FALL 2007

Computer Law

Course No.  9200 711 001
Th 6:30 - 9:30 p.m.
Room W-214
Professor Jay Dratler, Jr.
Room 231D (IP Alcove)
(330) 972-7972
dratler@uakron.edu, dratler@neo.rr.com
Copyright © 2000, 2001, 2002, 2004, 2007   Jay Dratler, Jr.   For permission, see CMI.

Notes on Patent-Infringement and Other Remedies

1.  Patent-infringement and other intellectual-property remedies are still a work in progress.  The main reason is that these remedies serve various goals, and sometimes the goals conflict.

2.  The basic rule for all legal remedies is the so-called "rightful position" rule.  The law seeks to put the wronged plaintiff in the position he or she would have occupied if the wrong had never occurred.  At a minimum, this approach requires compensating the plaintiff for loss or damage incurred as a result of the wrong.

3. But where a wrong involves infringement of property rights (including rights in intellectual property), merely compensating the plaintiff for losses may not fully redress the wrong, let alone deter future similar wrongs.  For example, if the plaintiff is a small firm and the defendant is a huge multinational company, the defendant may be quite happy to pay the plaintiff's small provable losses while continuing to infringe the plaintiff's intellectual property and making huge profits while doing so.  To redress that sort of wrong and deter deliberate infringement, most intellectual property statutes allow a plaintiff to recover an infringer's profits or unjust enrichment, in addition to any provable damages. See Lanham Act § 35(a), 15 U.S.C. § 1117(a) (federal trademark statute); 17 U.S.C. 504(a), (b) (federal copyright statute); Uniform Trade Secrets Act 3(a) (model statute for state trade-secrets laws); 35 U.S.C. § 289 (special statute for design patents).  These profits recoveries are ultimately based upon notions of restitution and unjust enrichment at common law and rely upon the same policies.  The sole exception is infringement of utility and plant patents, for which Congress eliminated profits recoveries in 1946.  See GM Corp. v. Devex Corp., 461 U.S. 648, 654 (1983).

4.  The "property" aspect of intellectual property has an even more important consequence.  Property implies the right to exclude, and voluntary licensing deals depend on the right to exclude, i.e., the right to walk away from a deal and make the refusal stick.  So every form of intellectual property provides a right to injunctive relief from infringement.  See Lanham Act § 34(a), 15 U.S.C. § 1116(a) (federal trademark statute); 17 U.S.C. 502(a) (federal copyright statute); Uniform Trade Secrets Act 2 (model statute for state trade-secrets laws); 35 U.S.C. § 283 (patents of all kinds).  The rationale for injunctive relief is quite simple: it is much easier to prevent future harm with an injunction than to require the plaintiff to return to court again and again for an uncertain calculation of additional damages.   

5.  Like all remedies, intellectual property remedies thus have at least four goals: (1) compensation for losses; (2) deterrence of wrongs; (3) disgorgement of unjust enrichment, i.e., restitution; and (4) prevention of future harm. Yet these goals can conflict in the real world, where intellectual property is often not used in isolation but is combined.

Consider, for example, an infringement defendant who uses a special patented screw, without the patentee's permission, in a complex patented machine.  Suppose the infringer owns the patent on the machine. Suppose further that the creativity and investment involved in developing the patented machine was vastly greater than the creativity and investment involved in developing the patented special screw used in it.  In that case properly compensating the plaintiff screw patentee for damage incurred as a result of unauthorized use of the screw in the more valuable patented machine would require some sort of economic apportionment of cost, price or value as between the screw and the machine.  So would a fair disgorgement of profits: allowing the plaintiff screw patentee to recover all the profits from sale of the much more valuable machine would give him a windfall.  

Courts are not fully comfortable with this sort of apportionment because it invariably requires complex economic calculations and often involves an irreducible amount of speculation and uncertainty.  But courts do make apportionment in intellectual property cases.  The Eolas case is an example of an apportionment in the patent field.  For a seminal case apportioning profits in the field of copyright, see Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. 390 (1940).

6.  Unfortunately, no apportionment is possible with an injunction.  An injunction is a binary remedy, either on or off.  For example, if the patented screw is essential to the patented machine, then an injunction requires the producer of the patented machine to "invent around" it or otherwise find a substitute.  If that is not possible, then an injunction in patent litigation may ultimately force the producer of the patented machine to abandon its production, causing economic waste and harm to third parties, such as its customers.

7.  From an economic perspective, that is one of the chief reasons for the Supreme Court's cautious decision in eBay.  Prior to that decision, permanent injunctions were virtually standard in fully tried patent cases in which the patentee won.  After that decision, courts must apply the traditional four-factor equitable calculus to determine whether an injunction should issue or whether an alternative remedy, such as a running royalty, might be better under the circumstances.

In theory, that equitable calculus will allow courts to avoid unfairness to defendants and society, economic waste, and harm to third parties in patent cases.  Whether its promise will be realized in practice, however, depends upon how the lower courts, especially the Federal Circuit, respond to the Supreme Court's direction in eBay.

8.  eBay is one of those seminal decisions that take a long time to "shake out."  Although its precise effects remain to be seen, it is potentially revolutionary.  Accordingly, its future implications bear assiduous thought and analysis.

What standards or factors does eBay suggest lower courts ought to consider in deciding whether to grant a permanent injunction against patent infringement?  Does it matter whether the patentee has previously licensed the patent for royalties?  Does the relative value or creativity of the patented invention and the infringing product matter?  What arguments could you make for the producer of the high-value patented machine in our example to be allowed to continue producing and selling that machine in exchange for paying a reasonable royalty to the owner of the patent on the special screw?

Another important "open end" of eBay is the extent to which its holding applies to fields of intellectual property other than patents?  Does the Court's decision suggest whether the same analysis will apply in copyright cases?  in trademark or trade secret cases?

9. Although apportioning damages and profits is permissible in patent cases, the legal standards for apportionment are unclear.   The 2007 patent reform bills sought to clarify both the availability of apportionment and the legal standards for making it, but the bills' relevant provisions were still in flux as of July 2007.  See S. 1145) (Senate bill); H.R. 1908 (House bill), both 110th Cong., 1st Sess.  Patent practitioners should keep an eye on this legislation, which, if adopted, will have an enormous practical effect on patent litigation.

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