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The ruling, issued on Thursday by Judge Leonard Davis in the Eastern District of Texas, signals a major shift in patent litigation practice and is the first indication of how the eBay ruling has quickly become important to the way companies fight patent infringement claims.
“This will be the classic first example of how the eBay case is going to limit the number of injunctions in patent cases,” said Michael Barclay, a patent litigation partner at Wilson Sonsini Goodrich & Rosati.
“This is also big news, given the reputation of the Eastern District of Texas as being pro plaintiff,” he added.
Harold McElhinny, co-chairman of Morrison & Foerster’s patent litigation group, said the ruling is likely to break “wide open” the question of whether an injunction applies in every patent case.
“Z4 does not fit the traditional definition of a patent troll. It is a company that is in the market and making a product and trying to compete with Microsoft, so now it looks like every defendant can use the eBay logic against all companies, regardless of whether they’re trolls or not,” McElhinny said.
In April, a Texas jury found Microsoft and Autodesk willfully infringed two of Z4′s patents covering methods for limiting unauthorized use of computer software. Both Microsoft and Autodesk use the anti-piracy program in some of their products. The jury ordered the two companies to pay Z4 a combined $133 million in damages, the biggest award ever in a patent case to come out of the U.S. District Court for the Eastern District of Texas.
In refusing Z4′s request for a permanent injunction against Microsoft, Davis used the traditional four-factor test recommended by the high court to determine whether to issue an injunction. He concluded that Z4 will not suffer irreparable harm in the absence of a permanent injunction.
The judge ruled that because Microsoft only uses the infringing technology as a small component of its own software, Z4 will not lose profits, brand-name recognition or market share.
“[I]t is not likely that any consumer of Microsoft’s Windows or Office software purchases these products for their product activation functionality,” Davis wrote.
Davis also cited Justice Anthony Kennedy’s concurring opinion from the eBay case in justifying the denial of an injunction. He said Kennedy’s comment that if a patented invention is but a small component of the infringing product, monetary damages should be sufficient compensation.
The court also found that the balance of hardships tilts in favor of Microsoft because it would require the company to redesign and re-release all its Office software products, which currently are distributed in 450 variations in 37 languages. Its Windows product currently has 600 variations in more than 40 languages.
Neither Microsoft nor Z4 returned calls for comment on Thursday.
Davis’ ruling cited possible harm in public interest if the court enjoins Microsoft.
“Microsoft’s Windows and Office software products are likely the most popular software products in the world,” Davis wrote. “Accordingly, the public interest is likely to be disserved if a permanent injunction were entered against Microsoft.”
Barclay said that reasoning surprised him.
“It’s ironic that Microsoft was able to use its enormous market position to stop the court from issuing an injunction,” Barclay said.
But McElhinny said it is a positive development that courts may now weigh the public’s interest in cases where the public could be greatly inconvenienced and the plaintiff can be served by a royalty fee.
“It seems right to deny an injunction in a case like that,” McElhinny said.
Prior to the eBay ruling, however, Blackberry maker Research in Motion failed to persuade a court to stop an injunction based on the inconvenience its millions of users would have faced had the company been enjoined from offering its wireless e-mail service. The Canadian company ended up paying more than $600 million to settle the patent suit against it.