Patent Law

J. Thomas Rosch, Commissioner of the Federal Trade Commission spoke before the Newport Summit on Antitrust and Economics in Newport, Rhode Island on May 31, 2008.  A reader alerted me to a copy of his remarks which are excerpted, in part, here:

Introduction

The nominal topic for discussion in our panel this morning is the Supreme Court's decision in eBay, Inc. v. MercExchange L.L.C. In that case, the Court held that permanent injunctions should be issued against patent infringers only when the traditional four-part test historically applied by courts of equity is satisfied; otherwise, the plaintiff is entitled only to recover its damages resulting from the infringement. Put differently, in order to obtain a permanent injunction, the plaintiff must show that (1) irreparable injury has been suffered, (2) remedies at law are inadequate to compensate that injury, (3) the injunction is warranted in light of the balance of hardships between the plaintiff and the defendant, and (4) the public interest would not be disserved by a permanent injunction. Although the majority opinion does not come right out and say it, the sub-text is that the public interest is disserved if and to the extent that patent "trolls" can obtain injunctive relief. In the concurring opinion to which Justices Kennedy, Stevens, Breyer and Souter subscribed, this concern is more than sub-text. The opinion articulates the concern, embracing the Commission's Intellectual Property Report and the government's Amicus Brief. The IP Report and Brief warned that in certain situations, injunctions can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. For example, when the patented invention is a small component of the product produced, and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages are often sufficient to compensate for the infringement and an injunction would not serve the public interest. My remarks will focus on this concern, and how else it might be addressed.

Conclusion

At the end of the day, the most significant deterrent against the kind of behavior I?ve discussed may lie in a limitation on the amount of damages the alleged "troll" can collect. It is arguable that in this situation, the lion's share of the proceeds that the product or service can fetch in the market should go to the producer of the product or service rather than to the holder of the patent because the value of the patent is little more than what the firm obtaining, but not practicing, the patent paid to obtain it. If recovery of damages were limited in this fashion, there would be little room for real "exploitation" of the producer.

Read the complete text of Commissioner Rosch's remarks here.