Patent Troll Terminology -Patent assertion entity (PAE) - - PDF document

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Professor Ryan T. Holte Southern Illinois University School of Law rholte@law.siu.edu Presentation: 17 April 2015 SIU Alumni CLE, Taft Law, Chicago, IL

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The Misinterpretation of eBay v. MercExchange and Why: An Analysis of the Case History, Precedent, and Parties Forthcoming, Chapman L. Rev.

“Patent Troll” Terminology

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• Patent assertion entity

(PAE)

• Non-practicing entity

(NPE)

• Formerly Manufacturing
• Etc.

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Patent Trolls or Great Inventors: Case Studies of Patent Assertion Entities

59 ST. LOUIS. U. L.J. 1 (2014) (Published March 2014)

The Parties & Dispute

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The Injunction

• Five week jury trial
• Jury finds MercExchange’s two patents valid and

eBay a willful infringer

• Both parties cite four equitable factors within

their injunction briefing

• District Court cited factors and denied injunction

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Why Denial? (J. Friedman’s opinion)

• Back to the patent troll issue
• MercExchange willing to license its patents
• MercExchange “exists solely to license . . . and

not develop or commercialize”

• Conclusion: Departed with longstanding tradition
• f validity + infringement = injunction

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Federal Circuit Reversal

• Short opinion; J. Bryson discussed the injunction

issues for 1pg

• Did not cite four-factor test
• Found numerous errors with district court’s

injunction analysis.

• improper concern over business method patents
• Re. licensing: “leverage in licensing is a natural

consequence of the right to exclude”

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Supreme Court

• 31 amicus briefs
• SG files and argues on behalf of MercExchange
• Justice Thomas authors unanimous opinion
• Reverses Fed Cir for not applying the four-factor test;

courts must apply the test

• Reverses district court for “classifying” MercExchange

for not practicing the patent

• Affirmed Continental case—”nonuse is no efficient

reason for withholding [an] injunction”

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Two Concurrences

• Justice Roberts—majority holding rests on

traditional notions of equity; tradition teaches that courts have granted injunctions for willful patent infringement

• Justice Kennedy—Supports Roberts’ concurrence;

cautions against new types of cases, firms who “use patents to primarily obtain licensing fees”

• Cites a single 2003 online FTC report regarding non-

practicing entities in the computer hardware industry

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06-08: Back to the Dist. Ct.

• J. Friedman orders additional discovery
• eBay argues design around; patent found

invalid at USPTO during reexam (later reversed)

• OA: focus on Kennedy’s concurrence and

MercExchange being a “troll”

• Op: J. Friedman denies injunction
• Discussion of MercExchange false license; inventor

email; inventor background

• Cites to Kennedy

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Settlement

• Second appeal to Fed. Cir. after denial of

injunction

• Fully briefed; Fed. Cir. orders mediation with

settlement authority participants

• Settlement in Feb. 2008 before Fed. Cir. OA
• eBay buys all MercExchange patents
• eBay continues to prosecute patents; 6 issued

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Important Case Study Facts to Emphasize

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• eBay’s PR campaign
• after Fed. Cir. appeal
• after Sup. Ct. opinion
• Supreme Court opinion confused in the press
• Majority affirms Continental
• Kennedy—historical basis; cites to 1 FTC report
• Case did not end at Sup Ct
• Different than press’ review

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Data Regarding Case Interpretation

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• Post-eBay injunction denial at 78% for NPEs
• < 5% before eBay
• 217 total injunction decisions since eBay
• 27% deny injunctions across all parties

[data from Chris Seaman]

• 24 Fed. Cir. appeals w/full eBay analysis since 2006
• If injunction granted—73% affirmed
• If injunction denied—78% likely to remand
• Forthcoming Fed. Cir. empirical study with Seaman

What the case has become

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• Many courts citing Kennedy as law for injunctions
• Many early injunction-denial opinions citing

Kennedy forward cited

• Note: Only 1 Federal Circuit cite to Kennedy’s

concurrence since eBay

• J. Friedman assigned 40 patent cases while on

bench—all anti-patent

• Many cites to Friedman’s second injunction denial

as useful precedent in the application of eBay

• Public media perception is that eBay won, no more

injunctions for NPEs

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Corrections on eBay’s “precedent” & why

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• eBay does not stand for injunctions being

unavailable to PAEs—the true holding has been lost

• District courts are overusing Kennedy’s

concurrence

• But… Fed. Cir. has generally the same results for

injunctions before and after eBay

Corrections on eBay’s “precedent” & why

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• Large notorious public companies are dangerous

as litigants for useful legal precedent

• Many complicated issues, increased press, and a

potentially biased Judge complicate the case’s value

• Evidence of a larger PR and amicus effort to reduce

patent injunctions in favor of certain business models

• eBay would have likely lost second Fed. Cir.

appeal

• Would have potentially upset precedent of case

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Contact

• Prof. Ryan T. Holte

Southern Illinois University School of Law rholte@law.siu.edu Article available on SSRN

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