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Patents: Don't just say "no"

By Scott Bradner

It's not a new complaint to say that the patent system is a mess. Far too many patents containing far too little innovation have been issued and then asserted against companies actually trying to make a buck. One of the most powerful 'blunt instrument' in the arsenal of patent attorneys has been the almost automatic ability to get a court injunction to shut down the ability of a company to sell a product or service that is found to infringe on a patent even if the patent in question covers a very small part of the product or service. The threat of such a shutdown has been a powerful biasing factor in negotiations over licensing fees -- talk to BlackBerry maker Research In Motion (RIM). The US Supreme Court has just remade the legal landscape by ruling that there should be nothing automatic about such injunctions.

For years it's been clear to everyone other than a few patent attorneys working for patent holders and the judges on one patent court that the near-automatic injunction did not make much sense in today's world. These rules have raised prices and impacted the deployment of new technology throughout the hi-tech arena. The patent court in question, The Court of Appeals for the Federal Circuit, somehow came to the conclusion that patent cases were special and thus injunctions did not have to follow the normal legal principles of equity but should be granted except in "exceptional circumstances."

In a unanimous decision in a case involving eBay, the Supreme Court just tossed out that reasoning. (http://www.supremecourtus.gov/opinions/05pdf/05-130.pdf) From now on the traditional principles of equity used in all other cases where an injunction is sought will have to be followed. Injunctions can be issued if a plaintiff can show "(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction."

Using these rules does not mean that there not be any nor injunctions but it's quite hard to see a future case where RIM is threatened with shutdown by a patent holder that is just after a licensing fee. Four Justices, in a consenting opinion, specifically pointed out that the threat of injunction "can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent" and that "[w]hen the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest."

There are many patents that are for actual innovations where it is very reasonable for the inventor(s) to be able to profit from the work and insight they put in. With this decision the Supreme Court has reestablish a fair playing field where such rewards can be discussed. Better, cheaper and more timely technology will be the main result.

disclaimer: I expect some, but not all, of Harvard's legal progeny will be happy with this decision but I did not ask so the above column reflects my own joy.