Tripping over TRIPs: is compulsory licensing under eBay at odds with U.S. statutory requirements and TRIPs?

• Author: Stern-Dombal, Charlene A.
• Position: Agreement on Trade-Related Aspects of Intellectual Property Rights

"[E]xclusion may be ... the very essence of the right conferred by the patent, as it is the privilege of any owner of property to use or not use it, without question of motive." (1)

1. INTRODUCTION

   A patent entitles its owner to exclude others from making, using, offering for sale, selling, or importing a patented invention. (2) A permanent injunction is perhaps a patent owner's most powerful tool to enforce the right to exclude. (3) For almost a century, patent owners relied on a presumption that they were entitled to a permanent injunction upon a finding of validity and infringement of a patent. (4) The Supreme Court, however, recently rejected the so-called "general rule" in favor of permanent injunctions in eBay Inc. v. MercExchange, LLC. (5)

   In the post-eBay era, patentees and accused infringers face a new issue in the already complex arena of patent litigation. (6) Specifically, courts may now more often deny a patentee's request for a permanent injunction, despite finding the patent to be valid and infringed. (7) After eBay, accused infringers may try to persuade the courts to exercise discretion to impose a compulsory license rather than to grant a permanent injunction. (8) A compulsory license is a court ordered license that allows an infringer to continue practicing the patented invention upon payment of a royalty to the patentee. (9) The courts, however, have not yet identified the factors to consider when determining whether to deny an injunction and grant a compulsory license. (10)

   Before eBay, courts granted compulsory licenses only on rare occasions. (11) Some legal experts are now advocating the adoption of a compulsory licensing scheme as part of the United States patent system because of an increase in business-method patents and the concern of licensing tactics used by patent trolls. (12) In addition, some legal experts argue that compulsory licensing will harmonize the United States with other countries that require a patentee to practice the patented invention. (13) Other legal experts argue compulsory licensing is only necessary when warranted by a significant public interest. (14)

   Practitioners and scholars also raise concerns that compulsory licensing may be against the United States's obligations under international trade treaties, such as the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS or TRIPS Agreement). (15) This concern stems, at least in part, from the United States's position strongly opposing compulsory licensing in international treaties. (16) Thus, despite eBay increasing the likelihood that a compulsory license may be granted as an alternate remedy in patent infringement cases, serious questions remain about the soundness of adopting compulsory licensing in the United States and the international impact of such licensing schemes. (17)

   This Note will explore the use of a compulsory licensing scheme in the United States post-eBay. (18) Part II of this Note will summarize the statutory requirements under the Patent Act. (19) Part III will provide a summary of injunctive relief in patent infringement cases pre-eBay. (20) Part IV will examine the eBay v. MercExchange decision and injunctive relief post-eBay. (21) Part V will examine the Agreement on Trade-Related Aspects of Intellectual Property Rights and the United States's obligations under the TRIPS Agreement. (22) Part VI will analyze the issues that will arise if broad compulsory licensing becomes the norm, specifically whether compulsory licensing post-eBay is at odds with the Patent Act and the United States's obligations under the TRIPS Agreement. (23) Part VII will conclude by summarizing the likely opposition that compulsory licensing will encounter if it is broadly employed. (24)

2. THE PATENT ACT

   Article I, section 8 of the United States Constitution vests power in Congress to "promote the Progress of Science and useful Arts" by granting inventors and authors an exclusive right to their discoveries and writings for a limited time. (25) Congress exercised this power by granting patent owners a right to exclude others from making, using, offering for sale, selling, or importing patented inventions for a limited time under the Patent Act. (26) The Patent Act also provides that a patent owner may grant and convey an exclusive right under the patent. (27) Further, under the Act, a patent owner may seek relief for infringement despite not using or licensing the patent. (28) The statutory language does not require use of the patented invention. (29)

   Injunctive relief is an important aspect of patent law. (30) A patentee cannot enjoy the statutory right to exclude--the sole right granted by a patent--without the availability of injunctive relief. (31) The Patent Act provides that courts may grant injunctions in accordance with the principles of equity to prevent violations of rights secured by a patent. (32) Pre-eBay, equity often warranted an injunction in the absence of extraordinary circumstances if the patentee practiced the invention in competition with an accused infringer. (33)

3. INJUNCTIVE RELIEF PRE-EBAY

   The discretion of a court to grant an injunction is based on the consideration of traditional equitable factors. (34) First, a court considers whether the patent owner will suffer irreparable harm from the infringing activity if an injunction is not issued. (35) Second, a court determines whether monetary damages are an adequate remedy at law. (36) Third, a court factors in the public's interest in granting the injunction. (37) Fourth, a court balances the hardships of the patent owner and the infringer. (38) Equity requires that no single factor will determine whether a court issues an injunction, but instead requires equal consideration of all factors. (39)

   For nearly a century, patent owners relied on the precedent of Continental Paper Bag Co. v. Eastern Paper Bag Co. (40) when seeking a permanent injunction upon a court's finding of patent validity and infringement. (41) This case solidified a patent owner's right to exclude others, for a limited time, from making, using, offering for sale, selling, and importing the patented invention, even when the patent owner did not make, use, or sell the patented invention. (42) The Continental Paper Bag Court stated that "such exclusion may be said to have been the very essence of the right conferred by the patent, as it is the privilege of any owner of property to use or not use it, without question of motive." (43) A strong presumption of injunctive relief evolved from a line of cases following Continental Paper Bag. (44)

   Pre-eBay, consideration of these four equitable factors in patent cases rarely resulted in the denial of an injunction. (45) Particularly, courts denied injunctive relief only when public interest or public health significantly outweighed the right of the patent owner. (46) For example, in City of Milwaukee v. Activated Sludge, Inc., (47) the district court denied an injunction because enjoining the city from practicing the patented method of sewage disposal would have seriously harmed the city. (48) The court noted that an injunction would have resulted in closing the sewage facility, which could have resulted in a severe public health risk. (49) As a result, the court in City of Milwaukee awarded the rather exceptional relief, at that time, of a compulsory license. (50)

   Further, prior to eBay, Congress repeatedly rejected proposals to add compulsory licensing provisions to the patent statute. (51) Opponents of compulsory licensing argued that the broad use of compulsory licensing would diminish the value of the patent system and frustrate the rights conferred by a patent. (52) Alternatively, proponents advocated that compulsory licensing would promote the use of dormant patents, provide alternate remedies in patent litigation, and promote technological developments. (53)

4. EBAY, INC. V. MERCEXCHANGE, L.L.C.: THE STATUS QUO CHANGES

   In 2001, MercExchange sued eBay and Half.com for infringing two patents directed to methods of operating a trusted computer network for buying and selling goods and conducting online auctions. (54) The jury found that eBay willfully infringed both patents and awarded MercExchange $35 million in damages. (55) Following trial, MercExchange filed a motion seeking to permanently enjoin eBay from further infringing its patents. (56)

   The district court, however, denied MercExchange's motion for injunctive relief. (57) It recognized that under section 283 of the patent statute, the trial judge has discretion not to issue a permanent injunction following findings of patent validity and infringement. (58) The court also recognized that traditional principles of equity must guide a decision to issue or deny an injunction. (59) The district court therefore applied the four-factor test and considered whether MercExchange would be irreparably injured absent an injunction, whether the remedy would be adequate, whether the injunction would be in the public interest, and whether the balance of the hardships tipped in MercExchange's favor. (60) The court reasoned that MercExchange would not suffer irreparable harm from the denial of injunctive relief because it did not practice or commercialize its invention, it was willing to license the patents, and it did not seek a preliminary injunction during the trial. (61) The court ruled that because MercExchange was willing to license its patent rights, money damages were an adequate remedy. (62) The court concluded that public interest considerations equally supported both parties' positions. (63) It also concluded that the balance of hardships weighed in eBay's favor, and that MercExchange could recover from any harm suffered with monetary damages. (64)

   On appeal, the Federal Circuit reversed the district court's holding. (65) It applied the same four-factor test used by the district court, but held that the balance of factors weighed in...