Introductory Note to Brief of Amicus Curiae in eBay v. MercExchange

INTRODUCTORY NOTE TO BRIEF OF AMICUS CURIAE IN EBAY V. MERCEXCHANGE By Robert P. Merges The following brief was prepared for the Supreme Court in the case of eBay v. MercExchange, No. 05-130, on behalf of Yahoo!, Inc. In the eBay case, the Federal Circuit had applied its "general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances." 1 In a unanimous opinion on May 15, 2006, the Supreme Court vacated the Federal Circuit decision in that case, resolving it in favor of the position advocated in the Yahoo! brief.2 In its opinion, the Supreme Court said: We hold only that the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent3 disputes no less than in other cases governed by such standards. The "traditional principles" the Court mentioned include primarily the conventional four-factor test for determining whether to grant an injunction, which the Court described earlier in the opinion: A plaintiff must demonstrate: (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 pub4 lic interest would not be disserved by a permanent injunction. The brief that follows describes the application of these principles in cases involving non-producing, non-research and development (R&D) performing patent holders (often referred to as "patent trolls"). The majority opinion of the Supreme Court took no position directly on the complex 1. MercExchange, L.L.C. v. eBay Inc., 401 F.3d 1323, 1339 (Fed. Cir. 2005). 2. eBay Inc. v. MercExchange, L.L.C., No. 05-130 (U.S. May 15, 2006), available at http://www.supremecourtus.gov/opinions/05pdf/05-130.pdf. 3. Id. slip op. at 5. 4. Id. slip op. at 2. BERKELEY TECHNOLOGY LAW JOURNAL [Vol. 21:997 issue of injunctions in cases involving patent trolls. It did say, however, in rejecting the sweeping no-injunction holding of the district court5 that: [S]ome patent holders, such as university researchers or selfmade inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves. Such patent holders may be able to satisfy the traditional four-factor test .... 6 The reference to patentees who might license in place of "secur[ing] the financing necessary to bring their works to market" may prove to be an important phrase in the opinion. It could be read to mean that injunctions will be more readily available when a non-producing patentee had a viable product idea or new technology, one that could have formed the basis of a real market. At the same time, it implies that patent holders whose patents could never have formed the basis of a viable market, and whose only business is to sell (freedom from) legal rights in markets developed by others, will no longer be favored. At a minimum, the passage suggests an emphasis on the motives and business plans of patentees seeking injunctions-an important factor discussed at length in the brief that follows. In addition, Justice Kennedy, in his concurring opinion that was joined by three other Justices, explicitly refers to the threat posed by patent trolls. He begins his analysis by stating: "An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees." The Kennedy concurrence goes on to describe why patent trolls may often not deserve injunctions: When 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. 8 We call attention to these features of the opinion because we believe the brief that follows fleshes out many of these issues in some detail. As a consequence, it may prove helpful to lower courts as they apply the eBay opinion in future cases involving patentees with no real interest in product development or continuing R&D. 5. See MercExchange, L.L.C. v. eBay Inc., 275 F. Supp. 2d 695 (E.D.Va. 2003). 6. eBay, No. 05-130, slip op. at4. 7. Id. slip op. at 2 (Kennedy, J., concurring). 8. Id. (Kennedy, J., concurring). No. 05-130 IN THE Supreme Court of the United States EBAY INC. Petitioner, V. MERCEXCHANGE, L.L.C. Respondent. On Writ of Certiorari to the United States Court of Appeals for the Federal Circuit BRIEF OF AMICUS CURIAE YAHOO! INC. IN SUPPORT OF PETITIONER JOSEPH K. SINO LISA G. MCFALL CHRISTOPHER J. WRIGHT * YAHOO! INC. 701 First Avenue Sunnyvale, CA 94089 (408) 349 3300 BRUCE L. GOTTLIEB ROBERT P. MERGES U.C. BERKELEY (BOALT TIMOTHY J. SIMEONE HARRIS, WILTSHIRE & GRANNIS LLP 1200 Eighteenth Street, N.W. Washington, D.C. 20036 (202) 730 1300 * Counsel of Record HALL) SCHOOL OF LAW 438 Boalt Hall Berkeley, CA 94720 (510) 643 6199 * With the exception of changing the format to fit the Journal's format, this Brief has been reproduced as it was filed with the United States Court of Appeals for the Federal Circuit. Other eBay v. MercExchange amici briefs are available at Review: EBay v. MercExchange Amici Briefs, PATENTLY-O, http://patentlaw.typepad.com/patent/2006/0 1/ ebay_v mercexch.html (Jan. 31, 2006). BERKELEY TECHNOLOGY LAW JOURNAL 1000 [Vol. 21:997 TABLE OF CONTENTS TABLE OF AUTHORITIES .................................................................................... om itted Q UESTION S PRESEN TED ........................................................................................ 1001 INTEREST OF AM ICUS CURIAE ............................................................................. 1001 SUM M ARY OF ARGUM ENT .................................................................................... 1001 A R GUM E N T ............................................................................................................... 1004 I. A RULE MAKING THE ISSUANCE OF AN INJUNCTION VIRTUALLY AUTOMATIC UPON A FINDING OF PATENT INFRINGEMENT PERMITS PATENT TROLLS TO ABUSE THE PA TEN T SY STEM ................................................................................. A. B. II. Trolls Can Use the Patent System To Ambush Computer and 1004 Internet C ompanies ........................................................................ Issuing Injunctions to Trolls Harms Productive Firms .................. 1008 TRIAL COURTS HAVE EQUITABLE POWER TO DENY INJUNCTIONS TO PATENT TROLLS ................................................ A. B. 1004 1009 Courts Have Traditionall (...truncated)