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Wealth of Ideas, June 2006
When the Supreme Court earlier this year ruled in favor
of eBay, there was still some hope left. After all,
Justice Thomas wrote for the unanimous court: "some
patent holders, such as university researchers or self-made
inventors… may be able to satisfy the traditional
four-factor test, and we see no basis for categorically
denying them the opportunity to do so" (See A.
Poltorak, "Supreme Court
Chooses the Middle Ground in the eBay Case").
Moreover, Chief Justice Roberts in his concurring opinion
appealed to judges to respect the long tradition of
granting injunctive relief upon a finding of infringement.
He wrote, "From at least the early 19th century,
courts have granted injunctive relief upon a finding
of infringement in the vast majority of patent cases."
Alas, all hope was dashed in the first post-eBay decision
out of the Eastern District of Texas in z4 Technologies,
Inc. v. Microsoft.
The Jury in this case ruled in favor of z4, finding
Microsoft to have willfully infringed z4's patents.
The Court, however, declined to grant a permanent injunction
to z4. In its decision, Judge Davis relied on the traditional
four-factor equity test:
1. Irreparable injury. z4 is a patent holding
company. As such, it does not make or sell any products,
instead relying on patent licensing as its business
model. Because the patent holder does not practice its
invention, the Court decided that the Irreparable Injury
factor weighed in favor of the infringer, Microsoft:
"In the absence of a permanent injunction against
Microsoft, z4 will not suffer lost profits, the loss
of brand name recognition or the loss of market share
because of Microsoft's continued sale of the infringing
products. These are the type of injuries that are often
incalculable and irreparable… z4 can be compensated
for any harm it suffers in the way of future infringement
at the hands of Microsoft by calculating a reasonable
royalty for Microsoft's continued use of the product
activation technology."
2. Remedies Available at Law. This equity test
seeks to determine if money is a sufficient remedy.
In weighing this factor, the Court relied on the dicta
(concurring opinion) of Justice Kennedy:
Justice Kennedy specifically mentioned the situation
where a "patented invention is but a small component
of the product the companies seek to produce" and
states that in such a situation, "legal damages
may well be sufficient to compensate for the infringement
and an injunction may not serve the public interest."…
Although dicta, even when expressed by a Supreme Court
justice, has no precedential power, the words of Justice
Kennedy struck a chord with the Texas Court, which chose
to adopt this rationale.
3. Balance of Hardships. The Court decided this
factor also in favor of Microsoft, which, if enjoined
from selling MS Office, would have to rewrite parts
of the code, which, it successfully argued, would not
be easy.
4. Public Interest. The Court decided that the
interest of the public would be best served by allowing
Microsoft to continue to sell its very popular Office
software:
"It is likely that any minor disruption to the
distribution of the products in question could occur
and would have an effect on the public due to the public's
undisputed and enormous reliance on these products."
The infringing product's commercial success used to
inure to the benefit of the patent owner, at least as
a secondary indicia of patent validity. Now, it seems,
the commercial success of the infringing product helps
the infringer avoid a permanent injunction. The moral:
if you want to infringe with impunity, infringe big!
It is interesting to note that, as we have predicted
in the previous article (see ibid.), the Court advised
z4 to immediately refile the case, which would proceed
straight to hearing in damages to address continuing
infringement by Microsoft.
As the first post-eBay case, this decision will undoubtedly
influence future decisions in the direction of denying
permanent injunction to small inventors and other non-practicing
entities. Welcome to the brave new world of infringements
galore.
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