Bill to Lower Bar for Patent Injunction Re-Sparks ‘Troll’ Fight

Legislation to overturn an 18-year-old high court precedent and make it easier for patent owners to block infringing products from the market reignited a debate that deeply divides the country’s patent bar.

The RESTORE Patent Rights Act, unveiled last month by Sen. Chris Coons (D-Del.), would override the US Supreme Court’s 2006 decision in eBay v. MercExchange, where it said plaintiffs must satisfy a four-part test before winning injunctions that can shut down assembly lines or pull products off store shelves. The ruling—particularly a concurrence from Justice Anthony Kennedy that focused on companies known as non-practicing entities that don’t make products based on their patents—has proven a lightning rod within the patent community.

Under eBay, patent owners must make several showings including that damages “are inadequate to compensate” them for the infringement. District courts and the US Court of Appeals for the Federal Circuit—which has exclusive appellate jurisdiction over patent cases—have dramatically decreased the number of injunctions granted to patent owners that don’t make or sell patented products, ruling that monetary awards for damages are sufficient relief for these nonpracticing entities that have no market share to protect.

That’s frustrated patent owners and sent some looking for other enforcement venues, including the US International Trade Commission, where injunctions can be more readily available, even if they target only importers.

“The eBay decision, perhaps unintentionally, effectuated a sea change in the leverage patent holders have and severely devalued patents,” said Jamie Simpson, chief policy officer at the Council for Innovation Promotion, which is backing Coons’ bill.

The legislation would create a presumption that federal courts will issue injunctions after a finding that a defendant has infringed a patent, rather than stopping at a damages award. Though the measure has little chance of getting through a divided Congress late in an election year, proponents say its introduction is just the first step of a likely years-long effort to come.

“It’s not going to pass this Congress,” said Nick Matich, a patent litigator at McKool Smith. “You’ve got to introduce it multiple times, and build support to make a big push later.”

Critics of Coons’ bill say abandoning the current approach and adopting a presumption favoring injunctions would advantage non-practicing entities at the expense of manufacturers and tech companies that are the frequent targets of infringement suits from outfits they often label patent trolls.

“The principal beneficiaries from this are going to be the patent-assertion entities: pure patent-holding companies that don’t do any research and sure as hell don’t make any products,” said Joe Matal, a patent litigator at Clear IP LLC and former acting director of the US Patent and Trademark Office. “Why should those people get an injunction when the purpose of an injunction is to protect your market?”

In today’s economy, a single product can be covered by tens of thousands of patents, noted Jorge Contreras, a law professor at the University of Utah.

“If one patent owner can block the whole product that’s just disproportionate and gives way too much power to the one patent owner,” said Contreras, who has written on eBay‘s impact.

In that case, MercExchange, founded by a Northern Virginia patent attorney and inventor, accused eBay Inc. of infringing a patent related to electronic marketplaces through its website’s “Buy It Now” feature. A jury awarded MercExchange $29.5 million in damages, but a judge denied a permanent injunction. The Federal Circuit reversed and set out a “general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.”

After the Supreme Court tossed that “general rule” and came down on eBay’s side, the company reached a confidential settlement with the patent owner.

“It’s not like NPEs are ‘left empty handed’” when they win in court, Contreras added. “Their injunction is denied but they’re still getting money, which is a real remedy—and for someone like an NPE, that’s the only remedy they wanted in the first place.”

Old Issue, New Push

While Coons’ bill was only recently introduced, the desire from patent owners to overturn eBay is not new.

“People have been complaining about eBay for the last 18 years,” said Contreras.

Patent owners and the lawyers who represent them said eBay‘s impact wasn’t limited to non-practicing entities and has been particularly harsh for inventors working outside of established tech companies.

“If you’re a small company or an independent inventor, you’re not immediately going to be able to satisfy the full market demand for your product,” Matich said. Before eBay, he said, such patent owners might have been able to use an injunction as a way to gain a foothold in markets dominated by bigger players.

“Part of what was motivating the eBay decision was the patent-troll narrative that was starting to gain some traction at that time,” he said. “So, there’s this problem in the patent system,” Matich continued. “Is the solution to deny lots of valid patent owners injunctions? No.”

At the same time, tech companies have bristled at the comparatively relaxed standard for patent owners seeking exclusion orders at the ITC barring the import of infringing products.

The bill’s timing is partially explained by a series of judicial decisions and legislative changes over the last two decades that have made the US patent system more defendant-friendly at the expense of patent owners, Matich said.

He pointed to the Supreme Court’s subsequent decisions in KSR v. Teleflex, which lowered the bar for invalidating patents as obvious; Alice Corp. v. CLS Bank Int’l, which led to more patents being invalidated as abstract; and TC Heartland v. Kraft Foods, which interpreted the patent venue statute in a way that shrunk the number of lawsuits that could be maintained in Marshall, Texas, long a favored venue for plaintiffs.

One statistical review of patent suits before and after eBay, conducted by law professors Colleen Chien and Mark Lemley, showed that injunctions were granted 95% of the time before the opinion and 75% after. The decrease was particularly stark for non-practicing entities, which were denied injunctions 9 out of 10 times when such relief was opposed by a defendant, the review found.

The legislation “is part of an overall sense that there needs to be a bit of a recalibration,” Matich said.

Simpson agreed and pointed to “the expansion of the Patent Trial and Appeal Board” at the PTO—an administrative body that has authority to invalidate already-issued patents. Defendants in patent litigation frequently file validity challenges at the PTAB.

“We’ve seen the emergence of the countervailing trend of making it very easy—especially for bigger companies—to infringe on people’s patent rights without meaningful consequences beyond what seems to them to be a large fine,” she said.

One person who said he hopes the bill doesn’t succeed is the appellate lawyer who argued, and won, for eBay at the Supreme Court nearly two decades ago.

“If I were a plaintiff-side lawyer, I’d want Congress to change the system because it’d give me enormously more leverage,” said Carter Phillips of Sidley Austin.

Damages awards in patent cases can be tripled when a defendant is found to have purposefully infringed, Phillips noted, providing plaintiffs with “plenty of leverage already.”

“Personally, I’d hope Congress decides to leave things where they are,” he said.