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WASHINGTON � Nearly a hundred years ago, the U.S. Supreme Court examined injunctions for halting patent violations in a case about paper bags. The justices this month will consider the same issue in a case about eBay Inc.’s computerized auction technology. Times change, indeed, but will the law? For patent litigators, scholars, inventors and others, it is more � often a lot more � than the quintessential $64,000 question. The $612 million settlement reached by Research in Motion Ltd., maker of the BlackBerry wireless e-mail service, took place within the shadow of a possible injunction threatening to block the continued use of certain technologies underpinning that device, which is indispensable to many. “That’s a dramatic case by anybody’s standard,” said patent scholar Joseph Miller of Lewis & Clark Law School. But, he explained, it clearly shows why the stakes in the Supreme Court challenge � eBay v. MercExchange, No. 05-130 � go well beyond the facts of that particular case. “In every patent litigation, the question of remedy is obviously a critically important one: Will there be damages paid? Will there be an injunction?” said Miller, who has signed onto a brief by 52 intellectual property law professors supporting eBay. “A case that raises fundamental questions about the standards for injunctive relief arguably affects every single patent case.” Patent attorneys, judges and scholars have viewed the ability to get a permanent injunction for patent infringements as central to the patent right for many decades, even before the Supreme Court’s 1908 decision in the paper bag case. The question in eBay is whether that is the correct view in the modern patent era. The injunction issue has divided the pharmaceutical and high-technology industries � a division that has spilled over onto Capitol Hill, where it has played a role in a nascent effort to reform the nation’s patent laws. “The pharmaceutical industry is very in favor of injunctions because they put so much money into their products that it’s important to keep others from infringing them and out of the market,” said patent litigator David Clonts of Akin Gump Strauss Hauer & Feld’s Houston office. “That industry also tends not to face patent trolls � generally a company that goes and picks up a patent of marginal value and enforces it with the expectation they’re going to extract more money through the process of enforcing it than it is worth.” In the high-technology industry, on the other hand, its products often incorporate bits and pieces of many patented technologies, he explained. The industry fears lawsuits by those who use the threat of injunctions as tremendous leverage to settle infringement suits. “It may be a $10 million invention, but if it can shut down a billion-dollar product, the cost of poker goes up,” said Clonts. “What the technology industry doesn’t like is having to pay a lot of money to settle cases that don’t have a lot of value.” Both sides are out in force in the high court’s eBay case: the pharmaceutical industry and the securities industry; the computer and communications industry and software businesses; patent giant International Business Machines Corp. and Internet whizzes Yahoo Inc. and America Online Inc., as well as intellectual property law scholars with contrasting views. The case will be argued on March 29 by veteran stars of the Supreme Court bar: Carter Phillips of Sidley Austin for eBay, and Seth Waxman of Wilmer Cutler Pickering Hale and Dorr for MercExchange LLC. BUYING AND SELLING MercExchange, a patent holding company founded by patent attorney Thomas Woolston, sued eBay and its subsidiary, Half.com Inc., in 2001 for allegedly infringing patents related not to eBay’s auction format but to the fixed-price purchasing feature of eBay’s Web site. After a jury found that MercExchange’s business-method patents were valid and had been infringed, it awarded $35 million in compensatory damages, which the trial judge subsequently reduced by $5.5 million. The trial judge rejected MercExchange’s request for a permanent injunction after applying the traditional four-factor test for their issuance. The district court found, among other factors, that MercExchange would not be irreparably harmed without an injunction because it licenses its patents for money and had made repeated public statements that damages were the only relief sought. On appeal, the Federal Circuit U.S. Court of Appeals held that eBay had infringed one, not two, patents. And it ruled that the trial court had improperly denied MercExchange’s request for a permanent injunction. The appellate court wrote that there is “no reason to depart from the general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.” This general rule is derived from the notion that patents are a form of property. Essential attributes of property are the owners’ right to use the property and the right to exclude others. But patent law only gives patent owners the right to exclude, and that is accomplished primarily by injunctions. In the high court, eBay asks the justices to decide whether the Federal Circuit erred in applying a general rule that, absent exceptional circumstances, a district court must issue a permanent injunction after a finding of infringement. In an unusual but not unprecedented step, the high court ordered the parties also to argue whether it should reconsider its precedents on when it is appropriate to issue an injunction in patent infringement cases, including that 1908 case, Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405. EBay and its supporters contend that the Federal Circuit’s “near-automatic injunction rule” conflicts with the plain language of Section 283 of the Patent Act. That section states: “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.” � MAY, ‘ NOTSHALL’ By saying “may,” not “shall,” Congress gave the federal courts express discretion to grant or to deny injunctive relief, argues eBay. Applying equitable principles involves a four-factor test: irreparable injury, adequacy of remedy at law, balancing of the hardships and the public interest. When those four factors and an abuse-of-discretion standard of review are applied, the Federal Circuit should have affirmed the district court’s denial of an injunction, according to eBay. EBay also contends that an automatic injunction rule is particularly inappropriate when the patent holder is, like MercExchange, a nonpracticing entity. NPEs obtain and enforce patents against other companies, but have no product that is vulnerable to an infringement countersuit by the alleged infringer. “I think there is a presumptive rule [in favor of injunctions],” said Miller of Lewis & Clark Law School. “The [Federal Circuit] would say something like, �No, of course we consider equity. It just so happens that in 99 out of 100 cases, we approve the injunction.’ “The practical effect of what they are doing is, injunctions have become virtually automatic notwithstanding the fact there are a number of market considerations that would lead you to say perhaps an injunction is not the most appropriate thing to do here,” he said. “What they did instead is say that except in the most unusual circumstances, you get an injunction. It really doesn’t sound like equity to me.” The Federal Circuit acknowledged that public health and safety were exceptions to the general injunction rule, noted Christopher Hughes of New York’s Morgan & Finnegan, who authored a brief for IBM supporting eBay. But they are limited factors, he said, adding, “There may be other factors, particularly in the way the world economy has developed.” Whether the patent is in the hands of an NPE, he agreed, could be another factor because “just having the mere threat of an injunction could give this patentee, who might be a company whose sole purpose is to own the patent, an unfair advantage in negotiating a reasonable royalty. “We’re trying to act as a reminder to the court that there is a well-developed set of principles that ought to be consulted when courts consider whether to issue an injunction in a patent case.” MercExchange and its supporters don’t disagree, they say, that courts have discretion to grant or deny injunctions, but denials have generally involved a significant public interest. They argue that the Federal Circuit has not adopted a per se rule on injunctions, and it clearly applied equitable considerations to the facts in eBay even if it did not recite the four-part test for issuing an injunction. During the last 25 years, the Federal Circuit has ruled on hundreds, if not thousands, of patent injunction cases, said Melvin C. Garner of New York’s Darby & Darby, who is president of the American Intellectual Property Law Association, which supports MercExchange in the high court. “If the Federal Circuit is to be faulted at all, it is only that after doing it a thousand times, it doesn’t repeat the exact words you go through,” he said. “The position we took is supported in the Constitution: An inventor is entitled to the exclusive right to his invention, and the only way to make it exclusive is to get an injunction,” he said. “The term you get for a patent is not forever, but for a limited period. If someone is allowed to infringe for that limited period, you are irreparably harmed. The challenge is for the infringer to come up with a new reason, some factor.” And it shouldn’t matter if the patent is a business-method patent or the patent holder is an NPE, he added. “All patents are treated equally in general in terms of enforceability.” If eBay wins, the impact will be “profound,” said Thomas Field of Franklin Pierce Law Center, who filed a brief for himself and three Franklin Pierce professors supporting MercExchange. “It would be private inverse condemnation-taking property from MercExchange and giving it to eBay.” Akin Gump’s Clonts said that if the Supreme Court holds there is no absolute right to an injunction, it will be a somewhat empty holding because it also will hold that courts have to look at the four factors and the Federal Circuit is likely to proceed as it has in the past. “If the Supreme Court were to give a more detailed ruling � say that for an NPE, in general, there will be an adequate remedy at law and there won’t be irreparable injury � that could reshape the landscape,” Clonts said. “If BlackBerry knew it could successfully defend against an injunction and instead have a trial on money damages, the settlement value would have been a tenth of what it was. That’s the issue hanging out there. Automatic injunctions don’t tend to distinguish the value of the invention, whereas money damages do.” Marcia Coyle is a reporter with The National Law Journal, a Recorder affiliate based in New York City.

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