Tuesday, December 13, 2005

eBay and Continental Paper, 210 U.S. 405

The MercExchange v. eBay case before the Supreme Court may hinge on the current vitality of the 1908 Continental Paper v. Eastern Paper case (210 U.S. 405), which states in pertinent part:

It may be well, however, before considering what remedies a patentee is entitled to, to consider what rights are conferred upon him. The source of the rights is, of course, the law, and we are admonished at the outset that we must look for the policy of a statute, not in matters outside of it,-not to circumstances of expediency and to supposed purposes not expressed by the words. The patent law is the execution of a policy having its first expression in the Constitution, and it may be supposed that all that was deemed necessary to accomplish and safeguard it must have been studied and provided for. It is worthy of note that all that has been deemed necessary for that purpose, through the experience of years, has been to provide for an exclusive right to inventors to make, use, and vend their inventions. In other words, the language of complete monopoly has been employed; and though at first [210 U.S. 405, 424] only a remedy at law was given for a violation of the right, a remedy in equity was given as early as 1819. There has been no qualification, however, of the right, except as hereinafter stated. An exception which, we may now say, shows the extent of the right,-a right so explicitly given and so complete that it would seem to need no further explanation than the word of the statute. It has, however, received explanation in a number of cases which bring out clearly the services rendered by an inventor to the arts and sciences and to the public. Those cases declare that he receives nothing from the law that he did not have before, and that the only effect of the patent is to restrain others from manufacturing and using that which he has invented. United States v. American Bell Teleph. Co. 167 U.S. 249 , 42 L. ed. 157, 17 Sup. Ct. Rep. 809. And it was further said in that case that the inventor could have kept his discovery to himself; but, to induce a disclosure of it, Congress has, by its legislation, made in pursuance of the Constitution, guaranteed to him an exclusive right to it for a limited time, and the purpose of the patent is to protect him in this monopoly,-not to give him a use which he did not have before, 'but only to separate to him an exclusive use.' And it was pointed out that the monopoly which he receives is only for a few years. The court further said: 'Counsel seem to argue that one who has made an invention and thereupon applies for a patent therefor occupies, as it were, the position of a quasi trustee for the public; that he is under a sort of moral obligation to see that the public acquires the right to the free use of that invention as soon as is conveniently possible. We dissent entirely from the thought thus urged. The inventor is one who has discovered something of value. It is his absolute property. He may withhold the knowledge of it from the public, and he may insist upon all the advantages and benefits which the statute promises to him who discloses to the public his invention.'

And the same relative rights of the patentee and the public were expressed in prior cases, and we cite them because there is something mere than the repetition of the same thought [210 U.S. 405, 425] by doing so. It shows that, whenever this court has had occasion to speak, it has decided that an inventor receives from a patent the right to exclude others from its use for the time prescribed in the statute. 'And, for his exclusive enjoyment of it during that time, the public faith is pledged.' Chief Justice Marshall in Grant v. Raymond, 6 Pet. 242, 243, 8 L. ed. 384, 385.

--> Of some relevance to the arguments that the US should employ methods of foreign countries in its patent law (e.g., the opposition procedure proposed in H.R. 2795), note the following text:

It is manifest, as is said in Walker on Patents, 106, that Congress has not 'overlooked the subject of nonuser of patented inventions.' And another fact may be mentioned. In some foreign countries the right granted to an inventor is affected by nonuse. This policy, we must assume, Congress has not been ignorant of nor of its effects. It has, nevertheless, selected another policy; it has continued that policy through many years. We may assume that [210 U.S. 405, 430] experience has demonstrated its wisdom and beneficial effect upon the arts and sciences.

The Supreme Court concluded:

From the character of the right of the patentee we may judge of his remedies. It hardly needs to be pointed out that the right can only retain its attribute of exclusiveness by a prevention of its violation. Anything but prevention takes away the privilege which the law confers upon the patentee. If the conception of the law that a judgment in an action at law is reparation for the trespass, it is only for the particular trespass that is the ground of the action. There may be other trespasses and continuing wrongs and the vexation of many actions. These are well- recognized grounds of equity jurisdiction, especially in patent cases, and a citation of cases is unnecessary. Whether, however, as 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.

See also an article by DONNA HIGGINS.
See also the discussion by Castanias and Gerber who note:

In granting the petition for a writ of certiorari, the Court agreed to hear the question presented by eBay’s petition: namely, whether the Federal Circuit erred in setting forth a general rule in patent cases that a district court must, absent exceptional circumstances, issue a permanent injunction after a finding of infringement. But the Court also added a question of its own, directing the parties to brief and argue "[w]hether this Court should reconsider its precedents, including Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908), on when it is appropriate to grant an injunction against a patent infringer." Whatever the outcome, this case is of crucial importance to all companies involved in any kind of patent-infringement litigation, whether plaintiff or defendant.

In MercExchange v. eBay, 401 F.3d 1323, 74 USPQ2d 1225 (CAFC 2005), the CAFC did not actually cite Continental Paper but did touch on issues relevant to what is said in Continental Paper. The CAFC cited Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1246-47 (Fed. Cir. 1989) for the rule upon which it decided for a permanent injunction in the eBay case.

Of the injunction issue, the CAFC said:

MercExchange challenges the district court's refusal to enter a
permanent injunction.
Because the "right to exclude recognized in a patent is but the essence of the concept of property," the general rule is that a permanent injunction will issue once infringement and validity have been adjudged. Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1246-47 (Fed. Cir. 1989). To be sure, "courts have in rare instances exercised their discretion to deny injunctive relief in order to protect the public interest." Rite-Hite Corp. v. Kelley, Inc., 56 F.3d 1538, 1547 (Fed. Cir. 1995); see Roche Prods., Inc. v. Bolar Pharm. Co., 733 F.2d 858, 865-66 (Fed. Cir. 1984) ("standards of the public interest, not the requirements of private litigation, measure the
propriety and need for injunctive relief"). Thus, we have
stated that a court may decline to enter an injunction when "a patentee's failure to practice the patented invention frustrates an important public need for the invention," such as the need to use an invention to protect public health. Rite-Hite Corp., 56 F.3d at 1547.

In this case, the district court did not provide any persuasive reason to believe this case is sufficiently exceptional to justify the
denial of a permanent injunction.


The trial court also noted that MercExchange had made public
statements regarding its willingness to license its patents, and the court justified its denial of a permanent injunction based in part on those statements. The fact that MercExchange may have expressed willingness to license its patents should not, however, deprive it of the right to an injunction to which it would
otherwise be entitled. Injunctions are not reserved for patentees who intend to practice their patents, as opposed to those who choose to license. The statutory right to exclude is equally available to both groups, and the right to an adequate remedy to enforce that right should be equally available to both as well. 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.

Finally, we do not agree with the court that MercExchange's failure
to move for a preliminary injunction militates against its right to a permanent injunction. A preliminary injunction is extraordinary relief that is available only on a special showing of need for relief pendente lite; a preliminary injunction and a permanent injunction "are distinct forms of equitable relief that have different prerequisites and serve entirely different purposes." Lermer Germany GmbH v. Lermer Corp., 94 F.3d 1575, 1577 (Fed. Cir. 1996). We therefore see no reason to depart from the general rule that courts will issue permanent
injunctions against patent infringement absent exceptional
circumstances. Accordingly, we reverse the district court's denial of
MercExchange's motion for a permanent injunction.

Of other issues, the CAFC said:

In light of the district court's claim construction, we find that
MercExchange introduced sufficient evidence to permit the jury to find
that eBay 's system infringed the '265 patent.

Moreover, while eBay asserts that its system is not "trusted,"
we agree with the district court's statement in its post-trial order that there was substantial evidence from which the jury could find that eBay's system was trusted, given the evidence in the record that the system provided "escrow services, conflict resolution services, insurance, payment intermediaries, authentication services, feedback forum, and the policing of the system."

On appeal, the defendants [eBay et al.] argue that a reasonable jury would necessarily have found the asserted claims to be invalid because they are anticipated or rendered obvious by a prior art reference, U.S.
Patent No. 5,664,111 ("the '111 patent"). The '111 patent pertains to a system for art dealers to sell artwork by using a network of computers. The system enables users to store and retrieve images and data pertaining to the artwork and to purchase artwork corresponding to the images.

The evidence thus provided a sufficient basis for the jury to conclude that the '111 patent did not anticipate the asserted claims of the '265 patent.

We also reject the defendants' argument that the '111 patent renders
the asserted claims of the '265 patent obvious.

Of inducement, the CAFC said:

According to 35 U.S.C. § 271(b), "whoever actively induces
infringement of a patent shall be liable as an infringer. [**22] " We have construed that statute to require proof of intent, although there is a "lack of clarity concerning whether the required intent must be merely to induce the specific acts [of infringement] or additionally to cause an infringement." Insituform Techs., Inc. v. CAT Contracting, Inc., 385 F.3d 1360, 1378 (Fed. Cir. 2004), citing Manville Sales Corp. v. Paramount Sys., Inc., 917 F.2d 544, 553 (Fed. Cir. 1990), and Hewlett-Packard Co. v. Bausch & Lomb, Inc., 909 F.2d 1464, 1469 (Fed. Cir. 1990). Nevertheless, a patentee must be able to demonstrate at least
that the alleged inducer had knowledge of the infringing acts in order
to demonstrate either level of intent.


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