Wealth of Ideas, April 2012

Among the enumerated powers granted to Congress by the Constitution, you’ll find the Patent Clause:
The Congress shall have Power...to 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. (Article I, Section 8)

It seems fairly straightforward: Inventors get protection for their IP, the public benefits, and everyone wins. Except in real life, it’s not that simple. What are the penalties for infringers, and what remedies exist for owners of infringed patents? And should the remedies be different for the patent owner who practices the patent — versus the inventor or university that owns a patent but does not produce or sell a product or service that uses the patented invention?

Remedies for Patent Infringement
Over the last 230 years, three kinds of remedies were legislated and implemented for patent infringement:

1. Injunction: The infringer must stop making or selling the product or service that infringes the patented invention.
2. Reasonable Royalty: The infringer must pay the patentee a “reasonable royalty” — what the infringer would have paid had the infringer licensed the patent in the first place. This usually includes a lump sum payment for past infringement, and a license and royalties for future sales.
3. Treble Damages for Willful Infringement: Infringement is infringement, whether intentional or accidental. If a business invents on its own what turns out to be a patented invention, that is not an excuse for infringement of the patent, so No. 2 applies. However, if the infringer is found to have knowingly infringed the patent in question, the patent owner may be able to receive triple the amount of damages that would have accrued if the infringement had been unintentional.

Some patentees will use the threat of injunctive relief to put considerable pressure on the infringer to settle the lawsuit and take a license. Should an injunction be issued, the losses to the infringer could be significant and wide ranging.

In addition to the immediate loss of sales and the profits on the infringing product, the infringer would also have to write off its unsold inventory of infringing product, all parts and raw materials used to make the infringing product, and any manufacturing or other equipment used to produce or package the infringing product. Add to that all of the money spent advertising and promoting the now withdrawn-from-sale infringing product, the angry customers, the stores that were recruited to sell a product they cannot now sell, lost shelf space or lost catalog pages, lost market share, the general embarrassment the infringer would face, and damage to the company’s reputation and brand.

The threat of injunctive relief was traditionally a powerful tool for the patent owner, and until a few years ago, all patentees — whether they practiced the patent or not — were eligible for injunctive relief. And then came…

eBay v. MercExchange: Does This Change Everything?
The eBay ruling in 2006 made it much more difficult for a non-practicing entity to obtain a permanent injunction against an infringer. Before this landmark case, injunctive relief could be applied if the plaintiff passed a four-factor test:

1. Did the patent owner suffer irreparable injury from the infringement?
2. Would other remedies, such as monetary damages, be adequate compensation for that injury instead of an injunction?
3. Would the injunction be equitable considering the balance of hardships between the plaintiff and defendant?
4. Would a permanent injunction do a disservice to the public interest?

In the eBay case, the Supreme Court affirmed that patents are a form of property like any other and that, under the Patent Act, they grant their owner “the right to exclude others from making, using, offering for sale, or selling the invention.”

But the Court also held that injunctive relief could be used only “in accordance with the principles of equity.” That being the case, the right to exclude didn’t necessarily lead to an injunction. From this ruling came the term “NPE” for “non-practicing entity,” the patent owner that does not practice the invention.

For a more in-depth look at eBay v. MercExchange and its ramifications, see “Supreme Court Chooses the Middle Ground in the eBay Case” by Alexander Poltorak (Patent Strategy & Management, July 2006) and “Indigestion from the eBay Ruling: How Do You Spell Relief?” (Wealth of Ideas feature article, September 2009).

Life after eBay
The effect of eBay has been that patent owners who aren’t market participants have lost a good deal of their leverage against infringers. An NPE such as a university or research institution may be granted a permanent injunction because licensing patents is how these institutions fund further research. Those cases, however, are few and far between.

One possible exception is i4i v. Microsoft, which actually doesn’t involve an NPE but got the public’s attention because, for a short time, it threatened the sale and existence of Microsoft’s Word software. The case made headlines when i4i, a largely unknown software company based in Canada, was granted an injunction on sales of Word 2007 software along with $290 million in damages.

The Court of Appeals for the Federal Circuit upheld the lower court’s verdict, but extended the deadline for Microsoft to remove the infringing code from Word. Had Microsoft not won an extension of the deadline to remove i4i’s code from Word, it would have had to withdraw Word from the market. One can only begin to imagine the effect that would have had on Microsoft’s stock price, and on sales at office supply outlets such as Staples and Office Depot, or on the PC manufacturers that bundle Microsoft Office with their products.

Microsoft appealed to the U.S. Supreme Court, which ruled on the case in June 2011 and upheld the lower court’s ruling. Microsoft’s attempts to portray i4i as a patent troll and make it more difficult to prove patent infringement were ultimately unsuccessful.

The Bosch Case
But meanwhile, also in 2011, another court decision made it even more difficult for patentees to obtain permanent injunctions, Robert Bosch LLC v. Pylon Mfg. Corp. (Fed. Cir. 2011). In Bosch, the CAFC (Court of Appeals for the Federal Circuit) granted a permanent injunction on wiper blades that infringed Bosch’s patents — despite the fact that wiper blades were not a core part of Bosch’s business and thus it was unlikely that the infringement had caused irreparable harm. This essentially defined Bosch (a global supplier of automotive parts, accessories and tools) as an NPE with regard to the wiper blade business, and positioned Pylon as not being a competitor.

Further, the CAFC emphasized in its ruling that irreparable harm is truly no longer a given in patent cases: ‘We take this opportunity to put the question to rest and confirm that eBay jettisoned the presumption of irreparable harm as it applies to determining the appropriateness of injunctive relief.”

So where does this leave patent owners? If they can prove patent infringement, relief is still available in the form of damages (and triple damages if it’s possible to prove the infringement was willful). However, patent owners have lost a lot of leverage. The threat of injunctive relief is an empty one even for companies that are not NPEs — and that means that now more than ever, patent owners need experienced patent enforcement counsel before they attempt to pursue infringers.