Patent Infringement Remedies: Is a Nonexclusive License Worth Less?

Patent Infringement Remedies: Is a Nonexclusive License Worth Less?

Although a patent is typically seen as a right to exclude others, the willingness of American courts to automatically provide that right through a permanent or preliminary injunction has been affected by the Supreme Court of the United States in Ebay v. MercExchange (547 U.S. 388 (2006)).  In a recent article, Prof. Richard Epstein argues that this will have serious consequences and potentially reduce the flow of inventions.

The Ebay case concerned a company that owned a business-method patent for an electronic market, and was in negotiations to license that technology to two website operators.  After the parties failed to reach an agreement, the patentee brought a successful patent infringement suit against both website operators.  The District Court, however, denied injunctive relief on the basis that the plaintiff company was willing to license its patent and was not actively practicing the patented invention.  The Supreme Court in stating that both the District and Appeal courts had failed to apply the proper test, made it clear that an injunction will not automatically follow a finding of patent infringement.

According to Prof. Epstein, the effect of the Ebay decision is such that the ability to now obtain injunctive relief will turn on whether the inventor practices his patent or issues nonexclusive licenses.  In the latter case, the patentee runs the risk that neither he nor any of his licensees will be able to obtain injunctive relief.  If this is indeed what happens, Prof. Epstein suggests that users of a patented technology may begin to see themselves as better off without taking a license.  A patentee’s revenues will decline accordingly, potentially stifling the flow of inventions.

In addition to the rationale of Prof. Epstein, there may be other reasons why the decision of a patentee to issue nonexclusive licenses should not be a factor against injunctive relief.  If we put patentees in a position of preferring to issue exclusive licenses, we may need to accept a limited output of a patented technology in the marketplace, or an absence of competition in relation to that technology.  From a consumer standpoint, perhaps that is not desirable.

Prof. Epstein legitimately points out that it does not need to be an all-or-nothing answer to the choice between damages and injunctive relief.  In land cases, injunctive relief has been historically offered with a time delay to allow the “infringer” the opportunity to wind down activities in an orderly fashion and the same could apply to cases where a software vendor has infringed a patent.

Discussions between companies in relation to the potential forms of technology licensing are not uncommon, and when those negotiations break down, patent infringement suits do result (for a recent example involving Apple and their touchscreen products, see here).  It will be interesting to see how the Ebay decision is applied as courts are required to remedy patent infringement.