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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0207%3A32

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2005
- **Citation:** 546 U.S. 1029

## Text

|
No. 05-130 7
OFFICE OF THE CLERK
IN THE SUPREME COURT, U.S.

Supreme Court of the United States

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

Petitioners,
V.
MERCEXCHANGE, L.L.C.,
Respondent.

On Writ oF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

~ BRIEF OF INTERNATIONAL BUSINESS
MACHINES CORPORATION AS AMICUS CURIAE
IN SUPPORT OF NEITHER PARTY

Davin J. Kappos CHRISTOPHER A. HUGHES

Marc A. EHRLICH Counsel of Record

IBM Corporation Mark J. ABATE
One North Castle Drive MorGANn & FINNEGAN, L.L.P.
Armonk, NY 10504 3 World Financial Center
(914) 765-4343 New York, NY 10281

MarIAN UNDERWEISER (212) 415-8700

IBM CorporaTION
Rte 134/110] Kitchawan Rd
Yorktown Heights, NY 10598
(914) 945-2756

Counsel for Amicus Curiae
International Business Machines Corporation

January 26, 2006

1LY9L1O ce

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TABLE OF CONTENTS

TABLE OF CITEDAUTHORITIES ............

INTEREST OF AMICUS CURIAE .............

INTRODUCTION AND SUMMARY
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I.

THE “GENERAL RULE” CONCERNING
PATENT INJUNCTIONS JS NOT FAITHFUL
TO THE PATENT STATUTE ............

THE “GENERAL RULE” CONCERNING
PATENT INJUNCTIONS IGNORES THE
FULL SCOPE OF EQUITABLE PRINCIPLES
ANALYZED IN CONTINENTAL PAPER
SU nea Pew 4b cave a6eke uss hs ede ess

DEVELOPMENTS IN TECHNOLOGY AND
BUSINESS OPERATIONS REINFORCE
THE WISDOM OF THE STATUTORY
REQUIREMENT FOR APPLYING
EQUITABLE PRINCIPLES WHEN
CONSIDERING PATENT INJUNCTIONS ..

A. Except For The Remedy Of Injunctions,
The Patent Laws Have Adapted To
Changes In Technology And Business
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B.

ul

Contents

The “General Rule” Ignores Modern
Business Inter-dependency Whereby The
Impact Of Patent Injunctions Extends Far
PE ED Sibacdneauewekaucs

IV. THE UNIQUE NATURE OF PATENT CASES
WARRANTS CONSIDERATION OF
EQUITABLE PRINCIPLES IN GRANTING
AND STRUCTURING INJUNCTIONS ....

A.

Consideration Of Irreparable Injury To
The Patentee Focuses On The Conduct
And Needs Of The Patentee .........

The Adequacy Of The Patentee’s Legal
Remedies Includes Consideration Of
Patentee’s Damages ................

The Public Interest Encompasses
Consideration Of The Overall Impact On
Se EE eh ca 's3 hse cekeenwineyes

The Balance Of Hardships To The Parties
Includes Consideration Of Their
Respective Business Models And
Commercial Needs .... ccc cccccces

Balancing Of Equitable Principles Will
Ensure Flexibility In Considering Stays
Of Patent Injunctions Pending Appeal .. .

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Page

1]

15

16

19

21

23

26

iti

TABLE OF CITED AUTHORITIES

Page

Cases:
Archive Corp. v. Cipher Data Prods., Inc.,

12 USPQ2d 1464 (C.D. Cal. 1988) ........... 13
AT&T Corp. v. Microsoft Corp.,

414 F.3d 1366 (Fed. Cir. 2005) .............. 1]
Barnard v. Gibson, .

SB US. CF ew. PGC IBGE) cc cv cccccccccces: 27
BIC Leisure Prods., Inc. v. Windsurfing Int'l, Inc.,

BS ge 7). he A. Breer Tere 19-20
Boomer y. Atl. Cement Co.,

26 N.Y.2d 219, 257 N.E.2d 870 (1970) ........ 24
Cochrane v. Deener,

6 cea aah wKEKSS Ge Ket 5, 6
Continental Paper Bag Co. v. Eastern

Paper Bag Co.,

Pe OME oc odu ses hpb 2660005 0808 passim
Cook Inc. v. Boston Scientific Corp.,

a ee 22
Crown Die & Tool Co. v. Nye Tool & Mach. Works,

ee ee EE bb uh eeedevenbinvenvesss 5

Diamond v. Chakrabarty,
a a i ca os bees 10

iv

Cited Authorities

Diamond vy. Diehr,

GSOU.S. TTS CIUSE). oo 5 nckcsccveguusseeeen

Dynacore Holdings Corp. v. U.S. Philips Corp.,

363 F.3d 1263 (Fed. Cir. 2004) .............

E.I. du Pont de Nemours & Co. v. Phillips
Petroleum Corp.,

S35 F.26 277 (Fed. Cie. 1967) 2 cen ccescccers

Eolas Techs. Inc. v. Microsoft Corp.,

399 F.3d 1325 (Fed. Cir. 2005) .............

Ericsson, Inc. v. Harris Corp.,

352 F.3d 1369 (Fed. Cir. 2003) ............%.

Fonar Corp. v. Gen. Elec. Co.,

107 F.3d 1543 (Fed. Cir. 1997) .............

Foster v. Am. Mach. & Foundry Co.,

492 F.2d 1317 (2d Cir. 1974) ..........-....

Friends of the Earth, Inc. v. Laidlaw

Envtl. Servs., Inc., 528 U.S. 167 (2000) .......

Gen. Motors Corp. v. Devex Corp.,

461 U.S. GEE (IDES) . cc csssvusseveecseviuet

Harrisonville v. W.S. Dickey Clay Mfg. Co.,

20? U.S. SFR (IFS) . ccvccvvevesccwseueuss

Hecht Co. v. Bowles,

S20 U.S. S21 (IGS) .. osvcviccccevesesvees

Page

21

26
| ll
20
20
17
15
19
23

15

V

Cited Authorities
Page

High Tech Med. Instrumentation, Inc. v.

New Image Indus., Inc.,

49 F.3d 1551 (Fed. Cir. 1995) ............... 18
Interactive Pictures, Corp. v. Infinite Pictures Inc.,

274 F.3d 1371 (Fed. Cir. 2001) .............. 20
King Instrument Corp. v. Otari Corp.,

Fee Wee re Ce Ct. ISGS) nn cc cccccsccess 20
Landis Tool Co. v. Ingle,

a, SEED ocecccserces seeeeeees 26, 27
Litton Sys., Inc. v. Sundstrand Corp.,

750 F.2d 952 (Fed. Cir. 1984) ............4-. 12
MercExchange, L.L.C. v. eBay, Inc.,

401 F.3d 1323 (Fed. Cir. 2005) .......... 4,7, 14,17
Metabolite Labs., Inc. v. Lab. Corp. of Am.,

370 F.3d 1354 (Fed. Cir. 2004),

cert. granted, 126 S. Ct. 601 (2005) .......... 9
Monsanto Co. v. Scruggs,

249 FSupp.2d 746 (N.D. Miss. 2001) ......... 25
Moxness Prods., Inc. v. Xomed, Inc.,

Civ. No. 86-100-CIV-J-14, 1988 U.S. Dist. LEXIS

16060 (M.D. Fla., May 10, 1988) ............ 27

NTP, Inc. v. Research in Motion, Ltd.,
418 F.3d 1282 (Fed. Cir. 2005),
oe SE | 11

vi

Cited Authorities

Pfaff v. Wells Elec., Inc.,
Se a PD pbb. tesa cde dewasweeeeees

Riles v. Shell Exploration & Prod. Co.,
298 F.3d 1302 (Fed. Cir. 2002) ..............

Rite-Hite Corp. v. Kelley Co., Inc.,
ee Se PPT ee eee

Roche Prods., Inc. v. Bolar Pharm. Co., Inc..,
733 F.2d 858 (Fed. Cir. 1984) Be Se ee ee ate

Root v. Lake Shore & Mich. S. Ry. Co.,
2 BE rr ee emer s

SmithKline Beecham Corp. v. Apotex Corp.,
247 F.Supp.2d 1011 (N.D. Ill. 2003), aff'd in part,
403 F.3d 1313 (Fed. Cir. 2005) ..............

Standard Havens Prods., Inc. v. Gencor Indus., Inc.,
og pif . kt. 8 | ee

State Indus., Inc. v. Mor-Flo Indus., Inc.,
883 F.2d 1573 (Fed. Cir. 1989) ..............

T.J. Smith & Nephew Ltd. v. Consolidated
Med. Equip., Inc.,
821 F.2d 646 (Fed. Cir. 1987) ...............

Transmatic Inc. v. Gulton Indus. Inc..,
180 F.3d 1343 (Fed. Cir. 1999) ..............

Page

20

20

19

26

19

18

20

vil

Cited Authorities
Page

United States v. Oakland Cannabis Buyers’ Coop.,

Se ED Wks 6.4 bkadcK bb ee eee ne cs 21
Walgreen Co. v. Sara Creek Prop. Co.,

Se See SPP CONE, FOU «ccc dccecccccss 25
Weinberger v. Romero-Barcelo,

PO PPC CPE ETT TTT TT ee 8, 15
Constitution, Statutes And Rules:
NE ee i eg adews w)
PTE :6.6 cued eens eeuh en chee eaaceaee 6
Se > ob can Gkhimennbadhudeenkakas . 10, 11
PRE. Seivensekbdectecke ces dcedees 10
2 NG BR Pee a peere ery per 18, 25
AD Perr rr rrr rT Sats ae 5, 6,7
a: wid bnencakecwaeeeu aud nesters 10
35 DME: =i¢euvnusete ea6ies den eenkenes 10, 11
re oer ee 2,4, 7, 29
DEY ao cadaceuuesectosesadadauw 7, 19, 20

PP EEE bd dcesedebcueibatchienccs 27

vill

Cited Authorities

Patent Act of 1790, ch. 7, 1 Stat. 109-12
St CEU ka onan 65540 bran keedeaeeanee

Patent Act of 1819, ch. 19, 3 Stat. 481
ERE aD ecier pO ae Re one re men AON

Patent Act of 1836, ch. 357, 5 Stat. 117-25
ee, SEE nica 3 i's 44S OU RCH ES eee RES Aas

Patent Act of 1870, ch. 230, 16 Stat. 198-217
5 | RE ra Oe re ee Pee

Patent Act of 1897, ch. 391, 29 Stat. 692-94
I sn ed ee eee bare

United States Supreme Court Rule 37.6 ..........
oe rere rer erry pr rer rr Tee
Other Authorities

Anick Jesdanun, Patent Spat Kills Anti-Spam Plan,
CBS News, Sept. 28, 2004, at http://www.cbsnews.
com/stories/2004/09/28/tech/main645915.
GEE nce ceknde dead webeesetsndcacnees

ASTM Handbook of Standardization, available at
http://www.astm.org/NEWS/handbook02/images/
Handbook02.pdf (last visited Jan. 26, 2006) ....

Page

10

13

ix

Cited Authorities

ASTM International, 2004 ASTM International
Annual Report, Focus 2004 (2004), available at
http://www.astm.org/NEWS/2004Annual

NEES. ba dacacdcencddcwcoeae ta cenwexs

Cari SHapiro & Har R. VARIAN, INFORMATION RULES
(Harvard Business School Press 1999) ........

Complaint, QUALCOMM Inc. v. Nokia Corp.,
No. 05-CV-2063 (S.D. Cal., Nov. 4, 2005) .....

Eric Marks & MARK WERRELL, Executive’s GUIDE TO
Wes Services (Wiley & Sons 2003) ...........

Eric vON Hiprec, DEMOCRATIZING INNOVATION
SD og cn dws a nb eee ak-).

16

Consistent with the command to do equity and within
the purview of the traditional equitable principles, there are
a variety of circumstances specific to patent cases, meriting
consideration in granting and structuring injunctive relief.

A. Consideration Of Irreparable Injury To The
Patentee Focuses On The Conduct And Needs Of
The Patentee

The so-called “general rule” presumes irreparable harm
to the patentee, and thus fails to apply the equitable principles
required by the patent statute. When properly analyzed, the
patentee’s conduct and needs may tend to show lack of
irreparable harm and may weigh against granting an
injunction or, if granted, may warrant appropriate moderation
of the injunction.

For example, a court should consider whether the
patentee has a legitimate economic interest in seeking an
injunction. Where a patentee is practicing the inve tion, the
ability to exclude its competitors remains the ultimate
statement of respect for the exclusive nature of the-patent
grant. In such instances, a complete examination of the well-
accepted equitable principles will undoubtedly result in a
broad injunction in favor of the patent holder. However, if a
legitimate economic interest in an injunction cannot be shown
beyond the motivation to maximize negotiating leverage in
settlement negotiations, this may be a factor weighing against
granting an injunction or in favor of limiting its scope.

In Continental Paper Bag, this Court did, in fact,
consider the patentee’s legitimate economic interests in
relation to the patent injunction. 210 U.S. at 429. There, a
dissenting judge on the court of appeals (Judge Aldrich)
would have denied an injunction if the patent was
“deliberately held in nonuse for a wrongful purpose.”
210 U.S. at 428. In analyzing the pertinent equities, this Court
looked beyond simple nonuse of the patent, and examined

17

whether or not the underlying reason for the nonuse was
reasonable:

[C]an it be said, as a matter of law, that a nonuse
was unreasonable which had for its motive the
saving of the [considerable] expense that would ~
have been involved by changing the equipment
of a factory from one set of machines to another?

210 U.S. at 429. In contrast, the Federal Circuit in eBay held
that the circumstances of MercExchange’s nonuse were
irrelevant to the grant of an injunction:

If the injunction gives the patentee additional
leverage in licensing, that is a natural consequence
of the right to exclude and not an inappropriate
reward to a party that does not intend to compete
in the marketplace with potential infringers.

eBay, 401 F.3d at 1339; cf. Foster v. Am. Mach. & Foundry
Co., 492 F.2d 1317, 1324 (2d Cir. 1974) (“An injunction to
protect a patent against infringement, like any other
injunction, is an equitable remedy to be determined by the
circumstances. It is not intended as a club to be wielded by a
patentee to enhance his negotiating stance.”) (citations
omitted).

Another indicia of legitimate economic interest is
whether the patentee and infringer are competitors in the
marketplace. See Continental Paper Bag, 210 U.S. at 428-
29. Competition between the patentee and the infringer in
the market for the patented product may indicate a need on
the part of the patentee to protect the market for its product
and consequently irreparable injury if that market is not
protected by an injunction. The patentee’s need to prevent
dilution of its market for a non-patented product may also
constitute a legitimate economic interest weighing in favor
of granting an injunction. See Continental Paper Bag, 210
U.S. at 428-29. On the other hand, a lack of legitimate

18

economic interest in seeking an injunction may be evidenced
by the patentee’s lack of a substantial business, or absence
of a plan to launch a business, other than patent enforcement.

Another pertinent factor is the patentee’s delay in
bringing suit, which may indicate a willingness to tolerate
the market effects of infringement or allow an infringer as
well as similarly-situated members of the public to become
committed to an infringing course of conduct. This may
weigh against a finding of irreparable injury. See High Tech
Med. Instrumentation, Inc. v. New Image Indus., Inc., 49 F.3d
1551, 1557 (Fed. Cir. 1995) (delay in seeking preliminary
injunctive relief showing lack of irreparable injury).

The patentee’s practices in the prosecution and
management of its patent portfolio may also be relevant to
the harm inquiry. For example, where the patentee engaged
in continuation practice, see 35 U.S.C. § 120, filing the patent
claim in suit after the defendant’s infringing activities became
public, it should be determined whether the claim was
obtained to protect a product of the patentee or simply to
Strengthen its negotiating position with the infringer.
The latter finding may suggest a lack of irreparable harm.

The patentee’s grant of exclusive licenses to third parties
may weigh in favor of a finding of irreparable harm. But, the
patentee’s grant of nonexclusive licenses to third parties or
offering of a license to the infringer prior to commencing
suit may weigh against such a finding. See T-J. Smith &
Nephew Ltd. v. Consolidated Med. Equip., Inc., 821 F.2d 646,
647-48 (Fed. Cir. 1987) (preliminary injunction denied in
part because of prior licenses to third parties).

These same types of considerations should motivate an
appropriate crafting of an injunction. For example, if the
patentee and infringer do business in generally separate
markets but compete in a specific product market, the
injunction may be structured only to exclude the infringer
from that market where they compete. Moreover, if the

19

patentee has only granted non-exclusive licenses in a
particular field of use, reserving other fields for itself, an
injunction may be structured to exclude the infringer from
the fields reserved by the patentee.

B. The Adequacy Of The Patentee’s Legal Remedies
Includes Consideration Of Patentee’s Damages

The adequacy of the patentee’s legal remedies is closely
related to the inquiry of irreparable injury. Where the patentee
is fully compensable at law (i.e., in money damages), it can
be said there is no irreparable injury. SmithKline Beecham
Corp. v. Apotex Corp., 247 F. Supp. 2d 1011, 1045 (N.D. Ill.
2003) (Posner, J., sitting by designation) (“The grant of an
injunction in the circumstances disclosed by the evidence in
this [patent infringement] case would be a travesty of equity.
An injunction is a substitute for an award of damages in
Situations in which damages are difficult to calculate or are
otherwise inadequate as a remedy for the wrong done by the
defendant to the plaintiff.”) (emphasis added), aff'd in part,
403 F.3d 1313 (Fed. Cir. 2005).

By statute, the patentee must receive full compensation
for damages it suffered as a result of infringement. 35 U.S.C.
§ 284; Gen. Motors Corp. v. Devex Corp., 461 U.S. 648,
654-55 (1983) (in enacting section 284, “Congress sought
to ensure that the patent owner would in fact receive full
compensation for ‘any damages’ he suffered as a result of
the infringement.”’). The Federal Circuit and the district courts
have constructed a highly-developed body of damages law
ensuring a patentee the full opportunity to establish its
damages. A patentee can prove damages as lost profits, where
the patentee and infringer are competitors. See State Indus.,
Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1577-80 (Fed.
Cir. 1989). As part of a lost profits analysis, the patentee can
rely on theories of market share liability, price erosion and
convoyed sales to demonstrate the full scope of its damages.
See BIC Leisure Prods., Inc. v. Windsurfing Int'l, Inc., | F.3d

20

1214, 1219 (Fed. Cir. 1993) (market share liability); Ericsson,
Inc. v. Harris Corp., 352 F.3d 1369, 1378 (Fed. Cir. 2003)
(price erosion); Interactive Pictures, Corp. v. Infinite Pictures
Inc., 274 F.3d 1371, 1385-86 (Fed. Cir. 2001) (convoyed
sales). A patentee can also prove its damages as a “reasonable
royalty.” 35 U.S.C. § 284. See Rite-Hite Corp. v. Kelley Co.,
Inc., 56 F.3d 1538, 1554-55 (Fed. Cir. 1995) (computation
of reasonable royalty). The patentee can recover lost profits
or a “reasonable royalty” based on “‘the value of an entire
apparatus containing several features, even though only one
feature is patented.’ . . . when the patented feature is the basis
for customer demand.” Fonar Corp. v. Gen. Elec. Co., 107
F.3d 1543, 1552 (Fed. Cir. 1997) (“entire market value rule”)
(citation omitted). A patentee is also entitled to pre- and post-
judgment interest to ensure full compensation. Transmatic
Inc. v. Gulton Indus. Inc. , 180 F.3d 1343, 1347-49 (Fed. Cir.
1999) (pre- and post-judgment interest).

Evidence that the patentee’s damages can be readily
ascertained — whether a “reasonable royalty” or lost profits
— may show that the patentee has an adequate legal remedy.
For example, the patentee’s grant of licenses to third parties
or offering of a license to the infringer prior to commencing
suit tend to show its damages can be fully ascertained by a
reasonable royalty. See, e.g., Riles v. Shell Exploration
& Prod. Co., 298 F.3d 1302, 1312-13 (Fed. Cir. 2002)
(“patentee’s prior license agreements ‘should carry
considerable weight in calculating a reasonable royalty
rate.’”’). Likewise, the patentee’s profit margins and lost sales
to the infringer may constitute evidence of the patentee’s
damages calculated as lost profits. See, e.g., King Instrument
Corp. v. Otari Corp., 767 F.2d 853, 863-64 (Fed. Cir..1985).

There are many well-defined and comprehensive
damages theories upon which courts can draw to frame
adequate relief for past and/or continuing infringement of a
patent as part of the equitable analysis for determining
whether to grant a broad patent injunction.

21
C. The Public Interest Encompasses Consideration
Of The Overall Impact On The Public

The third well-accepted factor considered in granting
injunctions, the public interest, allows courts to consider the
effect of an injunction beyond the parties. See United States v.
Oakland Cannabis Buyers’ Coop., 532 U.S. 483, 496 (2001)
(“For ‘several hundred years,’ courts of equity have enjoyed
‘sound discretion’ to consider the ‘necessities of the public
interest’ when fashioning injunctive relief.”). However,
consideration of the public interest encompasses more than those
public health concerns which have characterized the Federal
Circuit’s limited analysis under its “general rule” over the past
twenty years. See supra at p. 7.

Courts should be empowered and encouraged to consider
whether the economic impact on the public weighs against
granting a broad injunction. For example, as already
explained supra at pp. 13-14, the Twentieth Century has seen
the proliferation of industry standards which allow for
significant efficiencies in the marketplace by enabling
interoperability of many products and components. A patent
may cover an industry standard so that, once the standard
has been adopted and incorporated into a variety of
interrelated products of various manufacturers, changing
to a non-infringing design is essentially impossible.
If businesses are forced to abandon a standard because of a
threatened injunction, the impact on the public can be
dramatic. See Paul Festa, Eolas Suit May Spark HTML
Changes, CNET News.com, Sept. 19, 2003, at http://
news.com.com/2 100-1023-5079580.html.

Given the trend of increasing numbers of patent suits
based on the practice of standards, an impact on the public
may be expected to follow.'® The impact of an injunction on

16. See, e.g., Dynacore Holdings Corp. v. U.S. Philips Corp.,
363 F.3d 1263, 1266-67 (Fed. Cir. 2004) (Dynacore asserted patent
(Cont'd)

22

implementation of a standard is felt broadly by companies
practicing the standard as well as their suppliers and
customers. See supra at pp. 12-14. Likewise, the practical
effect of an injunction against one of many inter-dependent
companies is ultimately borne by the public. See supra at
pp. 12-13.

‘When pervasive impact on the public is likely to result
from imposition of a broad injunction affecting an industry
standard, a court should be empowered and encouraged to
fashion an injunction to preserve implementation of the
standard, such as by enjoining only those infringements that
do not comply with the standard. See Cook Inc. v. Boston
Scientific Corp., 333 F.3d 737, 744 (7th Cir. 2003) (Posner,
J.) (“in determining the appropriate scope of [a contract]
injunction the judge must give due weight to the injunction’s
possible effect on innocent third parties.”). A patent may
include one claim which constitutes a “necessary claim” —
namely, a patent claim which cannot be avoided when
implementing the standard — and other claims which are
not “necessary claims”, but cover useful adaptations or
improvements. In that situation, a court could deny an
injunction as to the “necessary claim”, while granting it as
to the other claims.

In some cases, the patent may cover a product that is
well-established in the marketplace. A court should exercise
discretion in such cases in view of the public interest in
maintaining the product’s availability. It may be appropriate
in such cases to consider structuring the injunction to enjoin
only new generations of the infringing product. Moreover,

—_ —— ——— Oe —-

(Cont'd)

against devices conforming to IEEE Standard 1394 for “High
Performance Scrial Bus”); Complaint, QUALCOMM Ine. v. Nokia
Corp., No. 05-CV-2063 (S.D. Cal., Nov. 4, 2005) (QUALCOMM
sued Nokia for infringement of cleven patents directed to GSM,
GPRS and EDGE cellular standards and sought an injunction against
Nokia’s continuing sales of accused products).

23

the equities associated with such well-established products may
be more compelling if the patentee does not produce its own
products that will satisfy market demand in the absence of the
enjoined product.”

D. The Balance Of Hardships To The Parties Includes
Consideration Of Their Respective Business Models
And Commercial Needs

The fourth equitable factor — the balance of hardships to
the parties — enables courts to evaluate whether an injunction
would have a disproportionate impact on either party. See
Harrisonville v. W.S. Dickey Clay Mfg. Co., 289 U.S. 334, 338
(1933) (“Where substantia! redress can be afforded by the
payment of money and issuance of an injunction would subject
the defendant to grossly disproportionate hardship, equitable
relief may be denied although the nuisance is indisputable.”).

A disproportionate hardship may often be determined by
considering the patentee’s and infringer’s legitimate economic
interests in terms of their respective business models and
commercial needs. See supra at p. 16. In certain cases, an
injunction may result in a windfall for the patentee, out of
balance with the economic contribution of the patented
invention. For example, to comply with a broadly-drawn
injunction, the infringer may have to abandon significant
investment or incur significant additional costs by retooling a
manufacturing plant that was designed before the patent issued,
canceling purchase orders for raw materials destined for use in
manufacturing infringing products, destroying existing products
in inventory, remanufacturing previously sold products or
recalling products for their eventual destruction or
remanufacture. These transactional costs may have little or
nothing to do with the merits of the patented invention or the
infringement of the patent.

17. See Kurt M. Saunders, Patent Nonuse and the Role of Public
Interest as a Deterrent to Technology Suppression, 15 Harv. J.L. &
Tecn. 389, 392 (2002).

24

Similarly, the original decision of the infringer may have
been made without knowledge that it would result in patent
infringement, or without ascribing any particular advantage
to the later-found infringing approach. Nevertheless, years
later, with money, resources and facilities inalterably
committed, an unforeseen injunction may not be an equitable
solution. Cf. Continental Paper Bag, 210 U.S. at 428-29
(considering cost involved in “changing the equipment of a
factory from one set of machines to another”, albeit to
patentee, as a factor in equitable analysis).

Judge Posner has recognized that in these types of
circumstances, the balance of hardships should be considered
in denying an injunction:

We have several times seen property rights
distinguished from other sorts of legal interest in
terms of remedies, and the point has now to be
generalized: In conflicting-use situations in which
transaction costs are high, the allocation of
resources to their most valuable uses is facilitated
by denying owners of property injunctive remedy
against invasions of their rights instead limiting
them to a remedy of damages... .

RICHARD A. PosNER, ECONOMIC ANALYSIS OF LAW 77 (Aspen
Law & Business, 5th ed. 1998). In situations involving high
transaction costs such as those described above, an injunction
should be denied or appropriately tailored to avoid a “hold-
up” of the infringer and resulting windfall to the patentee.
Id. at 81 (discussing Boomer v. Atl. Cement Co., 26 N.Y.2d
219, 257 N.E.2d 870 (1970), where closing cement plant
would cost $45 million and cost of nuisance to plaintiffs was
only $185,000, denying injunction was appropriate because
plaintiffs could be adequately compensated with damages:
“The cost to the plaintiffs of the nuisance was only $185,000.
So any price for dissolving the injunction between $185,000
and $45 million would have made both sides better than if

25

the injunction were enforced. That is an enormous bargaining
range... .”); Walgreen Co. v. Sara Creek Prop. Co., 966 F.2d
273, 276-78 (7th Cir. 1992) (Posner, J.) (same).

Where an enjoined product contains many thousands of
technological elements, as is often the case in the information
technology industry, an injunction against a single element
can prevent the marketing of a much larger product, an entire
product line and/or interrelated products. This problem is
exacerbated by product inter-dependence and adoption
of industry standards, see supra at pp. 13-14, resulting in a
disproportionate impact on the infringer by imposing a
penalty that is far out of balance with the economic value of
the infringing element. In contrast, the patentee will receive
a windfall in that the effect of the injunction is far greater
than the value of the patented invention.

Certain acts by the patentee may show undue hardship
on the infringer. For example, if the patentee engaged in
continuation practice, see 35 U.S.C. § 120, simply to
strengthen its negotiating position with the infringer, that
may indicate disproportionate hardship on the infringer.
See supra at p. 18. On the other hand, certain acts by the
infringer may show lack of hardship, weighing in favor of a
broad injunction to ensure preservation of the patentee’s
rights. For example, where the infringer has notice of the
patent before commencing infringement, slavishly copies the
patented invention or does not undertake a good faith effort
to evaluate the issues of patent infringement or validity after
being made aware of the patent, the infringer may not be
able to establish a hardship. See Monsanto Co. v. Scruggs,
249 F. Supp. 2d 746, 759 (N.D. Miss. 2001) (preliminary
injunction granted where defendants used patented
technology with full knowledge and disregard of existence
of plaintiff's patent rights).

-_

26

E. Balancing Of Equitable Principles Will Ensure
Flexibility In Considering Stays Of Patent
Injunctions Pending Appeal

The equitable factors traditionally considered when
granting and structuring injunctions should also be
considered in determining whether to stay an injunction
pending appeal in a patent case. See Standard Havens Prods.,
Inc. v. Gencor Indus., Inc. 897 F.2d 511, 512 (Fed. Cir. 1990);
E.I. du Pont de Nemours & Co. v. Phillips Petroleum Corp.,
835 F.2d 277, 278 (Fed. Cir. 1987). For example, the
economic harm resulting from enforcing an injunction
pending appeal has been recognized:

[T]he defendants [] had a large amount of money
invested in boring machines constructed mainly
under other patents but containing nevertheless the
invention of the patent in suit. These machines were,
and are, in various stages of completion. Their
“construction, use or sale” is now enjoined, and, in
consequence, they stand idle in the plant of the
defendants awaiting the outcome of this appeal.

an a

Not overlooking the complainant’s rights in the
monopoly which the law has giver him, it should
be observed that he is not manufacturing under this
patent nor, so far as we have been informed, has he
any licenses outstanding. In other words, he is not a
competitor of the defendants, nor are the defendants
competitors of his, in the manufacture of boring
machines. Therefore it would seem that enforcement
of the injunction would cause much greater injury
to the defendants than benefit to the complainant.

Landis Tool Co. v. Ingle, 286 F. 5, 6-7 (3d Cir. 1923) (citations
omitted). The threat of an injunction — even one that only
lasts between the initial judgment of the district court and

27

final judgment subsequent to appeal — is sufficiently
destructive to cause many infringers to undertake settlements
that are not otherwise economically justified simply to avoid
the costs associated with an interruption in business.

Considerations in addition to those set forth above, but
still within the purview of the traditional equitable principles,
may also bear on the determination of whether to stay an
injunction pending appeal. For example, the validity of the
asserted patent may be in question through reexamination,
see 35 U.S.C. §§ 302-05," or through a parallel proceeding
in another district court. Also, the patentee may not be
irreparably harmed until a particular event occurs, for
example, until the patentee actually begins manufacturing
the patented article. See, e.g., Landis Tool, 286 F. at 7;
Moxness Prods., Inc. v. Xomed, Inc., Civ. No. 86-100-CIV-
J-14, 1988 U.S. Dist. LEXIS 16060, at *10-11 (M.D. Fla.,
May 10, 1988) (preliminary injunction denied, patentee not
harmed because not currently practicing invention).

Denial of a stay pending appeal may serve little purpose
where the infringer is a solvent commercial entity and the
patentee has no compelling need for an immediate injunction.
See Barnard v. Gibson, 48 U.S. (7 How.) 650, 658 (1849)
(“unless the defendants below are in doubtful circumstances,
and cannot give bond to respond in damages for the use of
the machines, should the right of the plaintiff be finally
established, we suppose that the injunction will be suspended.
Such is a correct course of practice... .”).

Finally, the high reversal rate of district court decisions
by the Federal Circuit further counsels in favor of staying
injunctions pending appeal. “The reversal rate (rate at which

18. In 74% of reexamination proceedings filed from 1981-2003,
the claims were cither changed, i.e., narrowed, or cancelled. See
Paul Morgan & Bruce Stoner, Reexamination ys. Litigation — Making
Intelligent Decisions in Challenging Patent Validity, 86 J. Pat. &
TRADEMARK OFF. Soc’y 441, 460-63 (2004).

28

the Federal Circuit determined the claim construction was
wrong) for appealed claim terms from 1996, after Markman
was decided, through 2003 is 34.5%.” Kimberly A. Moore,
Markman Eight Years Later: Is Claim Construction More
Predictable ?, 9 Lewis & CiarK L. Rev. 231, 233, 239 (2005).
More specifically, the Federal Circuit claim construction
reversal rate in cases where the patentee won at the district
court is 32.3%. See id. at 241. Claim construction is crucial
to the ultimate determination of infringement and validity.
Granting a stay of an injunction is warranted given the
significant chance the infringer will prevail on appeal. A stay
can easily be lifted post-appeal, yet the negative impact on
the accused infringer of an ultimately inappropriate injunction
may never be overcome.

29

CONCLUSION

For the foregoing reasons, IBM respectfully requests that
this Court reaffirm its precedent in Continental Paper Bag
that the granting and structuring of injunctions in patent cases
requires consideration of the well-accepted equitable factors,
in accordance with 35 U.S.C. § 283.

Respectfully submitted,

Davip J. Kappos CHRISTOPHER A. HUGHES
Marc A. ExRLICH Counsel of Record

IBM Corporation Mark J. ABATE

One North Castle Drive MorGan & FINNEGAN, L.L.P.
Armonk, NY 10504 3 World Financial Center
(914) 765-4343 New York, NY 10281

(212) 415-8700
MariAN UNDERWEISER

IBM Corporation

Rte 134/1101 Kitchawan Rd
Yorktown Heights, NY 10598
(914) 945-2756

Counsel for Amicus Curiae
International Business Machines Corporation

January 26, 2006

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0207%3A32. Public record. Not legal advice.