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

4/16/2015 The Misinterpretation of eBay v. MercExchange and Why: An Analysis of the Case History, Precedent, and Parties Forthcoming, Chapman L. Rev. 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 1 “Patent Troll” Terminology -Patent assertion entity (PAE) -Non-practicing entity (NPE) -Formerly Manufacturing -Etc. 2 1

4/16/2015 Patent Trolls or Great Inventors: Case Studies of Patent Assertion Entities 59 S T . L OUIS . U. L.J. 1 (2014) (Published March 2014) 3 The Parties & Dispute 4 2

4/16/2015 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 5 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 of validity + infringement = injunction 6 3

4/16/2015 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” 7 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” 8 4

4/16/2015 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 9 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 10 5

4/16/2015 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 11 Important Case Study Facts to Emphasize • 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 12 6

4/16/2015 Data Regarding Case Interpretation • 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 13 What the case has become • 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 14 7

4/16/2015 Corrections on eBay’s “precedent” & why • 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 15 Corrections on eBay’s “precedent” & why • 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 16 8

4/16/2015 Contact Prof. Ryan T. Holte Southern Illinois University School of Law rholte@law.siu.edu Article available on SSRN 17 9