Sunday, February 05, 2006

District Court decision in MercExchange v. eBay, 275 F. Supp. 2d 695 (ED Va 2003)

There are assertions of the profound nature of the pending Supreme Court case eBay v. MercExchange, concerning the granting of injunctions. Curiously, while the Federal Circuit reversed the district court on the matter of the injunction, the Federal Circuit did NOT say that the district court (in utilizing the standard inquiries for analyzing the request for a permanent injunction) applied the wrong law. Rather, it addressed each of the results of the standard inquiries and concluded that they did not constitute an exceptional circumstance worthy of denying a permanent injunction ["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."] Thus, this case appears to one more of form than of substance.

As a separate issue worthy of some thought, note that the re-examination of MercExchange's US 5,845,265 (which was begun after the district court decision] led to an Office Action rejecting claims of the '265 patent [under 102(e) and 103] over US 5,664,111, exactly the SAME piece of prior which was found NOT to invalidate the '265 patent in both the district court and CAFC decisions.

From MercExchange v. eBay, 275 F. Supp. 2d 695, opinion filed August 6, 2003:

On May 27, 2003, after a five-week jury trial, the jury returned a
verdict finding the defendants liable for $ 35 million for willfully infringing
the plaintiff's patents, U.S. Patent Nos. 6,085,176 ("the '176 patent")
and 5,845,265 ("the '265 patent").

[Defendant eBay sought JMOL. The court noted of eBay's arguments:]

These arguments, while clearly persuasive in the eyes of the defendants, did not
convince the jury of their theory of the case. JMOL cannot be granted against a
party unless "there is no legally sufficient evidentiary basis for a
reasonable jury to find for that party on that issue ...." Fed. R. Civ. P. 50(a).

[Of invalidity of the '265 patent]

In addition to the arguments made above, the court notes that the plaintiff did indeed attack the merits of the defendants' prior art references and the failure of the defendants' witnesses to show how the prior art invalidated each of the claims of the '265 patent, despite the fact that the defendants argue otherwise.

[Of the injunction issue]

Once infringement and validity of the patents have been established,
a district court is authorized to grant a permanent injunction against
the infringer. 35 U.S.C. ยง 283. In fact, the grant of injunctive relief
against the infringer is considered the norm; however, the decision to grant or
deny injunctive relief remains within the discretion of the trial judge. See
W.L. Gore & Assoc., Inc. v. Garlock, Inc., 842 F.2d 1275, 1281 (Fed. Cir.
1988); see also Odetics, Inc. v. Storage Tech. Corp., 14 F. Supp. 2d 785, 788
(E.D. Va. 1998), aff'd, 185 F.3d 1259 (Fed. Cir. 1999) ("The issuance of an
injunction following a verdict of infringement is not automatic; however, district
courts must instead follow the traditional equitable principles that guide the
decision whether to enjoin certain conduct."). The Federal Circuit has indicated
that "an injunction should issue once infringement has been established unless
there is a sufficient reason for denying it." W.L. Gore, 842 F.2d at
1281. The rationale behind this stems from the concept of the property rights of
patent holders. "It is contrary to the laws of property, of which the patent
law partakes, to deny the patentee's right to exclude others from use of
his property. The right to exclude recognized in a patent is but the
essence of the concept of property." Richardson v. Suzuki Motor Co., 868 F.2d 1226,
1246-47 (Fed. Cir. 1989). "Issuance of injunctive relief against [the
defendants] is governed by traditional equitable principles, which require
consideration of (i) whether the plaintiff would face irreparable injury if the injunction did not issue, (ii) whether the plaintiff has an adequate remedy at law, (iii) whether granting the injunction is in the public interest, and (iv) whether the balance of the hardships tips in the plaintiff's favor." Odetics, 14 F. Supp.
2d at 794 (citing Weinberger v. Romero-Barcelo, 456 U.S. 305, 312, 102 S. Ct.
1798, 72 L. Ed. 2d 91 (1982)).

Substantial evidence was adduced at trial showing that the plaintiff does not practice its inventions and exists merely to license its
patented technology to others. Indeed, the plaintiff has made numerous
comments to the media before, during, and after this trial indicating that it
did not seek to enjoin eBay but rather sought appropriate damages for the
infringement. n13 The Federal Circuit has observed that "the lack of commercial
activity by the patentee is a significant factor in the calculus" of whether the
patentee will suffer irreparable harm absent an injunction. High Tech Medical
Instrumentation, Inc. v. New Image Indus., Inc., 49 F.3d 1551, 1556 (Fed. Cir.
1995). In the case at bar, the evidence of the plaintiff's willingness
to license its patents, its lack of commercial activity in practicing the
patents, and its comments to the media as to its intent with respect to
enforcement of its patent rights, are sufficient to rebut the
presumption that it will suffer irreparable harm if an injunction does not issue.
Moreover, the plaintiff never moved this court for a preliminary injunction. If it
believed that it was suffering irreparable harm by the defendants' continued
infringement of its patents, such a motion would have been appropriate. This fact,
while certainly not dispositive of the issue, lends additional weight in
support of the defendants' arguments that the plaintiff will not be irreparably
harmed absent an injunction. Therefore, after consideration of all the facts
in this case, the court believes that the plaintiff will not suffer irreparable
harm if the injunction does not issue. As such, this factor tips against an

[of the public interest issue]

The plaintiff argues that in this case, there is not countervailing public
interest that would be served through a denial of an injunction. The defendants
disagree. The defendants argue that the public interest is not furthered by
enjoining activities based on improvidently granted patents
, again stating that
because this court called the infringement and validity issues "close calls,"
the patents are suspect and an injunction should not issue. However, the
jury returned a verdict upon which this court will enter judgment.
Thus, this argument does not show that the public interest is in favor of denying
the injunction.

[however, of the business method argument]

While this argument is certainly not dispositive, it lends significant weight against the imposition of an injunction, particularly in this case where the patentee does not practice its patents, nor has any intention of practicing its patents. Moreover, in a case such as this, the public does not benefit from a patentee who obtains a patent yet declines to allow the public to benefit from the inventions contained therein.

[IPBiz note: it is this text which led to the request (by the Supreme Court) for briefing of the 1908 case Continental Paper.]

[the district court concluded]

As expected, each party argues that the balance of the hardships
tips in their favor. Upon review of the record and factors listed above, the
court is of the opinion that the balance tips slightly in the defendants' favor.

*********Consider the decision by the Federal Circuit******

MercExchange v. eBay, 401 F.3d 1323, 74 USPQ2d 1225, decided March 16, 2005

Following the verdict, eBay and moved for judgment as a
matter of law ("JMOL") that the asserted claims of the '265 patent [5,845,265] were
not infringed and were invalid.

[of the arguments for invalidity of the '265 patent, the CAFC said]

On appeal, the defendants 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.

[of the details of the invalidity analysis, the CAFC discussed testimony of Dr. Weaver, the expert for MercExchange]

However, while Dr. Weaver agreed that the PTO "would understand that [the '111 patent] discloses, among other things, transferring an ownership interest in
an item," that testimony does not contradict his testimony that nothing in
the '111 patent described a modification of the data record subsequent to
payment verification.
Thus, Dr. Weaver did not concede that the '111 patent
disclosed the same transaction processor that is claimed in the '265 patent.

The defendants fail to address another distinction regarding the
transaction processor limitation. In the '265 patent, a transaction processor is
designed to receive payments by "entering a credit card number and expiration date
or other forms of electronic payment." ' The system claimed
by the '111 patent, however, does not receive payments electronically.
Rather, the system "requests that the buying dealer wire transfer funds to pay
for the purchased work." Instead of being able to complete a transaction on the electronic network, a buyer using the invention of the '111 patent must temporarily leave the system to make a payment before the transaction can be completed.

[Further distinctions were made. Of obviousness]

Dr. Weaver testified that the patented invention differs from the '111 patent in both structure and method and that a person of ordinary skill in the art would not be motivated to modify the system covered by the '111 patent to create the system claimed in the '265 patent. For example, with regard to the posting terminal apparatus of the '265 patent, Dr. Weaver testified that one of ordinary skill in the art would not be motivated "to change or modify the dealer ID code in [the '111 patent system] to conform to the user ID protocols of the '265 patent's posting terminal apparatus," as the two are "dramatically different operations" that are used for different purposes. In light of Dr. Weaver's testimony, we agree with
the district court that there was substantial evidence to support the jury's finding of nonobviousness.

[One does not reach the injunction issue until page 1338 of the CAFC decision. At page 1339, we have]

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.

[of the practicing the patent matter]

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.


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