Courtenay C. Brinckerhoff

The Patent Act gives patent holders “the right to exclude others” from infringing on their patent rights, i.e., “from making, using, offering for sale, or selling the invention.” For over 20 years, the U.S. Court of Appeals for the Federal Circuit, which has the final say on all patent matters not taken up by the U.S. Supreme Court, has enforced this right by granting patent holders permanent injunctions against patent infringement in all but the rarest cases.

The Federal Circuit has found that once a patent is determined to be valid and infringed, a permanent injunction should be granted as a matter of course, citing statutory authority to enjoin infringement, the importance of the right to exclude to a patent’s value, and the limited term of a patent.

In EBay Inc. v. MercExchange, LLC (May 16, 2006), however, the Supreme Court found error in the Federal Circuit’s “general rule” of granting permanent injunctions and decided that courts should undertake the traditional, factor-balancing analysis before granting an injunction.

Section 283 of the Patent Act states that courts “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.”

As explained by the Supreme Court, well-established principles of equity require a plaintiff to satisfy a four-part test for an injunction: that it has suffered an irreparable injury; that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and that the public interest would not be disserved by a permanent injunction. Even after that test is met, a court has discretion to grant or deny a permanent injunction.

The Federal Circuit’s general rule in favor of injunctions assumed that patent infringement automatically satisfied this fourpart test. Now, courts will have to consider those four factors on a case-by-case basis.

The Supreme Court decision and two concurring opinions in EBay provide some insight into how the Justices expect the analysis to play out in patent cases. Whether district courts follow this guidance, however, and whether the Federal Circuit feels bound by it, are open questions.

The Justices’ main focus is on patent holders who do not practice their own inventions and seek to prevent others from exploiting their technology. Such patent holders may be acting contrary to the public interest by denying the benefit of their inventions.

Justice Kennedy’s concurring opinion focuses on so-called patent trolls, which he describes as patent holders who do not practice the invention but instead use patents “primarily for obtaining license fees.” Justice Kennedy expresses concern that a general rule in favor of injunctions permits patent trolls to charge exorbitant fees, essentially using the threat of an injunction as a hammer at the negotiation table.

He suggests that “[w]hen the patented invention is but a small component of the product the [infringing] companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations,” monetary damages could provide adequate compensation and an injunction might not serve the public interest.

Business method patents
Justice Kennedy specifically targeted business method patents, noting that their “potential vagueness and suspect validity” may affect the outcome of the four-factor injunction analysis. District courts might take this discus sion as a suggestion that they should be reluctant to grant injunctions to protect business method patents, particularly where the patent holders are not practicing the technology.

On the other hand, Justice Thomas’ decision for the Court reminds district courts that some patent holders who do not themselves practice their inventions might nonetheless deserve injunctions. For example, university researchers and self-made inventors might have valid reasons to license their patents instead of undertaking the sometimes onerous tasks of bringing them to market themselves, he explains.

The impact of EBay will be felt most immediately at the licensing negotiations table, as patent holders may no longer hold the upper hand. Now, parties will come to the negotiations table knowing that if an agreement is not reached, the would-be licensee may be able to practice the invention without a license, albeit at the risk of owing damages for infringement. Patent holders who are not practicing the invention should exercise caution in license negotiations, because they are in danger of being viewed as patent trolls, who are unlikely to be awarded injunctions.

Companies should take care that the selective grant of licenses does not diminish their ability to obtain injunctions against the unlicensed practice of their inventions.

Companies should consider developing a licensing plan to reflect its legitimate business reasons for selectively licensing patents. For example, a biotech start-up company might have legitimate reasons for selectively licensing technology (such as a research tool or other invention outside of its core technology) that it is not currently practicing. The company might not yet have the resources or regulatory approval required to commercialize the invention but could generate revenue by granting short-term licenses until it can enter the market itself. Courts should be just as sympathetic to these predicaments as they may be to universities and individual inventors who lack the resources to exploit their own inventions and may be willing to find that unlicensed uses that thwart legitimate business goals cause irreparable harm to the patent holder, and thus should be enjoined.

An exemplary licensing plan should outline the company’s goals and objectives for its licensing program, including goals to maximize the value of the invention by permitting limited third-party use in certain noncompeting fields, while preserving exclusivity in the company’s main field of interest. Other goals might include generating a specific amount of income to support specific revenue goals, such as revenue to support the company’s own launch of the invention, or to meet another specific need.

A license granted in a narrow, noncompeting field of use may not weigh against an injunction to stop unlicensed use in a directly competing field. Similarly, a license granted in accordance with a plan to satisfy specific revenue goals may not weigh against an injunction to stop unlicensed use once those revenue goals have been satisfied. Additionally, a license granted before the company was practicing the invention should not prevent the company from obtaining an injunction against unlicensed use once the company has entered the field itself.

Licensing plan
A licensing plan also might explain the basis of the licensing fee, how that basis was selected, and how the fee amount was determined, to negate possible charges of greed or even extortion that may be lodged in an attempt to characterize the patent holder as a patent troll.

What do the Justices say about patent holders who are practicing their inventions and who want to keep competitors out of the market? Chief Justice Roberts’ concurring opinion suggests that such patent holders may be protected by injunctions granted under the four-factor analysis. He explains that the fact that the patent right is a right to exclude may answer the first two factors in the patentee’s favor in most cases. He also suggests that he expects courts to approach the four-factor analysis in patent cases not from an entirely clean slate but guided by existing legal standards.

District courts might find this decision to be warning them against efforts to forge a new patent enforcement paradigm that might shift the balance away from injunctions, particularly where the patent holder itself is practicing the invention.

Time will tell whether EBay’s resurrection of the four-factor injunction analysis will change the outcome of patent infringement cases, or whether courts will merely perfunctorily cite the four factors before granting permanent injunctions.

The decision certainly will increase the costs of enforcing a patent. Moreover, patent holders who do not practice their inventions will have to align themselves with university and individual inventors treated favorably by the

Court, while distancing themselves from the patent trolls who are viewed with disdain. Even patent holders who are practicing their inventions may be uneasy until they are assured that the four factors usually will weigh in their favor and not be affected.

Courtenay C. Brinckerhoff is senior counsel in the intellectual property department of Foley & Lardner. Web: www.foley.com.

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