no more than royalty cost if the case is lost
– Little incentive to settle
No more will the productive elements of society face the
leverage of an injunction
Impact on research yet to be determined
– Research institutions rarely sue
– Certainly will diminish the value of intellectual property overall
– Patent holding companies lose value under eBay
Life in a World Without Injunctions
Compulsory licenses are an unintended consequence of eBay
District Courts deprived of injunctions would face repetitive
litigation to address the continuing tort of infringement
–
–
–
–
Collateral estoppel principles would preclude relitigation of liability
Could simply be a summary matter of determining damages
Compulsory licenses avoid repetitive litigation
Compulsory licenses sound like a taking
Terms of such compulsory licenses are completely undefined
– Escalation? Minimums? Royalty base definition? Audit rights?
Choice of law? New products?
Impact of post-judgment exclusive license undetermined
Life in a World Without Injunctions
In practice, few patentees earned injunctions
Stay was the norm rather than the exception in noncompetition cases
– Standard Havens required a near-eBay analysis in considering stays
– Balance of the hardships, public interest, adds likelihood of success
on the merits
Few District Courts refused a stay where no competition
existed
Research in Motion escaped an injunction for over three
years after it was found liable
Life in a World Without Injunctions
Willfulness in this brave new world
– Accused infringer now an adjudged infringer
– Opinion counsel become scarce
– Statute says that when willfulness found, the District Court may
impose enhanced damages
One possible way to address the compulsory license paradox
would be to impose a higher rate for compulsory licenses
than for past damages
– Double or treble royalty
– Offer the accused infringer the choice as to whether to cease sales
– Preserves some of the patentee’s exclusive rights over the property
Questions?