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« Buenos Aires with 100,000 Foneros | Main | New York Sets Deadline for Wireless Parks Contract »

May 15, 2006

Supreme Court Revises Patent Injunctions

While it may seem tangential to this site, recall how many articles have been written about Wi-Fi and wireless data and their associated patents: The Supreme Court ruled today that automatic injunctions are not appropriate for patent lawsuits. Rather, injunctions must be granted only when four tests already used for more general injunctions are used. Each test favors patentholders actively engaged in producing products or operating services that involve the patent. An injunction prevents a party from doing something; in this case, eBay would have been preventing from using its Buy It Now service while litigation was underway.

In Oct. 2004, patent-buying firm Acacia notified what seemed to be thousands of hotspot operators--including a tiny bed and breakfast on the Oregon coast--that they infringed on a patent Acacia had obtained from LodgeNet that covered redirection when connecting to a hotspot. I haven't heard boo since then, possibly because prior art emerged, even though Acacia vowed to follow up with those they'd sent paperwork to within 30 days. The patent stands, but it would have a hard time standing if re-examined, based on the information I've had described to me.

In many business-method patents, in which the method of accomplishing an activity is described, there is no operation in effect or the patent was sold or traded to a third-party that is pursuing legal remedies. The patents are used to obtain licensing fees from parties engaged in similar, identical, or unrelated activities as those described in the patent.

Injunctions are used as the threat by which a patentholder extracts money without necessarily having a patent that covers the use of the business-method in question. Because an injunction could irreparably harm a business, or, in the case of a diversified firm, cost them millions or more dollars, settlements often happen where a defendant has the resources to fight in court, and may think themselves likely to win. It's cheaper to settle than be barred from engaging in a particular use of technology or a way of doing business! This is why you see defensive patents filed that seem ridiculous; it's to prevent not necessarily lawsuits but injunctions and to enable a company to continue doing whatever it is they were doing. Amazon.com holds several patents that it has rarely enforced. (Disclosure: I wrote a draft of, but did not invent one of those patents when working at Amazon in 96-97.)

With the threat of essentially automatic injunctions removed--pending how it's interpreted by trial courts, of course--this means that fewer suits will be brought because there will be much less likelihood of the cases being settled beforehand to avoid injunctions. The bar is now higher, and teams of lawyers are likely at work now building briefs that they can whip out to explain why their particular business-method lawsuit meets the Supreme Court's interpretation.

The four-part test for general equity court injunctions should be used for patent injunctions is what the Court wrote. It will potentially make it far less likely for a trial judge to issue an injunction at any stage of the proceedings, including if the patentholder wins the trial but the defendant plans to appeal. The test requires the plaintiff to show irreparable injury (hard when you're not making or doing something), monetary or similar damages awarded at trial are insufficient (hard when you're suing specifically for money), and that the public interest "would not be disserved" by an injunction (hard to argue when the defendants are engaged in an activity and not therefore being prevented from acting in the public interest). A fourth test requires balancing hardships between the parties, and it's possible that that would swing towards a producer/provider rather than a patent-licensing house, too.

The Supreme Court immediately makes its opinions available as PDFs, which you can download here. The case is the eBay vs Mercexchange.

I'm sure this makes Research In Motion feel just wonderful tonight.