Sunday, March 26, 2006

Financial Times on injunctions, eBay, and NTP/RIM as the perfect storm

When not extolling the virtue of the hydrino, the Financial Times is giving the U.S. advice on patent law:

The recently settled lawsuit involving BlackBerry - which nearly blackened the popular handheld's screens across America - should be a wake-up call for Americans to tackle the crisis in their patent system.

The BlackBerry case captured, in one courtroom, the perfect storm of forces that are battering US innovation: poor quality patents that are exploited by entrepreneurial lawyers to extort large settlements from companies that sometimes pay hundreds of millions of dollars just to get these "patent trolls" off their backs.

Now the US Supreme Court has a chance to restore some sanity to the system. The Court will hear a case on Wednesday that is eerily similar to the BlackBerry lawsuit: it involves a small patent-owner (who also happens to be a lawyer) who is using his patent, not to make anything, but merely to sue Ebay over the fixed-price transactions that make up a third of their business.

The patent-owner won a ruling in the lower courts saying Ebay had infringed his patent, but that is not the issue before the justices. They must decide a far more important question: should patent-owners in such cases be entitled, virtually automatically, to an injunction that could shut down their rivals' whole business over one small patent? Or should judges have discretion to decide what punishment fits the crime, taking into account the harm caused and the larger public interest?

The case could be crucial to the future of US innovation: the near-automatic right to an injunction creates a severe imbalance of power within the patent system. It allows "trolls" - companies that invest in patents for their litigation potential - to hold hostage companies that actually make things, often complicated gadgets based on hundreds or thousands of patents. Such companies have little choice but to settle infringement suits, since an injunction on one bit of patented technology could cripple their product.

The issue has divided the US business community: technology companies, which have a tough time clearing patent rights beforehand for products based on many different bits of technology, want to weaken the injunction weapon. Big pharma, which relies on strong patent rights to protect huge investments in new drug development, likes the current system. Congress tried to rewrite the patent laws last year to deal with this issue, but failed.

Now, the Supreme Court must step up to the plate - not least because this is a problem created by courts in the first place. The patent law says injunctions "may" be issued in such cases - not "must". However, the appeals court has tended to interpret this as meaning "must". The justices need only remind the lower courts of their responsibility to decide when an injunction is appropriate, and when it is not. It is time to restore the balance of power in US patent law. After the near-miss with BlackBerry, that ought to be obvious.


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