Amicus Curiae Brief — eBay Inc. v. MERCEXCHANGE, LLC

3 , SEP 26 200s

No. 05-130 |

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IN THE

Supreme Court of the United States

eBAY, INC. and HALF.COM., INC.,

Petitioners,

v.

MERCEXCHANGE, L.L.C.,

Respondent.

On PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

BRIEF AMICI CURIAE OF 35 INTELLECTUAL

PROPERTY PROFESSORS IN SUPPORT OF

THE PETITION FOR CERTIORA

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Mark A. LEMLEY

Counsel of Record

WILLIAM H. NEuKoM PRoFEssor OF LAW

STANFORD Law SCHOOL

559 Nathan Abbott Way

Stanford, CA 94305

(650) 723-4605

Counsel for Amici Curiae

196866 ce)

COUNSEL PRESS

(800) 274-3321 + (800) 359-6859

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TABLE OF CONTENTS

Page

INTEREST OF AMICI CURIAE ............... l

-TABLE OF CITED AUTHORITIES ............ il

REASONS FOR GRANTING THE PETITION ... l

I. The Federal Circuit Has Abandoned the Role

of Equity, in Defiance of the Statutory

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Il. Application of Equitable Factors is Important

to Avoid Abuse of the Patent System ...... 3

lll. This Court Is the Only Forum Reasonably

Available to Redress This Problem ....... 7

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TABLE OF CITED AUTHORITIES

Cases:

Campbell v. Acuff-Rose Music Co., 510 U.S. 569

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City of Milwaukee v. Activated Sludge, Inc., 69 F.2d

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Foster v. Am. Mach. & Foundry Co., 492 F.2d 1317

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Holmes Group v. Vornado Air Circulation Sys.,

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Hybritech Inc. v. Abbott Laboratories, 849 F.2d 1446

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MercExchange, LLC v. eBay, Inc., 401 F.3d 1323

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Mueller v. Wolfinger, 68 F. Supp. 485 (D. Ohio 1946)

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Odetics, Inc. v. Storage Tech. Corp., 185 F.3d 1259

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Roche Products Inc. v. Bolar Pharmaceuticals Co.,

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Cited Authorities

Page

Schinzing v. Mid-States Stainless, 415 F.3d 807

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Vitamin Technologists, Inc. v. Wisc. Alumni Res.

Found., 146 F.2d 941 (9" Cir. 1945) .......... 7

Weinberger v. Romero-Barcelo, 456 U.S. 305 (1982)

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Statutes:

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Other Authority:

Mark R. Patterson, /nventions, Industry Standards,

and Intellectual Property, 17 Berkeley Tech. L.J.

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INTEREST OF AMICI CURIAE

Amici are scholars at American law and business schools

who teach, write about, or have an interest in patent law.

Amici have no stake in the outcome of this case,' but are

interested in ensuring that patent law develops in a way that

best promotes innovation. A full list of amici is appended to

the signature page. Both petitioner and respondent have

consented to the filing of this brief.

REASONS FOR GRANTING THE PETITION

I. The Federal Circuit Has Abandoned the Role of

Equity, in Defiance of the Statutory Language

Section 283 of the Patent Act is quite clear: district courts

are granted the discretion to decide whether and under what

circumstances to issue patent injunctions. The statute

provides that courts “may” grant injunctions once .

infringement is found, but only “in accordance with principles

of equity” and “on such terms as they deem reasonable.”

35 U.S.C. § 283. Those principles of equity are well-

established in a long line of cases, both from this Court and

from the regional circuits. See, e.g., Weinberger v. Romero-

Barcelo, 456 U.S. 305, 312 (1982) (setting out the four

equitable factors to be considered in granting injunctive

relief: (i) whether the plaintiff would face irreparable injury

if the injunction did not issue; (ii) whether the plaintiff has

an adequate remedy at law; (iii) whether granting the

injunction is in the public interest; and (iv) whether the

balance of hardships tips in the plaintiff’s favor); see also

1. No party other than the signatories has authored or paid for

any part of this brief.

2

_

Mueller v. Wolfinger, 68 F. Supp. 485, 488 (D. Ohio 1946)

(applying the factors under predecessor to Section 283).

The Court ef Appeals for the Federal Circuit has

effectively read the terms “may” and “in accordance with

principles of equity” out of the statute. In no case in the last

twenty years has the Federal Circuit permitted a district court

to apply its equitable powers to refuse a permanent injunction

after a finding of infringement.’ Indeed, the court’s grant of

permanent injunctive relief is so automatic that it rarely even

recites the equitable factors any longer, relying instead on

an all-but-conclusive presumption that injunctive relief is

appropriate. In this case, for example, the Federal Circuit

made it clear that a district court had the power to deny

injunctive relief only in exceptional circumstances.

MercExchange, LLC v. eBay, Inc., 401 F.3d 1323, 1339

(Fed. Cir. 2005). Further, the only exceptional circumstance

the court identified was one involving imminent danger to

public health, in which case the court suggested it might be

appropriate to consider the public interest in access to the

invention.

The contrast with copyright cases is striking.

The Copyright Act includes language quite similar to section

2. The Federal Circuit occasionally affirms a refusal to grant

preliminary injunctions, see Hybritech Inc. v. Abbott Laboratories,

849 F.2d 1446, 1458 (Fed. Cir. 1988), or to enter injunctions when

the patentee has failed in some other aspect of proof, see Odetics,

Inc. v. Storage Tech. Corp., 185 F.3d 1259, 1273 (Fed. Cir. 1999)

(patentee comm ‘tted laches, and could not enjoin products produced

during the period of its laches). But not since the 1984 decision in

Roche Products Inc. v. Bolar Pharmaceuticals Co., 733 F.2d 858,

866 (Fed. Cir. 1984), has it refused to enter a permanent injunction

because of considerations of equity.

3

283, and which indeed seems more expansive than the patent

statute with respect to injunctive relief because it lacks

explicit reference to equity. 17 U.S.C. § 502(a) (“Any court

. may ... grant temporary and final injunctions on such

terms as it may deem reasonable”) (emphasis added).

Nonetheless, this Court has twice noted that seciion 502(a)

does not require the grant of injunctive relief after a finding

of infringement. See New York Times Co. v. Tasini, 533 U.S.

483, 505 (2001) (“it hardly follows from today’s decision

[finding infringement] that an injunction . .. must issue”);

Campbell v. Acuff-Rose Music Co., 510 U.S. 569, 578 n.10

(1994) (“courts may also with to bear in mind that the goals

of the copyright law ... are not always best served by

automatically granting injunctive relief”).

The Federal Circuit’s failure to apply a similar standard

to patent law, its willingness to consider applying only a

single one of the four equitable factors governing injunctive

relief, and the fact that in the last twenty years it has never in

fact permitted a district court to deny a permanent injunction

on equitable grounds, all mean that as a practical matter it

has denied courts the authority given them by section 283 to

grant injunctions “in accordance with principles of equity.”

Il. Application of Equitable Factors is Important to

Avoid Abuse of the Patent System

The Federal Circuit’s refusal to permit district courts to

apply the language of the statute has potentially serious

consequences for the operation of the patent system. The goal

of the equity requirement in the injunctive relief sections of

the patent law is to ensure that people who actually need

injunctive relief to protect their markets or ensure a return

on their investment can get it, but that patent owners cannot

4

use the threat of an injunction against a complex product

based on one infringing piece to hold up the defendant and

extract a greater share of the value of that product than their

patent warrants. Unfortunately, such inappropriate “holdups”

occur on a regular basis under the Federal Circuit’s

mandatory-injunction standard.

We should be clear that the application of equitable

principles would not mean that injunctions are generally

problematic. Patent law is a property rule, and injunctive

relief is the appropriate remedy in ordinary patent cases.

Injunctive relief is an important part of the patent law, and

in most cases there will be no question as to the patentee’s

entitlement to such relief. To begin, equity warrants an

injunction if the patentee practices the patent in competition

with the accused infringer. Even if it doesn’t, if the patentee

sells a different product in the marketplace, equity should

entitle it to an injunction to prevent its own invention (in the

hands of an infringer) from competing with the product it

does sell. Similarly, if patentees assign or exclusively license

the patent to someone who competes in the marketplace, they

should also be entitled to injunctive relief. And even if the

patentee hasn’t done these things in the past, if it begins to

do so in the future equity would support injunctive relief.

Patentees also ought to be entitled to an injunction in cases

where the defendant copies the idea from the patentee, even

if the patentee is not participating in the market and has no

plans to do so. Infringers shouldn't be able to intentionally

take the patented technology knowing they will only have to

pay a royalty. Even if none of these things are true, some

injunctions won't lead to a risk of holdup, and so even

patentees who don’t meet any of the criteria listed above will

often be entitled to an injunction.

5

That said, an absolute entitlement to injunctive relief

can and does permit unscrupulous patent owners to

“hold up” defendants by threatening to enjoin products that

are predominantly noninfringing and in which the defendant

has already made significant irreversible investments.

In num2rous cases, the parties settle for an amount of money

that significantly exceeds what the plaintiff could have made

in damages and ongoing royalties had they won. In these

cases it is not the value of the patent but the costs to the

defendant of switching technologies midstream that are

driving the price. For example, one patent owner charges a

0.75% royalty for patents that don’t cover industry standards,

and 3.5% for patents that do cover industry standards.

Mark R. Patterson, /nventions, Industry Standards, and

Intellectual Property, 17 Berkeley Tech. L.J. 1043, 1059 n.

61 (2002). The technology isn’t any better, but they can

demand nearly five times as much money once the industry

has made irreversible investments in a particular technology.

This is of particular concern when the patent itself covers

only a small piece of the product. A microprocessor may

include 5,000 different inventions, some made by the

manufacturer and some licensed from outside. If a

microprocessor maker unknowingly infringes a patent on one

of those inventions, the patent owner can threaten to stop

the sale of the entire microprocessor until the defendant can

retool its entire plant to avoid infringement. Small wonder,

then, that patentees regularly settle with companies in the

information technology industries for far more money than

their inventions are actually worth. Defendants are paying

holdup money to avoid the threat of injunctive relief. That’s

not a legitimate part of the value of a patent; it is a windfall

to the patent owner that comes at the expense not of

unscrupulous copyists but of legitimate companies doing

their own research and development.

6

Traditional principles of equity give courts the tools to

deal with this problem. Patent owners who do not

manufacture the patented or any other competing good, and

who seek only to license their invention at a reasonable

royalty, should be entitled to injunctive relief only if they

would be irreparably injured by the infringement. If the

patentee has an adequate remedy at law, that fact properly

cuts against granting injunctive relief. Those equitable

principles also permit courts to consider the balance of the

hardships, so that the ordinary grant of injunctive relief can

be avoided where it would have significant negative

consequences and little affirmative purpose, as in the case

of the 5,000-component invention.

This case squarely presents that issue. eBay is a vibrant

electronic marketplace with millions of users that contributes

a great deal to the modern economy. The patentee does not

compete with eBay in the market. Its interest is in obtaining

a royalty. MercExchange can likely obtain a larger royalty

from eBay by settlement if it can threaten to shut down eBay

altogether. But in doing so it will not be capturing value

associated with its invention, but value that eBay has actually

contributed to the world. We do not express an opinion on

how the application of the traditional equitable factors would

actually come out in this case, but it is clear that there are

significant issues that should have been considered and which

the Federal Circuit’s mandatory injunction rule has short-

circuited.

:

III. This Court Is the Only Forum Reasonably Available

to Redress This Problem

The Federal Circuit has had virtually exclusive

jurisdiction over patent cases since 1982.’ Before that time,

some regional circuits denied permanent injunctive relief to

patent owners based on their application of traditional

equitable principles. See, e.g., Foster v. Am. Mach. &

Foundry Co., 492 F.2d 1317, 1324 (2d Cir. 1974); Vitamin

Technologists, Inc. v. Wisc. Alumni Res. Found., 146 F.2d

941, 956 (9 Cir. 1945); City of Milwaukee v. Activated

Sludge, Inc., 69 F.2d 577, 593 (7" Cir. 1934). But because

patent cases were never appealed to the regional circuits

between 1982 and 2002, and only rarely since 2002, district

courts are effectively bound to the Federal Circuit’s

mandatory injunction rule. Even in those rare modern cases

in which regional circuits do hear patent cases, they may

defer to the Federal Circuit’s substantive legal rules.

See, e.g., Schinzing v. Mid-States Stainless, 415 F.3d 807 (8"

Cir. 2005). As a result, there is unlikely to be an opportunity

for the legal standards to percolate through the various

circuits. Unless this Court acts, the Federal Circuit’s

misreading of section 283 will become more and more firmly

cemented in patent law, and parties will have neither incentive

nor ability to present the issue in the future.

Nor can Congress easily solve this problem. While

Congress is currently considering various proposals to reform

the patent system, the existing statute unambiguously grants

3. This Court recognized one exception to that jurisdiction in

2002: where a patent claim is filed only as a counterclaim to a non-

patent cause of action, appeal is to the regional courts of appeals.

Holmes Group v. Vornado Air Circulation Sys., 535 U.S. 826 (2002).

8

courts the very equitable power that the Federal Circuit has

denied them. When Congress has already spoken on an issue,

and the circuit courts have ignored that congressional action,

it should not be necessary to require Congress to reenact the

same statute. It is the responsibility of the courts to apply

the statute as it is written. Where the circuit courts have failed

to do so, this Court should step in.

CONCLUSION

Amici respectfully urge this Court to grant the petition

for writ of certiorari in order to confirm the applicability of

traditional principles of equity to patent law.

Respectfully submitted,

Mark A. LEMLEY

Counsel of Record

WILLIAM H. Neukom Proressor of Law

STANFORD Law SCHOOL

559 Nathan Abbott Way

Stanford, CA 94305

(650) 723-4605

Counsel for Amici Curiae

APPENDIX

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LIST OF AMICI*

Professor John R. Allison

Spence Centennial Professor

McCombs School of Business, University of Texas at Austin

Robert Barr

Executive Director, Berkeley Center for Law and Technology

University of California at Berkeley

Professor Ann Bartow

University of South Carolina School of Law

Professor Dan L. Burk

Oppenheimer, Wolff & Donnelly Professor

University of Minnesota School of Law

Professor Daniel R. Cahoy

Smeal College of Business, Penn State University

Professor Irene Calboli

Marquette University Law School

Professor Christopher A. Cotropia

C.J. Morrow Research Associate Professor

Tulane University School of Law

* Institutions of all signatories are provided for identification

purposes only. The undersigned do not purport to speak for their

institutions. Some amici have of counsel or consulting relationships

with law firms or corporations. Those institutions too have no

involvement in this brief, and the personal views of amici should

not be attributed to them.

2a

Appendix

Professor Stacey L. Dogan

Northeastern University School of Law

Professor Rochelle Cooper Dreyfuss

Pauline Newman Professor of Law

NYU School of Law

Professor Brett Frischmann

Loyola University-Chicago School of Law

Professor Shubha Ghosh

University of Buffalo Law School

Professor Eric Goldman

Marquette University Law School

Professor Tim Holbrook

Chicago-Kent College of Law

Professor Chris Holman

University of Missouri-Kansas City School of Law

Professor David Hricik

Mercer University School of Law

Professor Craig Jepson

Franklin Pierce Law Center

Professor Mark A. Lemley

William H. Neukom Professor

Stanford Law School

Appendix

Professor Lawrence Lessig

C. Wendell & Edith M. Carlsmith Professor of Law

Stanford Law School

Professor Doug Lichtman

University of Chicago School of Law

Professor Mark McKenna

St. Louis University School of Law

Professor Peter S. Menell

Boalt Hall School of Law

University of California at Berkeley

Professor Michael J. Meurer

Michaels Faculty Scholar

Boston University School of Law

Professor Joseph Scott Miller

Lewis & Clark Law School

Professor Mike Mireles

University of Denver Sturm College of Law

Professor Kimberly A. Moore

George Mason University Law School

Professor Adam Mossoff

Michigan State University College of Law

Professor Tyler Ochoa

Santa Clara University School of Law

4a

A ppendix

Professor Maureen O’ Rourke

Dean ad interim and Michaels Faculty Research Scholar

Boston University School of Law

Professor Pamela Samuelson

Chancellor’s Professor

Boalt Hall School of Law and School of Information

Management and Systems

University of California at Berkeley

Professor Carl Shapiro

Transamerica Professor

Haas School of Business °

University of California at Berkeley 4

Professor Howard Shelanski

Boalt Hall School of Law

University of California at Berkeley

Professor Christopher Sprigman

University of Virginia School of Law

Professor Katherine Strandburg

DePaul University College of Law

Professor John R. Thomas

Georgetown University Law Center

Professor Elizabeth I. Winston

Whittier Law School

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