Patents, trolls, and personal property: will eBay auction away a patent holder's right to exclude?

• Author: Mersino, Paul M.

INTRODUCTION

Trolls are attacking corporate America. They are ruining innovation, taxing the American people, and wreaking havoc on our legal system. Trolls must be stopped. At least, that is what many in the field of patent law, as well as some Supreme Court Justices, would lead you to believe. But, as with any fairy tale creature, there is more than one side to the story of these infamous "trolls." (1)

Since as early as the ratification of the United States Constitution, a patent holder has had an exclusive right to his patent. (2) The Founding Fathers believed that such an exclusive right would "scarcely be questioned" and that such a right was not only beneficial for the inventor, but equally so for the public good. (3) Congress reiterated this exclusive right under the current Patent Act in which it stated that "patents shall have the attributes of personal property." (4) These property attributes include "the right to exclude others from making, using, offering for sale, or selling the invention." (5) This right to exclude could come under attack for at least some patent holders, however, depending on how lower courts construe and interpret the recent Supreme Court decision of eBay Inc. v. MercExchange, L.L.C. (6)

In eBay, the Supreme Court handed down a unanimous opinion in which it stated that lower courts, when determining whether to grant permanent injunctive relief to a patent holder who has been infringed upon, must look to the "well-established principles of equity." (7) The Court held that plaintiffs should not be granted injunctions automatically upon findings of validity and infringement, but rather should have to pass the same equitable test used for other permanent injunction determinations. (8) Therefore, to obtain a permanent injunction to exclude others from making, using, or selling his patented product, 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 public interest would not be disserved by a permanent injunction. (9) This rule was put in place to clarify the Federal Circuit's prior existing "general rule" in patent cases "that a permanent injunction will issue once infringement and validity have been adjudged." (10)

The Court's holding, written by Justice Thomas, was not, in itself, necessarily a major change in policy. Patent law could see a major change, however, when the holding is applied in context with the two separate concurring opinions. This potential change depends on how lower courts use those concurring opinions to guide their decisions as to when to grant permanent injunctions. Chief Justice Roberts, with whom Justices Scalia and Ginsburg joined, concurred to indicate the historical fact that "[f]rom at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases." (11) The Chief Justice warned against moving too far away from the general rule of granting injunctive relief, stating that when it comes to exercising equitable discretion pursuant to the four-factor test, "a page of history is worth a volume of logic." (12)

Justice Kennedy, with whom Justices Stevens, Souter, and Breyer joined, also wrote a concurring opinion. (13) Justice Kennedy expressed concern with new trends in patent cases, specifically regarding changes in technology and the manner in which patent licenses are dealt. He noted that an entire "industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees." (14) For these reasons, he indicated that past practices of granting injunctions may not be appropriate where the patent holder uses his patents primarily for obtaining licenses, where the patented invention is but a small component of the product the infringing party seeks to produce, or where the patent is for a business method. (15)

This Note addresses the effect eBay may have on patent holders, on patent law, and on innovation in business generally. In particular, it addresses how the decision should be applied by district courts and the Court of Appeals for the Federal Circuit. But before reaching the immediate question, it is necessary to review the history of patent law in order to fully understand the decision's future impact. Therefore, Part I examines the state of patent litigation leading up to eBay, the recent emergence of so-called "patent trolls," and the long-standing history of the right to exclude. Part II then examines eBay in detail, reviewing the Court's majority holding, Chief Justice Roberts's concurring opinion, and Justice Kennedy's concurring opinion. Part III considers the different effects that the concurring opinions could have on patent law and innovation if followed by lower courts. Part IV then proposes a framework within which lower courts should determine whether to grant permanent injunctive relief to patent holders who have been infringed upon. More specifically, Part IV illustrates how following Chief Justice John Roberts's concurring opinion should lead lower courts to continue granting permanent injunctions to patentees on findings of validity and infringement in all but certain rare cases involving public health concerns. This frame work would strike the proper balance between historical notions of equity and personal property rights.

1. THE STATE OF PATENT LAW IN THE UNITED STATES LEADING UP TO EBAY

   The historical origins of patent law have been well documented elsewhere. (16) What is more pertinent for purposes of this Note is a relatively recent explosion of activity that has taken place within American patent law. (17) It is this explosion of activity that paved the road to eBay.

   A. The Road to eBay: Contemporary Patent Law and Litigation

   The increase in patent activity over the past couple of decades has exposed an inevitable trend: the more patents there are in existence, the more litigation there will be over them. (18) With run-of-the-mill patent cases taking years to resolve and costing parties as much as $2,000,000, such litigation has become financially draining on businesses. (19) These costs have further adverse effects on future innovation because they take away from companies' research and development budgets. (20) The result is paradoxical--patents actually restrict the progress of science and innovation, the exact opposite effect that they are intended to have. (21)

   Furthermore, these costs can be insurmountable for smaller inventors who are unable to raise the resources needed to defend their patents. (22) Small inventors are faced with the Hobson's choice of either going nearly bankrupt while attempting to defend their inventions or watching as those inventions are usurped and marketed by another. (23) As a result, in the vast majority of cases, large companies simply gain the intellectual property for free. (24) Because of these costly problems, this Note examines why there has been such an increase in patent applications and, subsequently, in patent litigation.

   The United States is arguably in a period of greater transformation now than in any other period in its history. (25) This transformation is due to a shift in the country's economy away from manufacturing and towards other fields of innovation. (26) Additionally, a sharp expansion in technology, particularly software technology, has further changed the landscape of American commerce. (27) These two occurrences have led to a sharp increase in patent applications in the United States. (28) For example, software products are more complex and call for increasing numbers of patents in each product: the Windows 3.1 operating system, released in 1990, contained approximately three million lines of source code while Windows XP, released in 2002, reportedly contained more than Forty million lines of source code. (29) As opposed to manufacturing sectors of the past, the advanced technology can require excessive numbers of patents to protect one single product. (30) When these factors are viewed together, it is apparent why patent applications began to swell in numbers.

   Another factor contributing to the rapid increase in patents is that, as one publication noted, "it has sometimes seemed as if anyone can get a patent on almost anything." (31) This is because the Federal Circuit has held that, even when inventions seem obvious or are the effort of common sense, any such general knowledge "must be articulated and placed on the record" to negate patentability. (32) The problem with this rule is that when something is said to be common sense, there may not always be a clear or plausible way of articulating it for a record of law. This has led to the approval of patents for seemingly obvious things, such as a method of swinging side-to-side on a playground swing, (33) an "animal toy" that resembles a stick and can be made out of wood, (34) and a crustless peanut butter and jelly sandwich. (35) Indeed, "anything under the sun that is made by man" is appropriate subject matter for a patent. (36) As the then-Deputy Patent Office Commissioner told one newspaper, the Federal Circuit's ruling essentially means that when patent applications are filed, the United States Patent and Trademark Office "can't reject something just because it's stupid." (37)

   Adding to this increase in patent filings has been the increasing trend toward obtaining patents for business methods. A business method patent is just that: a patent for a "method of doing or conducting business." (38) These types of patents were first explicitly recognized and allowed by the Federal Circuit's decision in State Street Bank & Trust Co. v. Signature Financial Group, Inc. (39) In that case, the court...