Thursday, December 01, 2005

Patent Double-Header

The legal equivalent of Katrina and Rita are hitting the high-tech world, with Research In Motion (RIM - the operator of the Blackberry network) playing the role of New Orleans, and eBay as the Gulf coast. These two tech titans have both been hit with patent infringement lawsuits that have been lost, appealed, and lost again. The Supreme Court has now agreed to hear the eBay case, which should be interesting. That valid patents were infringed is pretty much settled at this point. Now all eBay hopes to get from SCOTUS is to get off with "only" the $15 million in compensatory damages awarded, and to avoid a permanent injunction to cease and desist further infringement. However, they face an uphill battle even on that score. Unless the Justices have "activist" intentions in this matter, the precedent goes against eBay, based on decisions undisturbed for a good century.

The relevant case law, Continental Paper Bag Co. v. Eastern Paper Bag Co., was decided in 1908. That case concerned a patent for a machine that could efficiently produce a folded paper bag with a rectangular bottom (you know, the kind you still get in the grocery store today if you don't opt for plastic). Eastern Paper Bag held the patent, and Continental infringed it. That much was already stipulated by the time the case hit the Supreme Court. The matter of contention was whether injunctive relief was appropriate (same issue with both eBay and RIM), and also whether patent rights were curtailed if a patent holder did not put his invention into use (especially relevant to RIM, though eBay may try to make a similar argument). You see, it seemed that even though Eastern had invented the better bag machine, they declined to actually use it, or to let anyone else use it. This offended a number of people (including some appellate judges), and a reasonable argument was made going to the essence of patent law.

Patent law is essentially a contract between society and an inventor, in which an inventor agrees to publicly disclose his invention in exchange for exclusive rights to it for a limited duration. The core of patent law comes straight from Article I, Section 8 of the US Constitution, in enumerating the powers of Congress: "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." Thus, the appeal was that an inventor who basically "sat on" his invention and denied society its use was not holding up his end of the bargain to "promote the progress of … useful Arts," and thus should forfeit some or all of his patent protection.

Some lower court judges agreed with this line of reasoning, though making a distinction between "reasonable non-use" (e.g., the inventor did not put the invention into practice for lack of funds or practical opportunity) and "unreasonable non-use" (e.g., refusing to put it into use despite having the means to do so, and refusing to license it to others who could use it). However, the Supreme Court roundly smacked this down. Being good textualists, they did not attempt to divine the underlying philosophy or policy intentions behind the law, but instead looked at the law as Congress enacted it. And they found that Congress gave absolute property rights to the inventor (for a limited time period), regardless whether he put his invention into practice or he locked it away for 26 years. They noted that Congress was indeed well aware of the "non-use" issue, since they had in the 1830s made the patent rights of non-citizens contingent on putting the invention into use, but put no such requirement on citizens. (And even the limitation on non-citizens was repealed only a few years later.) They also found that injunctive (and not just compensatory) relief was tantamount to the right granted to the patent holder. (Though they did choose to "never say never", with a parting caveat of wiggle room: "Whether, however, a case cannot arise where, regarding the situation of the parties in view of the public interest, a court of equity might be justified in withholding relief by injunction, we do not decide.")

I'd say things look grim for eBay (and for RIM), but the Court seems to feel there is something worth hearing. Stay tuned. (Although when the decision is announced, the headline may or may not come across on your Blackberry.)


The Lone Elm said...

Thank you for your lucid discussion of the legal issues here. As Steven Pearlstein of the Washington Post points out, it is hard to understand why the BlackBerry case has not settled out.

Jeff Hersh said...

Your analysis is mostly apt.

My only exception is that the bargain between the gov't and the would-be inventor is simply to teach the world how to practice the invention in exchange for the time-limited monopoly. If the patent owner chooses to prevent any use of the invention during this time, the bargain is still met (although one may question the sanity of one who fails to commercialize or license his invention during the monopoly period). As always, the public can use the invention once the patent has expired -- that's the public's benefit in the bargain, not the use of it during the patent period. It appears that the patent holder in this case, and in the paperbag case before it, chose to forgo his own benefit from the patent monopoly.

The policy question to ask in light of the bargain between the would-be inventor and public is whether the inventor in similar cases would refuse to file for a patent (or refuse to spend the time, money and energy to so invent) if that required the patent holder to commercialize or license the invention. Although rare, it seems as if the answer would be yes, and that the public would have been deprived of the invention. (This is the theory, of course, which clearly rarely holds true as most "inventions" are independently invented later.)

That said, I disagree with U.S. law on this matter. I believe we should permit compulsory licensing.

Many other countries -- perhaps most (I've not done a survey) -- prevent a patent holder from sitting on an invention and refusing to license it to others.

Curiously, the U.S. also prevents this through so-called march-in rights when federal funds were used in part to create the invention. In such cases, the federal government can force the patent owner to license the patent to other companies, not only if it fails to commercialize the invention, but if it fails to meet the market demand.

I believe the U.S. should modify its law accordingly. However, that's for the Congress, not the courts.