THE INJUNCTION FUNCTION: HOW AND WHY COURTS SECURE PROPERTY RIGHTS IN PATENTS.

• Author: Mossoff, Adam

INTRODUCTION

Although the United States patent system is 230 years old, the nature of patents as legal rights and as commercial assets is contentiously debated today. Some scholars characterize the U.S. patent system as a regulatory system created and defined by solely public policy goals; Mark Lemley, for instance, argues that a patent is the equivalent of a welfare benefit. (1) This is an odd comparison if only because the personal entitlement to a welfare payment is not a basis for venture capital investment, (2) it cannot be licensed or otherwise exchanged in the marketplace, (3) and it is not a platform for innovation markets and new business models. (4) The theoretical and constitutional debates aside, (5) the legal and commercial reality is that the U.S. patent system has been at its core a private law system securing private property rights. (6)

The scholarly and legal debates about whether the patent system is a private law or public law system are quite "old in the art" (to turn a phrase from patent law), and they touch on all aspects of patent rights, including what remedies patent owners should receive for the violation of their property rights. (7) As with all property rights, the remedies a patent owner receives for patent infringement have long been defined by a mix of statutes and court decisions. (8) Some courts and scholars maintain that patent law should be conceived as a species of public law and thus governed by public policy. (9) Yet, remedies for patent infringement have traditionally comprised the classic forms of legal relief that citizens can receive when seeking redress in courts for wrongs: damages to compensate for their losses and an injunction to prevent willful or ongoing violations of their rights. (10)

This Essay addresses one aspect of this legal and policy debate concerning remedies in patent law: how and why courts presumptively secured patent owners with injunctions against ongoing or willful infringements of their property rights. Prompted by the United States Supreme Court's 2006 decision in eBay v. MercExchange, (11) which created a new four-factor test for issuing injunctions on a finding of ongoing infringement of a valid patent, (12) there is a growing body of scholarly commentary on the role of injunctive remedies in securing property rights in new technological innovations. (13) Much of this commentary focuses on how eBay has resulted in a significant reduction in availability of injunctive remedies for patent infringements, (14) especially in the context of patents on standardized technologies, such as standard essential patents covering WiFi or 5G telecommunications technologies in mobile devices. (15)

This Essay builds upon this scholarly work by addressing more generally the legal and policy function of injunctive remedies in patent law, detailing newly identified primary sources in historical caselaw that courts presumptively secured to patent owners an injunction to redress ongoing or willful infringements of their property. (16) The Essay proceeds as follows. First, it summarizes the 2006 eBay decision and how it led to courts significantly reducing injunctions as a remedy for ongoing or willful infringement of valid patents. It describes how eBay changed the legal doctrine for issuing injunctions from a presumptive remedy to a four-factor test and why this change matters. Second, it discusses the nature and function of injunctions as a presumptive remedy in securing property rights, both for landowners and for owners of new and useful inventions. Historical patent decisions confirm the legal doctrine, and, even more importantly, the policy and commercial function of injunctions as essential backstops in the efficient functioning of markets. Of course, an essay cannot address every legal and policy issue in the historical cases and in the economic and philosophical literature. The contribution here is narrow but important: it confirms that eBay indeed changed remedies doctrine in patent law, and that the resulting reduction in injunctions undermines the function of these property rights in spurring economic activities in the U.S. innovation economy.

1. EBAY AND ITS AFTERMATH IN THE LAW AND POLICY OF INJUNCTIVE REMEDIES

   The question presented to the Supreme Court in eBay v. MercExchange was how courts should decide to issue an injunction for ongoing or willful infringement of a valid patent. The legal context for answering this fundamental question about the appropriate remedy for a legal wrong is that U.S. patents are property rights. The 1952 Patent Act expressly states that "patents shall have the attributes of personal property." (17) Before 1952, the statutes did not state this expressly, but legislators, courts, and commentators from the early American republic up through the early twentieth century consistently acknowledged that patents are property rights. (18)

   As a result, patents have long been secured by the remedies afforded to all property rights, such as legal remedies (damages) and equitable remedies (injunctions). In the historical statutes and in caselaw, patent infringement was defined similarly to how all other property rights are violated: patent owners have been secured against unauthorized interferences by third parties in the acquisition, use, or disposal of their inventions. Today, the patent statutes state that any unauthorized access or use of a patented invention is an infringement. (19) On a finding of infringement of a valid patent, a patent owner may receive damages for past infringement, an injunction to stop ongoing infringement or willful infringement, or both. (20)

   This Part summarizes eBay, which sowed confusion by simultaneously claiming that it was merely reaffirming historical caselaw on equitable remedies for patent infringement while changing this law at the same time. This created a state of legal confusion among courts exacerbated by a policy narrative about alleged abuses by patent owners of their property rights. This one-two legal and policy punch produced a significant decline in injunctions issuing for ongoing or willful infringements of valid patents.

   1. A Brief Summary of eBay

      Before eBay, the Court of Appeals for the Federal Circuit had developed a "general rule" that injunctions should issue on a finding of ongoing or willful infringement of a valid patent. (21) It applied this general rule in this case, as the district court found that eBay infringed a valid patent owned by a patent licensing company, MercExchange. (22) But the district court denied MercExchange's petition for an injunction given that it only licensed its property rights. (23) The Federal Circuit reversed, and eBay petitioned the Supreme Court. eBay argued that the Federal Circuit's general legal rule failed to reflect the "equitable" nature of injunctions. (24) The remedies doctrine for issuing injunctions was not supposed to be a rule, eBay argued, but rather a context-specific, equitable-type inquiry that assessed each case on its own terms.

      In its decision, the eBay Court criticized both the district court's general rule denying injunctions for patent owners who license their property rights and the Federal Circuit's general rule issuing injunctions on a finding of infringement of a valid patent. The eBay Court thus affirmed the right of all patent owners to obtain injunctions against infringers, but it rejected any categorical or rule-based approach in favor of an allegedly "historical" four-factor inquiry: (1) the plaintiff must suffer an irreparable injury, (2) legal remedies must be inadequate, (3) the balance of the hardships between the defendant and plaintiff must weigh in favor of the plaintiff, and (4) an injunction must not be against the public interest. (25)

      Notably, and something often forgotten by many commentators and judges, the eBay Court affirmed its 1908 decision in Continental Paper Bag Co. v. Eastern Paper Bag Co. In Continental Paper Bag, the Court held that all patent owners were entitled to receive injunctions to stop ongoing or willful infringements of their property rights, even if they were not using their patented inventions in the marketplace through licensing or manufacturing activities. (26) The Court observed that all "trespasses and continuing wrongs ... are well-recognized grounds of equity jurisdiction, especially in patent cases." (27) The eBay Court approvingly cited Continental Paper Bag in rejecting eBay's argument (and the district court's argument) that patent licensing was legally insufficient to justify an injunction to remedy an ongoing or willful infringement of this patent. (28)

      In its evenhanded criticism of both the district court's general rule denying injunctions for patent owners who only license their property and the Federal Circuit's general rule on issuing injunctions on a finding of infringement of a valid patent, the eBay Court intimated that its "four-factor test" should be applied neutrally. For patent owners, though, hope springs eternal. For both legal and policy reasons, eBay has been neither interpreted nor applied neutrally by courts.

   2. eBay Changed the Law for Injunctions as a Presumptive Remedy for Patent Infringement

      Contrary to the eBay Court's contention that it was merely reestablishing a longstanding legal test, there was no historical four-factor test for issuing injunctions as a remedy for ongoing or willful infringement of a valid patent. (29) Remedies scholars have pointed out that the eBay Court pulled out of thin air its claims that "[o]rdinarily, a federal court ... applies the four-factor test historically employed by courts of equity" and that "[a]ccording to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test." (30) Professor Doug Rendleman bluntly states that "[r]emedies specialists had never heard of the four-point test." (31)

      There was no historical four-factor test for issuing...