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Supreme Court to Shake Up Patent Law
[December 19, 2005]

Supreme Court to Shake Up Patent Law


(Kiplinger Business Forecasts) AN EFFORT TO LIMIT COURT INJUNCTIONS AGAINST PATENT INFRINGERS HASN'T MADE IT FAR IN CONGRESS. BUT THE SUPREME COURT HAS OTHER IDEAS.

Although the patent case involving the ubiquitous BlackBerry wireless communications device is grabbing headlines, another dispute involving Internet auction giant eBay could have a far greater impact on patent law.

At issue in the eBay case"which the Supreme Court will hear next year"is the common practice of federal courts issuing permanent injunctions that forbid violators of a patent from making products or providing services covered by that patent. Since a landmark 1908 case involving two paper bag manufacturers, the use of injunctions has been the ultimate remedy in patent infringement cases.



A federal judge ruled that eBay infringed on a patent held by the MercExchange, which had tried and failed to launch its own Internet auction business. The dispute focuses on eBay's "buy it now" feature.

But the judge decided against issuing an injunction. An appeals court subsequently overturned that decision, noting that injunctions must be issued in such cases "absent exceptional circumstances." In accepting eBay's appeal of that ruling, the Supreme Court surprised observers by announcing it would explore the precedent set in its own 1908 case"a strong signal that the Court plans to make major changes.


The significance? Injunctions in patent infringement cases are almost automatic once a court finds that a patent has been violated. The potential losses from such an injunction are so great that most companies in danger of losing an infringement case try to settle. That advantage has given rise in recent years to so-called patent trolls"companies that seek out and acquire patents for the sole purpose of prying loose licensing fees and infringement settlements.

"The eBay case cannot help but profoundly affect nearly all patent litigation and licensing," says Joseph Miller, a professor at Lewis & Clark Law School in Portland, Ore., who specializes in patent law. Miller expects that the Court will limit the use of injunctions in patent cases at least somewhat, if not drastically.

That would be welcome news to software and technology companies, which are most affected by patent trolls. David Simon, patent attorney for Intel Corp., told the Senate in April that litigation fees alone in these types of cases cost computer hardware and software firms some $500 million a year. He estimated that there were 300 patent infringement cases pending against high-tech companies.

But pharmaceutical and biotech firms fear that limits on injunctions could reach beyond those trying to game the system and thwart their legitimate patent rights. Unlike in the tech sector, little or no cross-licensing occurs in biotech, where firms hold relatively few patents and invest millions of dollars in research and development in one patentable product. So quick shutdowns through injunctions often protect major investments.

If permanent injunctions were less automatic, plaintiffs would have a harder time forcing companies to settle over questionable patents. The Supreme Court could make it easier for judges to take into account questions of fairness and equity"such as whether the patent holder is an inventor or an investor"in such cases, says Tim Holbrook, an expert in patent law at Chicago-Kent College of Law. "The Federal Circuit rarely, if ever, applies equitable considerations in determining whether to grant a permanent injunction," he says.

Dennis Crouch, a patent and intellectual property lawyer with McDonnell Boehnen Hulbert & Berghoff LLP in Chicago, warns that legitimate patent holders could be hurt if the courts are not careful. "Quite often, individuals who are great inventors or engineers are not great entrepreneurs.... In the case of a small company or an individual inventor, the way to profit from a new invention is to license the patent rights," Crouch says. "If companies refuse to take a license, then an infringement lawsuit is the way to enforce rights."

The injunction issue is also something Congress has been struggling with as part of planned legislative changes to existing patent law. But now that the Supreme Court is planning to weigh in, lawmakers will wait and see how the ruling rejiggers the injunction landscape. However, lawmakers still intend to press ahead next year with efforts to modernize other aspects of patent law and the U.S. Patent and Trademark Office to bring them more in line with international practices.

While the injunction question is the hottest patent issue being considered by the high court, it is looking at other significant areas of patent law as well. The Court could end up addressing such key issues as what exactly is eligible for patent protection and whether current law allows protection for too many marginal improvements to old, already-patented products and processes.

Pointing to the number of major patent cases being considered by the Court and to unusual moves by the justices, legal analysts say that by the end of the term, odds are that the Court will have shaken up patent law significantly"with perhaps the biggest changes seen in nearly a century.

Researcher-Reporter: Laura Steele

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