Google’s Use of Thumbnails of Perfect 10’s Copyrighted Images Are Fair Use

Christine Pepe is an associate in the law firm of McDermott Will and Emery LLP, and a member of the Intellectual Property, Media and Technology (IPMT) Department. She is based in the firm’s New York office. In holding that Perfect 10 was unlikely to succeed in overcoming Googleââ?¬â?¢s fair use defense, the U.S. Court of Appeals for the Ninth Circuit reversed the district courtââ?¬â?¢s ruling that Googleââ?¬â?¢s thumbnail versions of Perfect 10ââ?¬â?¢s images constituted direct infringement and vacated the preliminary injunction. Perfect 10, Inc. v. Amazon.com (No. 06-55405) and Perfect 10, Inc. v. Google Inc. (Case Nos. 06-55406, -55425) (9th Cir., May 16, 2007) (M.D. Smith, J.). With regard to the in-line linking to images, the Court remanded for further fact finding on the issues of contributory infringement by both Google and Amazon and whether they are entitled to safe harbor immunity under the Digital Millennium Copyright Act (DMCA). The plaintiff, Perfect 10, markets and sells copyrighted images of non-surgically enhanced nude models and operates a related subscription website on the Internet for ââ?¬Å?member onlyââ?¬Â? viewing of certain images. Perfect 10 has also licensed a third party to sell and distribute Perfect 10ââ?¬â?¢s reduced-size copyrighted images for download to cell phones. However, certain website publishers republish Perfect 10ââ?¬â?¢s images on the Internet without authorization. Once this occurs, Googleââ?¬â?¢s search engine may automatically index the webpage containing these images and provide thumbnail versions of images in response to user inquiries. When a user clicks on the thumbnail version of an image returned by a Google search, the userââ?¬â?¢s browser accesses the third-party webpage and ââ?¬Å?in-line linksââ?¬Â? to the full-sized infringing image stored on the website publisherââ?¬â?¢s computer. This image then appears on the lower portion of the window on the userââ?¬â?¢s computer screen framed by information from Googleââ?¬â?¢s webpage. In separate actions against Google and Amazon (now consolidated), Perfect 10 sought a preliminary injunction to prevent Google and Amazon from infringing or otherwise contributing to the infringement of Perfect 10ââ?¬â?¢s photographs and from linking to websites that provide infringing versions of the photographs. Because it merely in-line linked to the thumbnails on Googleââ?¬â?¢s server and to full-size images on third-party websites, the district court refused to enjoin Amazon. However, the district court did enjoin Googleââ?¬â?¢s use of the thumbnails of Perfect 10ââ?¬â?¢s images, noting that a computer owner that stores an image as electronic information and serves that electronic information directly to the user is displaying the electronic information in violation of a copyright holderââ?¬â?¢s exclusive display right. Applying this definition, the district court held that Perfect 10 was likely to succeed in its claim that Googleââ?¬â?¢s display of the thumbnails constituted direct infringement. However, the district court held that Perfect 10 was not likely to succeed in its claim that Googleââ?¬â?¢s ââ?¬Å?in-line linkingââ?¬Â? to full-size images constituted direct infringement, in violation of Perfect 10ââ?¬â?¢s display and distribution rights. The Ninth Circuit affirmed the district court findings that Perfect 10 was unlikely to succeed in proving direct infringement. Specifically, with regard to the in-line linked images, the Court held that because in-line linking does not involve communicating a copy of the image, but rather only HTML (Hyper Text Markup Language) instructions that direct a userââ?¬â?¢s browser to a website publisherââ?¬â?¢s computer that stores the image, there is no direct infringement. Moreover, the Court held that Perfect 10 must also show a likelihood that it will prevail against Googleââ?¬â?¢s fair use defense. In that regard, the district court held that the commercial nature of Googleââ?¬â?¢s use weighed against its transformative nature and that Googleââ?¬â?¢s use of thumbnails superseded Perfect 10ââ?¬â?¢s right to sell its reduced-size images for use on cell phones. On this issue, the Ninth Circuit reversed, finding that Google used Perfect 10ââ?¬â?¢s images in a new context to serve a different purpose and that the significantly transformative nature of Googleââ?¬â?¢s search engine, in view of its public benefit, outweighed any alleged superseding and commercial use of the thumbnails. The Court therefore vacated the preliminary injunction. With regard to in-line linking to copyrighted images, the Ninth Circuit remanded for further findings on contributory infringement and whether the DMCA safe harbor provision limits injunctive relief. The district court held that Perfect 10 was unlikely to succeed on its contributory infringement claim against either Google or Amazon. However, the Court held that the parties could be held contributorily liable if they had knowledge that infringing Perfect 10 images were available using their systems, could take simple measures to prevent further infringement and failed to do so. Because there were factual disputes over whether there are reasonable and feasible means for Google and Amazon to refrain from providing access to infringing images, the Court remanded these issues to the district court. The Court also remanded for further findings on whether Google and Amazon satisfied the requirements of Ã?§512(d) of the DMCA (i.e., whether adequate notices were sent to the parties and whether the responses to the notices were adequate). Reprinted with permission from McDermott Will and Emeryââ?¬â?¢s IP Update, June 2007.

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Online Fanfiction and Third Party Copyright Infringement

Everyone has a favorite television show, or book, or comic strip. But what are loyal fans to do during the (sometimes lengthy) period of time in between seasons of a TV series or installments of a series of books or movies? Are fans of the Fox series “House, M.D.” supposed to watch the Major League Baseball games that are being broadcast the entire month of October in lieu of regular programming? Reread favorite books until the binding splits or watch videocassettes until they break? For the fan with Internet access, the answer is clearly no. All fans need to do is to type in the name of their favorite book or movie into a search engine, and the answer is at their fingertips. The explosion of fan culture on the World Wide Web is a phenomenon that is impossible to ignore. While some sites serve as a meeting place for fans to discuss aspects of their favorite works, share spoilers for future episodes or novels, or simply commune with other like-minded individuals, a major activity of fan culture is the creation of new works of art or literature featuring their favorite characters in a variety of settings. While most fanfiction is noncommercial in nature (and authors are very vocal about the fact that they make no money), this fact alone does not insulate such authors from legal liability for the body of work that they are posting on the Internet and making available to anyone, in any country, with web access. While suing individual authors of fanfiction may be impracticable, does this mean that the copyright holder is without remedy? After all, the right to create derivative works is one of the six exclusive rights afforded the copyright holder under Section 106 of Title 17.¹  What if an author finds a particular category of fanfiction, such as adult-themed work, particularly problematic or offensive? One possible solution is the imposition of third-party liability on the parties who own and operate websites on which the work of many authors is included. Two theories of third-party liability on which authors may rely are contributory infringement and vicarious infringement. Contributory infringement requires both knowledge on the part of the third party and a material contribution to the infringement. “[O]ne who, with knowledge of the infringing activity, induces, causes, or materially contributes to the infringing conduct of another, may be held liable as a ‘contributory’ infringer.”²  A person who deliberately sets up a website for the purpose of posting fanfiction is clearly acting intentionally. Whether he believes that posting such content is an act of infringement is debatable. Questions of fact such as the receipt of cease-and-desist letters by the website owner or any of the authors whose work is posted on his website will certainly be relevant. Under Napster, which I will discuss in greater length below, the court held that actual knowledge of specific infringing uses was not necessary, merely that the owner of the website knows that the site is being used for infringing activity in general.³  The element of contribution can arguably be met; although an fan author could post his work on his own website rather than that of a dedicated “fanfiction” website, the inclusion of many pieces of fiction in one location make such sites more easily accessible and more popular than if the would-be reader had to navigate from individual web page to individual web page. By maintaining a dedicated “fanfiction” page, the owner is inducing others to write their own derivative works and to post them for all to read. While contributory liability stems from enterprise liability, vicarious liability is based on principles of agency law, and requires that the third party have the right and ability to control the infringing conduct as well as a direct financial interest in the infringing conduct.⁴  Owners of particular websites are ultimately in charge of the content that appears on their various pages. If the owner allows submissions from the general public, he or she also has the ability to delete content with which he disagrees or that he feels will subject him to harassment or potential legal liability. The element of direct financial benefit, on the other hand, will be difficult to prove, as practically nobody makes any money from the authorship of fanfiction. However, the individual fan authoris not the defendant in a third-party case, but the website owner, and many sites to which this work is posted are supported by advertising.⁵  If these advertising revenues go beyond the cost of setting up and maintaining the sites, this may provide a nexus to commercial gain, which would justify holding the website owner liable under a theory of vicarious infringement. Similarly problematic is the nature of vicarious liability as an offshoot of respondeat superior. Even if both the necessary elements are met, it may be difficult to characterize individual fan authors as agents of the fanfiction website in any context. Perhaps an analogy to a peer-to-peer file sharing case will put the above issues in context. In A&M Records, Inc., v. Napster, Inc.,⁶  the Ninth Circuit held that the plaintiff had a likelihood of success on the merits for both its claims of contributory and vicarious infringement against Napster, and that a preliminary injunction was appropriate. However, Napster is factually somewhat different from the case of fanfiction websites. The infringing files in Napster were exact copies of plaintiff’s copyrighted works,⁷  which weighs against the defendant’s claim of fair use,⁸  as opposed to the transformative nature of most works of fanfiction. Weighing against fanfiction website owners is the fact the court in Napster upheld liability even though the central server did not maintain copies of the works themselves, but merely an index of names which allowed users to obtain the infringing copies from one another, whereas fanfiction sites store and facilitate distribution of potentially infringing content. Moreover, in Napster, even if specific files were removed at the request of the copyright owner, it was highly likely that another individual would “fill the gap” and provide another copy almost immediately. Within the Napster system, there would be a plentitude of anonymous sources of the exact same infringing file. Whereas, once an individual fan author discovered his or her fan authorship had been removed, he or she would be less likely to upload it somewhere else for fear of direct action by the copyright owner. His or her reading public might not have copies of the same authorship to repost. Therefore, in the case of fanfiction, individual instances of infringement could be targeted more effectively and permanently. While, in any case, a suit for direct infringement against the individual authors themselves is always possible, turning off the tide of unauthorized derivative works at the source is far easier and more effective for the copyright owner than to pursue (potentially) millions of individual defendants. Such theories of third party liability as contributory and vicarious infringement make the enforcement of copyright practicable for the modern author of creative work.

Sources

1   In order to succeed on a claim of contributory or vicarious infringement, the copyright holder/plaintiff must prove that direct infringement has taken place. Religious Tech. Ctr. v. Netcom On-Line Communication Servs., Inc., 907 F. Supp. 1361, 1371 (N.D. Cal. 1995). It is possible that a copyright owner could sue an individual fan author in name, with the understanding that he will seek relief entirely from the named third parties, as was the case in Universal City Studios, Inc. v. Sony Corp. Of America, 464 U.S. 417 (1984).
2   Gershwin Publ’g Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971).
3   114 F.Supp.2d 896, 917 (N.D. Cal. 2000).
4   Fonovisa, Inc. v. Cherry Auction, Inc., 76 F. 3d 259 (9th Cir. 1996).
5   For example, www.fictionalley.org (Harry Potter fanfiction/fanart) features banner advertising at the bottom of the page.
6   239 F.3d 1004 (9th Cir. 2001).
7   239 F.3d at 1011.
8   Id. at 1016.

Internet Policy: The 110th Congress

2007 brought the Democrats back in to power in the House and Senate and it’s changing the tone of the debate for policy issues in the intellectual property and high tech arena. It’s about ‘who controls the pipes’ and ‘who controls the content.’ Although many policymakers will say that these issues like patent reform or Net Neutrality aren’t issues that cut across clear partisan lines there still appear to be some differences in the tone being set as the 110th Congress gets started. Sometimes it’s indirect. There’s still a feeling among some Democratic leaders that pharma set the agenda for patent reform in the 109th Congress and whatever pharma is for, they’re against. Similarly with the debate about Net Neutrality there appears to be a sense that large telcos drove the agenda last term and now it’s time to move in a different direction. The Net Neutrality debate is thus far being waged along partisan lines in the presidential contest – Democratic challengers, Clinton, Obama and Edwards are supporting it and Republican challengers McCain and Brownback are against it. “Net Neutrality” is a term coined by Professor Tim Wu when he delivered a paper at the 2003 Silicon Flatirons Conference in Boulder Colorado, where Michael Powell (then Chair FCC) listened and returned the following year (2004) with an address outlining the four “Internet freedoms” (PDF). It was a warning to the broadband industry to preserve openness and consumer choice. He also hinted that adopting these policies would be the best way to avoid further government regulation. Fast forward to November 2005 where then SBC CEO (now ATT CEO) Ed Whiteacre responded during an interview by Business Week with words (that perhaps haunt him):

“Now what they [responding to competition from Google, Yahoo, eBay and others] would like us to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using.”

The reaction to Whiteacre’s statement was swift and strong. His ‘fighting words’ were fuel to the network neutrality advocates such as the grassroots effort led by SavetheInternet.com, and were piggybacked on by Internet giants Google, Yahoo, Amazon and eBay. Even the ‘father’ of the Internet, Vince Cerf, spoke at House hearings on the need for non-discrimination legislation. Legislation followed in the 109th Congress generally along lines of either an anti-competitive standard where telecom behavior is okay unless demonstrated to be illegal, or ananti-discrimination standard where if certain stated rules of neutrality are broken, the violators have to prove their behavior was on the right side of the line. Similar to the patent reform debate, the 109th Congress seemed weighted down by the powerful telco lobby and nothing was passed. There was a divide with other ‘technology’ companies like Cisco, Qualcomm, Nortel and Motorola who came out publicly against the proposed Net Neutrality legislation with soft statements like, “It is premature to attempt to enact some sort of network neutrality principles into law now.” Even with the momentum and apparent groundswell the Republican-controlled Congress stalled any legislation from being passed. With the 110th Congress the broadband providers are starting to sound like they’re on the defensive. Last month (February 2007) at the Tech Policy Summit in San Jose, broadband access/service and Net Neutrality were hot topics for discussion. TPS brought an impressive line-up of technology companies, media leaders and government policy makers. Congressman Berman was flown in as well as Jon Dudas (head of US Patent Office). All the large broadband providers (ATT, Comcast and Verizon) were represented, as were large technology companies from the Valley (Cisco, Intel, Sun and HP), and companies with large Valley presence (IBM, Microsoft). Of the significant Internet companies, Google was represented but eBay and Yahoo were noticeably absent. The broadband providers were put on the defensive not by the technology companies directly but, by their media interviewer/moderators. Walt Mossberg of the Wall Street Journal put James Cicconi (SVP, External and Legislative Affairs, ATT) constantly on the defensive with questions like:

• Why is broadband value so poor in the US?
• Why can someone in France (and many other European and Asian countries) get better broadband (ie faster service) for less money?

Cicconi tried to talk about population density and regulation but was really stumped when Walt told him he lived in Manhattan and could get better service from a small cable company. They’re also on the defensive for not providing useful information (read: transparency) about what broadband service they’re providing. This was discussed at the State of the Net conference as well. I remember living in Palo Alto in 2003 and still not being able to access broadband (cable or DSL). Friends on the East Coast were stunned. Broadband providers were saying that because some people in my zip code were receiving broadband, they were serving the area. The broadband providers sound like they are on the defensive. They constantly cite statistics about how much money they’ve invested in broadband, how many feet of fiber, they’ve laid across the country, and so on. The crucial question is whether the Internet should be treated like a public utility and if so what is the appropriate regime to serve the public interest. The Big Three (ATT, Verizon and Comcast) have vested interests in ensuring that their billions of dollars invested (some well, some not so well) gets recouped, at least so their management can answer to their boards and shareholders. Cicconi said his company has publicly agreed to not block content or degrade service based on source of content. To those following the debate closely it may or not have appeared disingenuous that he failed to mention that their public position followed their agreement to certain Net Neutrality provisions with the FCC to permit the ATT/BellSouth merger in 2006. Note the partisan divide; one Republican commissioner had excused himself from the vote and the remaining two Democratic commissioners held up the merger until ATT agreed to abide by Net Neutrality provisions. Mossberg’s point (effectively made) was: Why can’t the consumer choose the phone they want and the carrier they want? His reference analogy of the circa 1968 black ATT phone was an unspoken reference to the FCC’s Carterphone ruling, which for the first time made attaching a non ATT phone to the ATT network legal. Cicconi talked about how the phones are subsidized, but he sidestepped the real question about consumer choice. Now Skype has petitioned the FCC, arguing that consumers should be able to attach their chosen device to the Internet via wireless networks. It is trying to take the Net Neutrality debate beyond the terrestrial Internet space and include wireless access as well. Here the large broadband providers believe the investment they made in purchasing spectrum from the government means they need control over those airwaves to ensure a return on their investment. It sounds similar to Whiteacre’s argument for exercising price discrimination on its access to the terrestrial Internet. What’s happening in Congress? In the House, Ed Markey (D MA) has started hearings on Net Neutrality legislation. He hasn’t introduced any bill yet, but when he does it will likely to be similar to his 2006 bill (PDF). It included the principles of probation on blocking, degrading or interfering with user’s accessing content similar to what ATT has agreed to (for limited period) with the FCC. On the issue of prioritization of content, broadband providers have to make all similar content available on the ‘dedicated pipe’ without surcharge. In the Senate, Senators Snowe (R-ME) and Dorgan (D-ND) have re-introduced legislation (from the 109th session) called the Internet Freedom Preservation Act (PDF). It’s similar to the Markey provisions on blocking, degrading, and prioritization of content. It also has a provision about mandating that broadband providers make stand-alone broadband service available to users. Reaction by Presidental contenders to this bill has so far lined up on partisan lines. Notably, Snowe is the only Republican supporting it. Tech LawForum will be following the public policy debate as it unfolds in the 110th Congress. Besides Net Neutrality, Tech LawForum’s Internet law and policy section will be following many other issues and topics including the Google v Perfect 10 case and Congressional efforts to legislate in the areas of music licensing and fair use. Also, articles and blog posts under Net Law will cover updates on cyberspace law topics such as defamation, jurisdiction and privacy.

FTC and DOJ Report on Antitrust and Intellectual Property

Susan Creighton is a partner at Wilson Sonsini Goodrich and Rosati, where she serves as co-chair of the firm’s antitrust practice. Jonathan Jacobson is a partner at Wilson Sonsini Goodrich and Rosati, where he practices antitrust law.

Introduction

Nearly five years after conducting a series of hearings that addressed the intersection of antitrust and intellectual property, the Federal Trade Commission and the Department of Justice on April 17, 2007, issued a much-anticipated joint report entitled “Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition.”¹

The report combines hearing testimony from industries including biotechnology, computer hardware and software, Internet, and pharmaceuticals with scholarship from practitioners and academics to provide a broad update of the agencies’ understanding of issues at the intersection of antitrust and intellectual property law.² In particular, the report discusses the agencies’ competition views with respect to a wide range of activities involving intellectual property, including: refusals to license patents, collaborative standard setting, patent pooling, intellectual property licensing, the tying and bundling of intellectual property rights, and methods of extending market power conferred by a patent post-expiration.

The report emphasizes the soundness of the agencies’ general approach to analyzing intellectual property and antitrust issues, which is grounded in economics and focuses on preserving competition and incentives for creativity and innovation. The report also confirms the ongoing relevance of the agencies’ 1995 Antitrust Guidelines for the Licensing of Intellectual Property (the Licensing Guidelines),³ and concludes that the agencies will analyze the vast majority of conduct involving the intersection of antitrust and intellectual property under the rule of reason, which considers both the efficiencies of a particular activity as well as any anticompetitive effects it may create. Notably, although the report contains a number of conclusions with respect to the intersection of competition and patents, it does not include any recommendations for legislative reform.

This article provides an overview of some of the most significant conclusions in the report.

Unilateral Refusals to License Patents

The report begins with an analysis of unilateral refusals to license patents, focusing on two conflicting appellate decisions, Image Technical Services, Inc. v. Eastman Kodak Co.⁴ and In re Independent Service Organizations Antitrust Litigation, that have been particularly controversial.⁵ The agencies examine the diverging analyses in these decisions and note that hearing panelists agreed that neither decision provides “sufficient guidance on potential antitrust liability for a refusal to license.”

The report finds that Section 271(d)(4) of the Patent Act does not create antitrust immunity for unilateral refusals to license patents and then examines statements in Supreme Court jurisprudence that describe a patent holder’s unilateral right to refuse to license as a core part of the patent grant. The agencies underscore that antitrust liability for mere unilateral, unconditional refusals to license patents will not play a meaningful part in the interface between patent rights and antitrust protections. They also observe that imposing antitrust liability for refusals to license competitors would compel firms to reach out and affirmatively assist their rivals, a result that conflicts with the intentions of the antitrust laws. Finally, the report confirms that conditional refusals to license that cause competitive harm are subject to antitrust scrutiny.

Collaborative Standard-Setting

Of particular significance to technology industries are the agencies’ findings in relation to the antitrust implications of collaborative standard-setting. The report describes the various benefits to efficiency and innovation that can be derived from standard-setting organizations (SSOs), then turns to the potential for a patent owner to “hold up” an SSO by extracting higher royalties after a standard has been locked in. The report discusses various strategies to mitigate hold-up, including the use of disclosure requirements and “reasonable and nondiscriminatory” (RAND) licensing terms.

The agencies state that the use of ex ante disclosure and licensing terms by SSO participants can be procompetitive (because they may mitigate hold-up) and therefore are unlikely to constitute a per se antitrust violation. The report then identifies two types of joint ex ante conduct that the agencies believe, in particular, will rarely give rise to antitrust liability:

• an intellectual property owner’s unilateral announcement of licensing or price terms; and
• bilateral ex ante negotiations about licensing terms that take place between an individual SSO member and an individual intellectual property holder outside the auspices of an SSO.

The agencies’ policy guidance in this area is particularly significant because standard-setting has become subject to increased antitrust scrutiny in recent years. Specifically, the FTC has entered consent orders with Dell and Unocal that alleged violation of Section 5 of the Federal Trade Commission Act. More recently, the FTC found that Rambus violated Section 5 after a full adjudicative trial and required Rambus to license its patents on reasonable and non-discriminatory terms. Rambus has appealed this decision to the U.S. Court of Appeals for the District of Columbia Circuit.

Intellectual Property Licensing Practices

The report examines a variety of intellectual property licensing practices, including portfolio cross-licenses, patent pools, non-assertion clauses, grantbacks, and reach-through royalty agreements. It states that the agencies will continue to evaluate the competitive effects of these licensing arrangements under the framework of the IP Licensing Guidelines. The report notes that such licensing agreements typically will be analyzed under the rule of reason because they confer cognizable procompetitive benefits and have limited potential for anticompetitive effects. The report warns, however, that each type of licensing arrangement will be considered on a case-by-case basis.

The agencies also provide some specific conclusions in relation to patent pools, noting in particular that: (1) including substitute patents in a pool does not make the pool presumptively anticompetitive; and (2) the agencies will not generally assess the reasonableness of royalties set by a pool.

Post-Expiration Patent Extension

The report concludes by examining practices that extend market power conferred by a patent beyond its statutory term. The agencies state, in particular, that the these practices will be analyzed under standard antitrust principles where they confer market power. The agencies acknowledge, however, that collecting royalties beyond a patent’s statutory term can be efficient because it may permit licensees to pay lower royalty rates over a longer period of time, thereby promoting innovation incentives.

Conclusion

Despite the agencies’ repeated observations that their analytical frameworks for intellectual property and antitrust issues are sound, there also were certain contentious issues that were noticeably absent from the report. In particular, the competition implications of patent settlements and the antitrust issues associated with uncertain or disputed patent rights, topics which were the focus of multiple hearings, were not discussed in the report. The antitrust analysis of patent settlements is an area in which the agencies’ differences recently spilled into the public domain after the agencies filed briefs with the Supreme Court that expressed strongly differing views.⁶ The basis for any possible difference of perspective between the agencies on disputed patent rights is unclear.

Note: Susan Creighton served as deputy director and director of the Bureau of Competition at the FTC while the joint hearings were conducted and the report was developed.

1 The report can be found at
www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdf.

2 Details about these hearings are available at www.ftc.gov/opp/intellect/index.shtm.

3 The guidelines are available at http://www.ftc.gov/bc/0558.pdf.

4 125 F.3d 1195 (9th Cir. 1997).

5 203 F.3d 1322 (Fed. Cir. 2000).

6 Wilson Sonsini’s antitrust practice released a Client Alert addressing the FTC’s most recent findings on pharmaceutical industry patent settlements in February 2007, which is available at
www.wsgr.com/WSGR/Display.aspx?
SectionName=publications/PDFSearch/clientalert_genericfirms.htm.

© 2007 Wilson Sonsini Goodrich and Rosati. Reprinted with permission.

Failure to Update Examiner of Status of Related Applications May Result In Inequitable Conduct

Astrid R. Spain is a partner at McDermott Will and Emery LLP. A member of the Intellectual Property, Media and Technology Department and the Life Sciences and Medical Devices Practice Group, she is based in San Diego. Demetria A. Buncum is an associate at McDermott Will and Emery based in the Washington, D.C. office. She is a member of the Intellectual Property, Media and Technology Department. Affirming a district court ruling which had taken the relatively rare step of holding an asserted patent unenforceable due to inequitable conduct, the U.S. Court of Appeal for the Federal Circuit emphasized several categories of information that a patent prosecutor must disclose to the U.S. Patent and Trademark Office (USPTO) in order to satisfy a patent applicantââ?¬â?¢s duty of candor. McKesson Information Solutions, Inc. v. Bridge Medical, Inc., Case No. 06-1517 (Fed. Cir., May 18, 2007) (Clevenger, J.; Newman, J., dissenting). The district court found that McKessonââ?¬â?¢s patent was unenforceable due to inequitable conduct during prosecution based on failure by the patent attorney to submit three material pieces of information during prosecution of three related applications, two examined by one examiner (Trafton) and a third by a different examiner (Lev). The materials included a prior art patent that had been brought to the attorneyââ?¬â?¢s attention by Examiner Lev in a co-pending application, the rejection of claims in that same co-pending application and the allowance of another co-pending application. The first item of non-disclosed information was a prior art patent that had been brought to the patent attorneyââ?¬â?¢s attention by Examiner Lev. While the patent attorney notified Examiner Trafton of the co-pending application, the cited prior art patent was not expressly disclosed. The Court concluded that the prior art patent was material and non-cumulative as it described the relevant three-node system (relied on by applicant for patentability in the application before Examiner Trafton) in greater detail than any other reference. The Court concluded that the high materiality of the reference and lack of a credible explanation for the non-disclosure supported the conclusion that the district court did not commit clear error. In particular, the Court found that the prosecuting attorneyââ?¬â?¢s cancellation of claims directed to both a three-node communication and a unique address in response to a rejection in view of the prior art patent gave rise to an inference that he recognized the patent would present a significant obstacle to patentability in the related application. The second item of non-disclosed information was the prosecuting attorneyââ?¬â?¢s failure to inform Examiner Trafton about the grounds of rejection of substantially similar claims pending before Examiner Lev. The Court analogized the facts to those in its own precedent, Li Second Family Ltd. v. Toshiba Corp., and found significant similarities. As in Li Second Family, the examiner of one application (Trafton) was not apprised of the adverse decisions by another examiner (Lev) in a closely related application. The patent attorney failed to mention the adverse decisions in the related application, and the patent attorney also made statements to the examiner inconsistent with the other examinerââ?¬â?¢s decisions, i.e., that nothing in the prior art disclosed relevant three-node communication. The Court also rejected the argument that disclosure to Examiner Trafton of the existence of the application being examined by Examiner Lev was sufficient to discharge the attorneyââ?¬â?¢s Rule 56 duty of disclosure. Finally, the Court held that failure to disclose the allowance of a different co-pending application constituted a third instance of inequitable conduct. According to the Court, the allowance gave rise to a ââ?¬Å?conceivable double patenting rejectionââ?¬Â? and therefore should have been disclosed. The Court affirmed on this basis despite the fact that the same USPTO examiner reviewed both applications, citing the Manual of Patent Examining Procedure (MPEP) provision that counsels attorneys not to assume that an examiner remembers every detail of every file. Judge Newman dissented. In her view, there was no clear and convincing evidence of deceptive intent simply because the prosecuting attorney did not inform the examiner of a related case of common parentage or of a reference cited in the related case. ââ?¬Å?To avoid the inequity resulting from litigation driven distortion of the complex procedures of patent litigation, precedent firmly requires that the intent element ââ?¬Â¦ must be established by clear and convincing evidence of deceptive intentââ?¬â??not of mistake, if there were such, but of culpable intent.ââ?¬Â? Practice Note: This decision significantly increases the extent to which the duty of candor extends to activities occurring during prosecution of related applications. Reprinted with permission from McDermott Will and Emery’s IP Update, June 2007.

Steepening the Steps to the Courthouse

Mr. Klein is a partner at Wilson Sonsini Goodrich and Rosati, P.C. and an Adjunct Lecturer in Law at Santa Clara University School of Law. The opinions expressed herein are his own. Wilson Sonsini Goodrich and Rosati, P.C. filed an amicus brief in the case that is the subject of this article.

Federal Circuit Establishes Tougher Standard for Proving
Willful Infringement

On August 20, 2007, the Court of Appeals for the Federal Circuit overruled its Underwater Devices decision of 24 years ago¹ to hold that a patent holder asserting willful infringement will now be required to show that an accused patent infringer recklessly disregarded that its conduct constituted infringement. The August 20 case, In Re Seagate Technology, LLC, Miscellaneous Docket No. 830 (Fed. Cir. August 20, 2007), also clarified the scope of waivers of the attorney-client privilege and work product protection when invoking the reliance on counsel defense. Seagate involved the assertion against Seagate Technology of willful infringement of patents owned by Convolve, Inc. and the Massachusetts Institute of Technology. Seagate received three legal opinions on which Seagate intended to rely for an advice of counsel defense to willful infringement. This defense is made out in part, according to Underwater Devices, by showing that one exercised due care in determining that one’s conduct was not infringing or that the asserted patents were likely invalid or unenforceable. Because Underwater Devices established a “due care” standard, willful infringement was considered to be founded on a negligence standard, rather than some more stringent standard such as recklessness or intentionality. Seagate also involved the scope of waivers of attorney-client privilege and work product immunity when an alleged infringer asserted a defense of reliance on counsel to defeat a claim of willfulness. The controversy in Seagate was brought as a writ of mandamus action in which Seagate sought an order to the trial court to limit the scope of the waiver of the attorney-client privilege and the waiver of work product immunity with respect to certain documents and testimony in Seagate’s possession or control. Convolve sought a waiver broad enough to discover communications between Seagate and its trial counsel rather than a waiver that would have limited discovery to just communications between Seagate and its patent opinion counsel.

Proving Willfulness

Although Section 284 of the Patent Act² allows for enhanced damages beyond a reasonable royalty, the Act does not express any standards for awarding such enhanced damages. Federal Circuit precedent has established that an award of enhanced damages requires a showing of willful infringement. The standard for proving willful infringement was established by the Federal Circuit in Underwater Devices, which held that “Where…a potential infringer has actual notice of another’s patent rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing. Such an affirmative duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.” ³ Subsequent Federal Circuit cases enumerated factors for evaluating willfulness and due care under a totality of the circumstances analysis.⁴ To make out a due care defense, an alleged willful infringer may show that it exercised reasonable care by seeking the advice of counsel. If counsel’s advice is that the patent or patents are invalid, unenforceable, or not infringed, then the defendant usually continues to market and sell the exposed product. Although reliance on counsel is not dispositive, it is often an important aspect of a court’s evaluation of due care.⁵ The Court canvassed a number of opinions in the Circuits and recent Supreme Court decisions that addressed willfulness in other civil cases, and concluded that Underwater Devices set a lower standard, akin to negligence, than the higher recklessness standard commonly utilized by the federal courts in determining willfulness in civil cases.⁶ Accordingly, the Court overruled the lower willfulness standard of Underwater Devices and determined that to prove willfulness, a patent holder must show “by clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.”⁷ If the patent holder can make this showing of what the Court calls “objective recklessness”, then further, the patent holder must also demonstrate that “this objectively-defined risk (determined by the record developed in the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.”⁸

Waiver of the Attorney Client Privilege and Work Product Protection

Until Seagate, it was quite common for alleged infringers to obtain patent opinions in order to be able to make out an advice of counsel defense in litigation. The Federal Circuit held in pre-Seagate cases that relying on in-house counsel’s advice to refute a charge of willfulness would trigger the waiver of the attorney-client privilege. Further, in In re Echostar Communications Corp., the Court held that asserting the advice of counsel defense waives work product protection and the privilege for all communications on the same subject matter.⁹ Echostar did not address these questions as it relates to communications between the alleged infringer and its trial counsel. Some waiver of the privilege and work product protection at least with respect to opinion counsel’s opinion and communications seemed necessary to enable the patent holder to evaluate or challenge the alleged infringer’s reasonableness in relying on its opinion counsel’s advice. This was the case so that the alleged infringer’s state of mind could be evaluated under the pre-Seagate willfulness analysis to determine if the alleged infringer exercised due care by reasonably relying on its patent counsel’s opinion. District courts have not been consistent when determining the scope of waivers of the attorney-client privilege in cases involving the reliance on counsel defense. Some courts have extended the waiver to communications with trial counsel over aspects of the reliance on counsel defense, whereas other courts have limited the waiver to communications just between the alleged infringer and opinion counsel. Other courts have taken positions in between. The Court in Seagate acknowledged that there is no bright line test for determining the proper scope of the waiver; rather, courts review the relevant circumstances to fashion the proper waiver. The Seagate Court reasoned, however, that in light of the new objective willfulness standard articulated by the Court, the value of a common approach, and that willfulness would be determined almost exclusively based on the alleged infringer’s pre-litigation conduct, then on balance the waiver should not extend to communications with trial counsel.¹⁰ The Court pointed out that this is not an absolute rule; rather, trial courts remain free to continue to exercise discretion in unique circumstances to extend the waiver to trial counsel communications. Similarly, the Court held that a waiver does not extend to trial counsel’s work product, absent exceptional circumstances. The work product doctrine balances the needs of the client with society’s interest in reaching all true and material facts to resolve a dispute. Work product protection in contrast to the attorney-client privilege is qualified and may be overcome by a showing of undue hardship. Factual information may be required to be disclosed on a showing of need and undue hardship, whereas mental process work is afforded greater protection. The protection, however, may be waived. The Court held that relying on opinion counsel’s work product does not waive work product immunity with respect to trial counsel. Trial courts will have discretion in this regard, and the general principles of the work product doctrine would not be affected by this decision. However, the general rule in the Circuit would be work product immunity for trial counsel’s work product notwithstanding the assertion by the alleged infringer of the reliance on counsel defense. ¹¹

1 Underwater Devices Inc. v. Morrison-Knudsen Co. 717 F.2d 1380 (Fed. Cir. 1983)

2 35 U.S.C. 284

3 Underwater Devices, at 1389-90 (internal citations omitted).

4 See: Read Corp. v. Portec. Inc., 970 F.2d 816 (Fed. Cir. 1992) and Rolls-Royce Ltd. V. GTE Valeron Corp., 800 F.2d 1101 (Fed. Cir. 1986).

5 E.g., Electro Med. Sys., S.A. v. Cooper Life Scis., Inc., 34 F.3d 1048 (Fed. Cir. 1994) (“Possession of a favorable opinion of counsel is not essential to avoid a willfulness determination; it is only a factor to be considered, albeit an important one.”).

6 Seagate, at 10-12.

7 Id., at 12.

8 Id., at 12. In an interesting concurring opinion, Judges Gajarsa and Newman argued that a trial judge should have the discretion to award enhanced damages without regard to willfulness because Section 284 of the Patent Act (the Section authorizing enhanced damages) does not contain any requirement that willfulness be found. The Judges reviewed the language and history of the enhanced damage statute and found no authority for grafting willfulness onto Section 284, other than federal judge-made law interpreting the statute. Accordingly, Judges Gajarsa and Newman argued for eliminating willfulness as a necessary factor for enhanced damages.

9 In re Echostar Communications Corp., 448 F.3d 1294, 1299 (Fed. Cir. 2006).

10 Seagate, at 15.

11 Id., at 18-21.

Teva v. Novartis:Declarations of Patent Noninfringement and Invalidity

Dr. Michelle S. Rhyu is a partner in the Cooley Godward Kronish Intellectual Property Litigation practice group and a member of the firmââ?¬â?¢s Litigation department in the Palo Alto office. Thomas F. PochÃ?© is a partner in the firm’s Intellectual Property Litigation group and a member of the firmââ?¬â?¢s Litigation Department in the Washington, D.C. office. Thomas J. Friel, Jr. is a partner in the firm’s Litigation department, head of the firm’s national Intellectual Property Litigation practice and head of the Firmââ?¬â?¢s Bay Area Intellectual Property Litigation practice group.

A new Federal Circuit decision promises to lead to more patent suits between generic drug companies and pioneer drug companies. Following the Supreme Court’s explicit direction in its MedImmune v. Genentech opinion, the Federal Circuit has overturned its prior restrictive test for the right of generic drug companies to bring declaratory judgment actions against pioneer drug companies. In Teva v. Novartis, issued March 30, 2007, the Federal Circuit has opened the door more widely for generic drug companies that wish to establish certainty regarding patent rights; generic companies can now more easily bring declaratory judgment suits against pioneer drug companies.¹ To get into court, generic companies will no longer need to prove “reasonable apprehension of imminent suit,” but now need only to establish an “actual controversy.”²

Background

Under the Hatch-Waxman Act, a generic company can speed FDA approval for its drug by submitting an Abbreviated New Drug Application (“ANDA”), which relies on clinical data previously submitted for the drug by the pioneer company.³ Upon filing an ANDA, the generic company must certify that, with respect to each patent of the pioneer company that is listed in the “Orange Book” which claims the drug or which claims a use for the drug for which the applicant seeks approval, (I) no patent information has been filed, (II) the patents have expired, (III) it will not market the drug until the patents expire, or (IV) the patents are invalid or will not be infringed by the manufacture, use or sale of the generic applicant’s drug.¹ As is often the case, if a generic company files certification under paragraph (IV), the pioneer company will bring suit within 45 days, thereby obtaining a 30 month stay of the FDA’s approval of the ANDA.

Sometimes, however, the pioneer company is not motivated to bring suit within the 45 days, leaving the generic drug company with the unfavorable option of launching its product in the face of unresolved patent liability (so-called “at risk” launches). In recognition of this problem, Congress amended the patent statute in 2003 to provide generic companies with a mechanism to bring a declaratory judgment suit after the 45 days expires in order to establish certainty as to its rights prior to launching its product.⁵

Despite this explicit attempt by Congress to establish declaratory judgment jurisdiction for generic companies, the Federal Circuit held in Teva v. Pfizer (2005) that declaratory judgment jurisdiction did not exist because Teva had not proven a “reasonable apprehension of imminent suit.”⁶ This decision essentially eviscerated Congress’s prior act, and generic drug companies remained dependent on action by the pioneer company in order to resolve their rights as to the patents relating to their drugs.

But the scales tipped again when the U.S. Supreme Court issued its MedImmune v. Genentech ruling earlier this year, registering its weighty support on the side of generic companies.⁷ Evaluating the right of a patent licensee in good standing to bring a declaratory judgment suit challenging patent invalidity against the licensor, the Supreme Court discarded the Federal Circuit’s “reasonable apprehension of suit” standard. Furthermore, although the issue was not squarely before the Court, it specified in a lengthy footnote that this standard, as applied in Teva v. Pfizer, contradicted Supreme Court precedent.⁸

The Teva v. Novartis Case

Novartis holds the New Drug Application (NDA) for Famvir�®, an antiviral medication. The active ingredient in Famvir�® is famciclovir. Novartis listed five patents relating to Famvir�® in the Orange Book: one patent covering the compound famciclovir and four patents directed to methods of its therapeutic use. In 2004, Teva filed an ANDA to produce a generic famciclovir. To satisfy its ANDA certification requirements, Teva certified under paragraph IV that its drug did not infringe any of the five Novartis patents listed in the Orange Book or that the patents were invalid.

Novartis filed suit within 45 days, asserting that Teva infringed its single listed patent covering the famciclovir compound. However, Novartis did not sue on the four patents for methods of using famciclovir. Teva responded with a declaratory judgment action against Novartis, asserting noninfringement and invalidity of the four method patents. Following the then-precedential Teva v. Pfizer case, the district court found no reasonable apprehension of suit and dismissed Teva’s declaratory judgment action relating to the four method patents.

With the benefit of MedImmune v. Genentech, the Federal Circuit revisited the right of a generic company to obtain a declaration of patent invalidity and noninfringement. Interpreting the declaratory judgment standard discussed in MedImmune, the Federal Circuit required that a declaratory judgment plaintiff must show that, considering “all the circumstances,” there exists “an actual or imminent injury caused by the defendant that can be redressed by judicial relief” that is of “sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”⁹

The Court proceeded to identify five circumstances that in totality demonstrated injury:

(1) Novartis listed its method patents in the Orange Book;

(2) Teva’s submission of its ANDA and paragraph IV certification created a justiciable controversy for Novartis, and should thus create one for Teva;

(3) The Hatch-Waxman Act intended to create declaratory judgment jurisdiction for generic companies in the situation where the patent owner’s actions frustrate the purpose of the Act;

(4) Novartis filed suit against Teva on the compound patent; and

(5) Novartis’ failure to sue on all five Orange Book-listed patents left open the possibility of future litigation, subjecting Teva to multiple infringement suits based on the submission of a single ANDA.

The Court rejected Novartis’ arguments (a) that because it has not filed suit or threatened to sue Teva on the method patents, no injury and thus no controversy existed and (b) that the method patents constitute an entirely different controversy from the compound patent infringement controversy. The Court repeatedly cast Novartis as a company failing in its obligation to cooperate reasonably in expediting the challenge to their Orange Book-listed patents.

The Federal Circuit’s emphasis on “all the circumstances” and the particular facts of Teva v. Novartis arguably may limit the holding to the situation where the pioneer company has initiated an infringement suit against the generics company on only some of the patents listed in the Orange Book.

It still remains uncertain whether a generic drug company has declaratory judgment jurisdiction where the pioneer company has not brought suit at all, as was the case in Teva v. Pfizer. It is noteworthy that at least the first three of the five circumstances cited by the court to establish injury occur in all paragraph IV certifications.¹⁰ Beyond that, any additional evidence that the pioneer company is attempting to delay the applicant’s ANDA approval or delay resolution of patent liability issues would tend to support a finding of actual or imminent injury and declaratory judgment jurisdiction. The Court’s emphasis on the legislative intent and the purpose of the statute to “enable competitors to bring cheaper, generic drugs to market as quickly as possible” suggests that the Court may well be inclined to find jurisdiction in the absence of any infringement action by the pioneer company. Against this backdrop, pioneer companies will need to consider their options carefully when confronted with a paragraph IV certification, lest they find themselves defending a declaratory judgment suit in an unfamiliar or unfriendly jurisdiction.

Reprinted with permission from Cooley Alerts, April 7, 2007.

Notes

1 Teva Pharms. USA, Inc. v. Novartis Pharms. Corp., No. 06-1181, slip op. (Fed. Cir. Mar. 30, 2007). Recent Federal Circuit opinions may be viewed at http://www.fedcir.gov/dailylog.html.

2 The Federal Circuit separately applied the MedImmune v. Genentech standard to find declaratory judgment jurisdiction stemming from extensive cross-licensing discussions between the parties in SanDisk Corp. v. STMicroelectronics, Inc., No. 05-1300, slip op. (Fed. Cir. Mar. 26, 2007). Overturning its prior “reasonable apprehension of imminent suit” test, the Court held that “where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without license, an Article III case or controversy will arise and the party need not risk a suit for infringement by engaging in the identified activity before seeking a declaration of its legal rights.” Id. at 15. The Court found that the unequivocal statement by the patentee that “ST [STMicroelectronics] has absolutely no plan whatsoever to sue SanDisk,” did not moot the actual controversy created by ST’s acts, which included presenting to SanDisk a thorough infringement analysis detailing the manner in which ST believed SanDisk’s products infringed the specific claims of each of ST’s fourteen patents. Id. at 17.

3 21 U.S.C. �¤ 355(j).

4 21 U.S.C. �¤ 355(j)(2)(A)(vii)(I-IV).

5 35 U.S.C. Ã?¤ 271(e)(5) (stating that federal courts “shall, to the extent consistent with the Constitution, have subject matter jurisdiction in any action brought . . . under Ã?¤ 2201 of title 28 for a declaratory judgment that such patent is invalid or not infringed”).

6 Teva Pharms. USA, Inc. v. Pfizer, Inc., 395 F.3d 1324, 1333 (2005).

7 MedImmune v. Genentech, 127 S. Ct. 764 (2007); see also Cooley Alert at http://www.cooley.com/news/alerts.aspx?ID=000040494620.

8 MedImmune v. Genentech, 127 S. Ct. 764, 774 n.11 (2007).

9 Teva Pharms. USA, Inc. v. Novartis Pharms. Corp., No. 06-1181, slip op. at 9 (Fed. Cir. Mar. 30, 2007).

10 The fifth category would arguably also be met, because by refraining to sue, the pioneer company leaves open the possibility of future litigation, absent a covenant not to sue.

Opinion-of-Counsel Defense to Inducement

 

Actual Reliance on an Opinion-of-Counsel May Negate Liability for Inducement

Gary H. Levin is a partner at Woodcock Washburn LLP and head of the firm’s Litigation Services Group. Joseph Milowic III is an associate at Woodcock Washburn LLP and was recently named a “Rising Star” by Law & Politics magazine.

On December 13, 2006, in DSU Medical Corp. v. JMS Co., 04-1620, 05-1048, -1052 (Fed. Cir. Dec. 13, 2006), the en banc Federal Circuit resolved “conflicting precedent” and unambiguously announced that liability under 35 U.S.C. §271(b) for inducement requires a “specific intent to infringe,” and not merely an intent to induce the acts that are later charged with infringement. This decision alters conventional wisdom and further increases the value of opinions of counsel.

Despite suggestions in earlier Federal Circuit and district court case law, until now it has been unclear whether intent to cause infringement over and above knowledge of the patent and intent merely to cause the acts accused of infringement was necessary for liability under section 271(b), and if so, whether a traditional opinion-of-counsel defense was available to negate that intent.

The en banc Federal Circuit has now clearly adopted the elevated level of “specific intent” for all cases involving any defendant, corporate or otherwise, accused of inducing infringement. This decision could elevate the importance of opinions of counsel where potential liability is based on inducement under §271(b). Good-faith reliance on an objectively reasonable opinion of counsel, previously viewed as an effective defense against a claim of willful infringement but not necessarily infringement per se, now becomes a potential shield against liability for any level infringement under §271(b).

In DSU Medical, the patentee sued JMS and ITL for infringing patents on a needle guard assembly. ITL made “open” needle guards overseas and sold its products to JMS for distribution in the U.S. The guards were intended to be closed around needles, to form the assembly, and it was only when the ends of the guards were “closed” that the assembly arguably met the claim limitations. JMS closed the guards around the needle sets before importing and selling them to U.S. customers and thereby directly infringed DSUs patents. Evidence at trial established that ITL knew of the patent and intended that JMS form the assembly by closing the guards, but ITL also presented evidence to show that it did not intend to infringe. The jury found JMS liable for direct infringement, but it absolved ITL of any liability for inducing infringement.

On appeal, the en banc Federal Circuit affirmed the finding of no infringement for inducement. Significantly, the Court specifically pointed to the following evidence that ITL did not intend to cause the infringement:

1. ITL had contacted an Australian attorney, who concluded that its product would not infringe;
2. ITL obtained letters from U.S. patent counsel advising that its product would not infringe; and
3. One of the owners of ITL who had participated in the design of the product testified that ITL had no intent to infringe the patent.

“On this record, the jury was well within the law to conclude that ITL did not induce JMS to infringe by purposefully and culpably encouraging JMSs infringement. To the contrary, the record contains evidence that ITL did not believe its [product] infringed. Therefore, it had no intent to infringe.”

In so ruling, the en banc Court also opted to resolve conflicting precedent. The conflict stemmed from two 1990 cases, which were decided within three months of each other by two different panels of the Court, Hewlett-Packard Co. v. Bausch and Lomb, Inc., 909 F.2d 1464, 1469 (Fed. Cir. 1990) and Manville Sales Corp. v. Paramount Systems, Inc., 917 F.2d 544, 554 (Fed. Cir. 1990). These “inducement cases” involved the not-uncommon situation where a patentee sues not only a party who directly infringes its patent, by, for example, selling the patented product or performing the patented method, but also sues a party who does not itself directly infringe but who “actively induces” the direct infringement. 35 USC §271(b).

Under Hewlett-Packard, to establish liability under section 271(b), the patentee had to show that the accused inducer, with knowledge of the patent, had “actual intent to cause” the acts that are found to have directly-infringed. Hewlett-Packard, 909 F.2d at 1469. But there can be a difference between intending to cause the acts that are accused of infringement and further intending (or believing) that those acts indeed constitute infringement. Hewlett-Packard had left unclear whether liability under section 271(b) required this further aspect of intent, and if so, whether good-faith reliance on a non-infringement opinion of counsel could negate the existence of any such intent and thus provide a defense to liability under §271(b).

Hewlett Packard presented a traditional scenario in which a corporate defendant is accused of inducing customers to directly infringe a patent. Although the Federal Circuit had not directly addressed the intent questions left open by Hewlett Packard in that context, two panels of the Court had held that, at least in situations where corporate officers had been accused of personal liability for inducing their own corporations to directly infringe the patent, liability did require a further showing of intent — the intent that the patent actually be infringed. In Manville Sales, 917 F.2d 544, 553 (Fed. Cir. 1990), the Court held that a patentee must show not only that the accused corporate officer caused the corporation to commit the acts alleged to constitute infringement, but also that “the defendant possessed specific intent to encourage [an] infringement.” A similar level of proof was required in Micro Chem., Inc. v. Great Plains Chem. Co., 194 F.3d 1258, 1261 (Fed. Cir. 1999).

In both cases, although the corporations themselves were found to have directly infringed, the accused corporate officers were found not to be personally liable under section 271(b), in part because the officers had relied, in good faith, on counsel opinions that the corporate conduct would not be an infringement. See Manville Sales, 917 F.2d at 554; Micro Chem., 194 F.3d at 1261. Holding corporate officers personally liable for the infringements of their corporations had always required special proof — that the officer, inter alia, was the “moving, active, conscious force” behind the corporate acts. Power Lift Inc. v. Lang Tools, Inc., 774 F.2d 478, 481 (Fed. Cir. 1985). Thus, the opinion-of-counsel shields in Manville Sales and Micro Chem. were seen by some as limited to this particular context of the personal liability of corporate officers.

Almost five years ago, Woodcock Washburn LLP partners Gary Levin and Paul Milcetic recognized the possibilities now established by DSU Medical in an article entitled “Recent Cases Raise Possibility of Opinion of Counsel Defense to Inducement.”¹ Until now, however, it was not entirely clear whether the panel decisions discussed in that article were indeed conflicting, merely a manifestation of different facts (i.e., corporate versus personal liability), or a cogent and reconcilable body of law.

The Federal Circuit has now, however, resolved the “conflicting precedent,” by holding, as was stated in Manville Sales, that “the alleged infringer must be shown . . . to have knowingly induced infringement, not merely knowingly induced the acts that constitute direct infringement.” DSU Medical (citations omitted; emphasis original).

In doing so, the en banc Court relied on the Supreme Court’s recent copyright decision Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 125 S.CT. 2764 (2005), which discussed inducement of infringement, stating:

The rule on inducement of infringement as developed in the early cases is no different today. Evidence of “active steps . . . taken to encourage direct infringement,” such as advertising an infringing use or instructing how to engage in an infringing use, show an affirmative intent that the product be used to infringe, and a showing that infringement was encouraged overcomes the laws reluctance to find liability when a defendant merely sells a commercial product suitable for some lawful use.

Grokster, 125 S. Ct. at 2779 (citing Water Technologies Corp. v. Calco, Ltd., 850 F.2d 660 (Fed. Cir. 1988); footnote omitted). The high court stated that “[t]he inducement rule . . . premises liability on purposeful, culpable expression and conduct .” Id.

The Federal Circuit cites Grokster as validating its own “articulation of the state of mind requirement for inducement under Manville Sales,” where it had explained its “knowing” requirement as follows:

It must be established that the defendant possessed specific intent to encourage anothers infringement and not merely that the defendant had knowledge of the acts alleged to constitute inducement. The plaintiff has the burden of showing that the alleged infringers actions induced infringing acts and that he knew or should have known his actions would induce actual infringements.

DSU Medical, quoting Manville Sales, .917 F.2d at 553. Thus, a good faith belief, arising from reliance on an objectively reasonable opinion of counsel, that there will be no direct infringement can provide a defense to a charge of inducing infringement by negating the now-clearly-required intent to infringe.

Sources

1   Woodcock Washburn Patent Law Perspectives, Fall 2002

The Rise of Extraterritoriality in US Patent Law Under 35 USC 271(f)

 
Noreen Krall serves as Chief Patent Counsel, and Melissa Haapala as Senior Patent Counsel, at Sun Microsystems Inc. Disclaimer: The views expressed in this paper are those of the authors and are not necessarily shared by Sun Microsystems.

Introduction

Prior to 1984, liability for patent infringement under the “make” provision of 35 U.S.C. Ã?§ 271(a) could only be found if a patented invention was made entirely within the United States. The United States Supreme Court made this abundantly clear in Deepsouth Packing Co. v. Laitram Corp., in which it held that Deepsouth could not be held liable under United States patent law for exporting components that were then assembled overseas.¹  Thus, Congress enacted 35 U.S.C. Ã?§ 271(f) as part of the “Patent Law Amendments Act of 1984” to close this “loophole” in U.S. patent law. In recent cases, liability under 271(f) has been extended to manufacturers of software. The expansion to software has caused some concern to Information Technology (“I.T.”) companies and may result in some unintended consequences to the technology industry.

Deepsouth

In 1972, the U.S. Supreme Court considered whether the patent laws prevented Deepsouth Packing from exporting its unassembled shrimp deveiners outside the United States.²  Laitram Corporation held valid U.S. patents that prevented Deepsouth from making or selling its shrimp deveiners throughout the United States.³  Deepsouth also shipped its shrimp deveiners to foreign customers in three boxes, which each contained parts of the 1 3/4 ton machines.⁴  The parts could then be assembled into a complete shrimp deveiner in less than one hour.⁵  Deepsouth contended that Laitram’s U.S. patents were not infringed as the “making” and the “use” of the machine took place outside the United States.⁶  The Supreme Court ruled in favor of Deepsouth. It held that the then existing version of 35 U.S.C. Ã?§ 271 “makes it clear that it is not an infringement to make or use a patented product outside of the United States.”⁷  The Court refused to endorse the idea that substantial manufacture of machine parts constituted direct infringement because a combination patent protects only against the “operable assembly of the whole and not the manufacture of its parts.”⁸  In his dissenting opinion, Justice Blackmun took exception to the “iniquitous and evasive nature of Deepsouth’s operations.”⁹  The dissent echoed the same concerns that were raised in the Fifth Circuit’s opinion that to hold in favor of Deepsouth would subvert the Constitutional patent scheme because it would allow an infringer “to set up shop next door to a patent-protected inventor” and deprive the inventor of valuable foreign business.¹⁰  As it turned out, Congress also had the same concerns.

Patent Law Amendments Act of 1984

On November 9, 1984, President Ronald Reagan signed H.R. 6286, also known as the “Patent Law Amendments Act of 1984” into law. The Patent Law Amendments Act of 1984 added 35 U.S.C. Ã?§ 271(f) to U.S. patent law. Section 271(f) states:

(1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a matter that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer. (2) Whoever without authority supplies or causes to be supplied in or from the United States any component of a patent invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.¹¹

In referring to 271(f), President Reagan stated that it “closes a loophole in existing law which permitted copiers to export jobs and avoid liability by arranging for final assembly of patented machines to occur offshore.”¹²  Thus, 271(f) was enacted specifically in response to the Supreme Court’s decision in Deepsouth.

Expansion to Software

When 271(f) was enacted, a CD referred to a certificate of deposit and the widespread adoption of software applications was merely a vision in the minds of a few people. However, in recent years, the courts have had to grapple with the application of 271(f) to technologies that were barely in existence in 1984. In 2005, the Federal Circuit issued two landmark decisions specifically addressing the application of 271(f) to exportation of a “golden master” disk containing software code. The Federal Circuit addressed in Eolas Technologies v. Microsoft whether software code made in the United States and exported abroad is a component under 271(f).¹³  The district court found Microsoft’s Windows operating system with Internet Explorer infringed Eolas’ patent and awarded Eolas royalty damages for both foreign and domestic sales of Windows with IE.¹⁴  The liability for the foreign sales was found under 271(f) based on Microsoft’s exportation of a limited number of golden master disks, which contained the software code for the Windows operating system.¹⁵  The disks were used by Original Equipment Manufacturers (OEMs) located abroad to replicate the Windows operating system onto computer hard drives for sale outside of the United States.¹⁶  None of the golden master disks themselves ended up as a physical part of the products sold outside the U.S..¹⁷  The Federal Circuit found that the statutory language “patented invention” in 271(f) is a “broad and inclusive term.”¹⁸  Thus, the Court determined that “every form of invention eligible for patenting falls within the protection of section 271(f)” and 271(f) was not limited to machines or physical structures.¹⁹  In particular, the Court unambiguously stated that “the language of section 271(f) does not impose a requirement of ‘tangibility’ on any component of a patented invention.”²⁰  Since the software code on the golden master disk was exactly duplicated as an operating element on the ultimate devices sold abroad, the Court found that the exported software code was not only a component, but “a key part of the patented invention.”²¹  Accordingly, the Federal Circuit affirmed the district court and held that software code on golden master disks indeed is within the scope of “components” under 271(f).²²  Section 271(f) also imposes a requirement that the components of a patented invention be “supplied” from the United States. A few months after deciding Eolas, the Federal Circuit addressed this issue in yet another case involving Microsoft’s exportation of golden master disks in ATT Corporation v. Microsoft Corporation.²³  The facts of ATT are similar to Eolas in that Microsoft was appealing a district court finding of liability under 271(f) for foreign sales of replicated copies of its Windows operating system made abroad from golden master disks exported from the United States.²⁴  Microsoft contended that liability under 271(f) did not attach for the foreign-replicated copies because they were not supplied from the United States.²⁵  A panel of two Federal Circuit judges rejected Microsoft’s argument by reasoning that supplying software commonly involves generating a copy.²⁶  Thus, the court found that for software components, “the act of copying is subsumed in the act of ‘supplying’, such that sending a single copy abroad with the intent that it be replicated involves Ã?§ 271(f) liability for those foreign-made copies.”²⁷  The court also rejected Microsoft’s argument that software sent by electronic transmission must be treated differently from software shipped on disks.²⁸  Instead, the Court specifically stated “whether software is sent abroad via electronic transmission or shipped abroad on a ‘golden master’ disk is a distinction without a difference for the purposes of Ã?§ 271(f) liability.”²⁹  Therefore, the Federal Circuit affirmed the district court’s holding of liability under 271(f).³⁰

Implications to IT Companies

The Supreme Court recently granted Microsoft’s request for a writ of certiorari appealing the Federal Circuit’s decision in ATT v. Microsoft. The issues presented to the Supreme Court are:

1)Whether software object code can be a component of a patented invention; and, if so, 2) Whether copies of software object code are “supplied” from the United States when those copies are created overseas by replicating a separate master version supplied from the United States.

Microsoft’s petition for a writ of certiorari was supported by the the U.S. Solicitor General.³¹  In its amicus curiae brief, the Solicitor General stated that “the questions presented have substantial ongoing practical importance.”³²  An amicus brief in support of certiorari was also filed by the Software & Information Industry Association.³³  The Association stated in its brief that “The Federal Circuit’s decision is especially harmful to America’s high-technology sector.”³⁴  One major concern of the technology industry is that the expansion of liability under 271(f) to golden master disks in effect creates potential worldwide liability for software manufacturers under United States patent law. Companies cannot export any software created by their U.S. based research and development operations without exposing themselves to patent liability for all worldwide sales under 271(f). Thus, the expansion of liability under 271(f) for all foreign sales of software could force some I.T. companies to relocate their research and development activities outside of the United States, which directly conflicts with the stated intent of this provision when enacted in 1984. Additionally, as recognized by the Solicitor General, U.S. companies may find themselves at a substantial competitive disadvantage in foreign markets because their foreign competitors do not run afoul of the risk of global liability under U.S. patent law for their activities.³⁵  Indeed, as many countries do not recognize software patents, the foreign competitors may not be subject to any patent liability. This may prevent some U.S. companies, especially smaller companies, from being able to compete at all in foreign markets.

Conclusion

35 U.S.C. Ã?§ 271(f) was enacted specifically to close a loophole in patent law brought about by the Supreme Court’s decision in Deepsouth finding no liability under U.S. patent law for exporting components of a physical device which were then assembled overseas. The concern was that an infringer could simply copy the patented invention and then subvert U.S. patent law by exporting components of the invention for simple assembly in foreign countries. Recently, the Federal Circuit has expanded the application of 271(f) to copies of software made abroad from software exported from the United States as a golden master disk or electronically. However, unlike the simple patented machine at issue in Deepsouth, a software manufacturer cannot merely read a software patent and then be able to copy the software product and thus steal the patent holder’s foreign business. Hundreds of patents could apply to a single software product, which may have taken years to develop. Instead of promoting “the Progress of Science and useful Arts”³⁶ , the unlimited global liability now faced by U.S. software manufacturers may only cause economic damage to the U.S. technology industry and inhibit the ability of U.S. companies to compete internationally.

Sources

1   Deep South Packing Co. v. Laitram Corp., 406 U.S. 518 (1972). 2   Id. at 520. 3   Id. at 523. 4   Id. at 524. 5   Id. 6   Id. 7   Id. at 527. 8   Id. at 528. 9   Id. at 533. 10   Id. at 534 (quoting Laitram Corp. v. Deepsouth Packing Co., 443 F.2d 928 (5th Cir. 1971)). 11   35 U.S.C. Ã?§ 271(f). 12   Statement on Signing the Patent Law Amendments Act of 1984, 20 Weekly Comp. Pres. Doc. 1818 (November 9, 1984). 13   Eolas Tech. Inc. v. Microsoft Corp., 399 F.3d 1325 (Fed. Cir. 2005), cert. denied, 2005 U.S. LEXIS 8184 (Oct. 31, 2005). 14   Id. at 1332. 15   Id. at 1331. 16   Id. 17   Id. 18   Id. at 1338. 19   Id. at 1339. 20   Id. at 1340. 21   Id. at 1339. 22   Id. at 1341. 23   AT&T Corp. v. Microsoft Corp., 414 F.3d 1366 (Fed. Cir. 2005), cert. granted, Microsoft Corp. v. AT&T Corp. (U.S. Oct. 27, 2006) (No. 05-1056). 24   Id. at 1368. 25   Id. at 1369. 26   Id. at 1370. 27   Id. 28   Id. 29   Id. at 1371. 30   Id. at 1372. 31   Brief for the U.S., Microsoft Corp. v. AT&T Corp. (No. 05-1056). 32   Id. at 17. 33   Brief of the Software & Info. Indus. Ass’n, Microsoft Corp. v. AT&T Corp. (No. 05-1056). 34   Id. at 13. 35   See Brief for the U.S. at 18. 36   U.S. Const. Art. I. Ã?§ 8.

eBay Inc. v. MercExchange: Copyright’s Promise for Patent Injunctions

 

I. Introduction

In eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006), the United States Supreme Court affirmed the application to patent law of the traditional four factors a plaintiff must show when seeking an injunction, overruling the Federal Circuit�s practice of awarding such injunctions in all but exceptional circumstances. The Supreme Court suggested that its decision harmonized patent law with the approach taken in copyright law. This article examines copyright jurisprudence to determine what effect the application of that approach would have on requests for patent injunctions.

II. Discussion

A. eBay Inc. v. MercExchange: Patent Injunctions Like Copyright Injunctions

In eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006), the Supreme Court affirmed the application of the traditional four-factor test and set out the elements a plaintiff must show to obtain a permanent injunction:

[A] plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.

Id. at 1839. In so doing, the Supreme Court rejected the approaches of both the district court and the Federal Circuit. The district court “concluded that a ââ?¬Ë?plaintiffââ?¬â?¢s willingness to license its patentsââ?¬â?¢ and ââ?¬Ë?its lack of commercial activity in practicing the patentsââ?¬â?¢ would be sufficient to establish that the patent holder would not suffer irreparable harm if an injunction did not issue.” Id. at 1840 (internal citations omitted). The Supreme Court held that “traditional equitable principles do not permit such broad classifications.” Id. The Federal Circuit, on the other hand, “articulated a ââ?¬Ë?general rule,ââ?¬â?¢ unique to patent disputes, ââ?¬Ë?that a permanent injunction will issue once infringement and validity have been adjudged.ââ?¬â?¢” Id. at 1841 (internal citations omitted). The Supreme Court held that “[j]ust as the District Court erred in its categorical denial of injunctive relief, the Court of Appeals erred in its categorical grant of such relief.” Id. In arriving at these holdings, the Court suggested it was harmonizing patent and copyright law:

This approach is consistent with our treatment of injunctions under the Copyright Act… . And as in our decision today, this Court has consistently rejected invitations to replace traditional equitable considerations with a rule that an injunction automatically follows a determination that a copyright has been infringed.

Id. at 1840.

B. What Does Copyright Jurisprudence Teach Us?

1. Injunctive Relief Is Often Granted.

Copyright jurisprudence suggests that eBay may not work a dramatic change in the availability of injunctive relief, however. Of the four factors the eBay court required a plaintiff to show on a motion for a permanent injunction, prevailing copyright jurisprudence allows the plaintiff a greatly reduced burden on each. Irreparable injury. The prevailing view is that, “[i]n a copyright infringement action,… a showing of a reasonable likelihood of success on the merits raises a presumption of irreparable harm.” LGS Architects, Inc. v. Concordia Homes of Nev., 434 F.3d 1150, 1155-56 (9th Cir. 2006); see also Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1254 (3d Cir. 1983) (overturning district court for its “fail[ure] to consider the prevailing view that a showing of a prima facie case of copyright infringement or reasonable likelihood of success on the merits raises a presumption of irreparable harm”). Damages inadequate. It is also the prevailing view that monetary damages, even when uncontested, are inadequate to compensate for copyright infringement:

Because Taylor had a legal remedy available to it, i.e., uncontested damages in the amount of $45,976.95, the question then becomes whether Taylor was entitled to seek purely equitable relief in the form of a permanent injunction. It is well-established that a party is entitled to equitable relief only if there is no adequate remedy at law. However, in copyright infringement actions, the denial of a request for injunctive relief could otherwise amount to a forced license to use the creative work of another. Taylor certainly has the right to control the use of its copyrighted materials, and irreparable harm inescapably flows from the denial of that right. We therefore hold Taylor was entitled to seek only injunctive relief, despite the availability of uncontested damages.

Taylor Corp. v. Four Seasons Greetings, LLC, 403 F.3d 958, 967 (8th Cir. 2005) (emphasis added; internal citations and quotation marks omitted); see also Cadence Design Sys. v. Avant! Corp., 125 F.3d 824, 827 (9th Cir. 1997) (“[A]vailability of money damages is not a reason to deny injunctive relief.”). Hardship balance. Copyright law likewise gives short shrift to a defendantââ?¬â?¢s complaints as to the burdens imposed by permanent injunctive relief:

[E]ven assuming the injunction would have… a devastating effect on [the defendant], the judge adopted the reasoning of other courts that a knowing infringer cannot be permitted to construct its business around its infringement… . [T]he district judge adopted the view that the potential injury to an allegedly infringing party caused by an injunction merits little equitable consideration and is insufficient to outweigh the continued wrongful infringement. We agree that placing too much weight on this factor would reward infringers.

Autoskill, Inc. v. Natââ?¬â?¢l Educ. Support Sys., 994 F.2d 1476, 1499 (10th Cir. 1993). Public interest. Finally, courts have held that “[s]ince Congress has elected to grant certain exclusive rights to the owner of a copyright in a protected work, it is virtually axiomatic that the public interest can only be served by upholding copyright protections and, correspondingly, preventing the misappropriation of the skills, creative energies, and resources which are invested in the protected work.” Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1254-55 (3d Cir. 1983). As is evident, then, the application of copyright jurisprudence would not appear to yield substantially different results than the approach exemplified in the Federal Circuit opinion eBay overturned.

2. Copyright Injunctions Are Nevertheless Sometimes Denied.

That is not to say copyright injunctions are granted automatically. eBay itself rejects such a proposition. See eBay, 126 S. Ct. at 1840. (“[T]his Court has consistently rejected … a rule that an injunction automatically follows a determination that a copyright has been infringed.”). Injunctive relief is sometimes denied in the following circumstances: No risk of future infringement. “[I]njunctive relief ordinarily will not be granted… when there is no probability or threat of continuing or additional infringements.” 4 Nimmer on Copyright Ã?§ 14.06[B] (2006); see also Harolds Stores v. Dillard Depââ?¬â?¢t Stores, 82 F.3d 1533, 1556 (10th Cir. 1996) (“Because Haroldââ?¬â?¢s has failed to demonstrate a threat of continuing infringement, it is not entitled to a permanent injunction… .”). That said, “[t]he requirement that a the plaintiff show a likelihood of continued infringement is not particularly rigorous… and courts generally resolve any doubts about future infringement in favor of granting injunctive relief.” 2 Goldstein on Copyright Ã?§ 13.2.1.1 (3d ed. 2005). Credible (but ultimately unsuccessful) fair use defense. Courts tend to treat cases involving a credible fair use defense more carefully, because of the potential First Amendment issues involved. The Supreme Court itself has cautioned:

Because the fair use enquiry often requires close questions of judgment as to the extent of permissible borrowing in cases involving parodies (or other critical works), courts may also wish to bear in mind that the goals of the copyright law, ââ?¬Ë?to stimulate the creation and publication of edifying matter,ââ?¬â?¢ are not always best served by automatically granting injunctive relief when parodists are found to have gone beyond the bounds of fair use.

Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 578 n.10 (1993) (dicta); compare with Video Pipeline, Inc. v. Buena Vista Home Entmââ?¬â?¢t, Inc., 342 F.3d 191, 207 (3rd Cir. 2003) (granting injunction over verbatim copying because fair use not implicated, citing Campbell). Minimal Contribution to Infringing Work. Some courts have denied injunctive relief where the plaintiffââ?¬â?¢s copyrighted element contributes little to the infringing work. Silverstein v. Penguin Putnam, Inc., 368 F.3d 77, 84 (2d Cir. 2004) (“[A]ny protectible interest Silverstein may have would be so slight that it cannot properly be enforced by a preliminary or permanent injunction.”); see also Dun v. Lumbermenââ?¬â?¢s Credit Assââ?¬â?¢n, 209 U.S. 20, 23-24 (1908) ([“T]he proportion is so insignificant compared with the injury from stopping appelleesââ?¬â?¢ use of their enormous volume of independently acquired information, that an injunction would be unconscionable. In such cases the copyright owner should be remitted to his remedy at law.”). Various commentators speak favorably of this approach. See, e.g., 4 Nimmer on Copyright Ã?§ 14.06[B] (discussing Silverstein with approval); Goldstein on Copyright Ã?§ 13.2.1.1 (noting that injunction against work in which copyrighted portion plays small part may allow copyright holder to inappropriately extract “some of the workââ?¬â?¢s value that is attributable to the defendantââ?¬â?¢s independent effort”). These grounds may help to predict the scope of future patent jurisprudence. Indeed, one of the first opinions to date that directly addresses eBay in this context denied injunctive relief on the grounds that: (i) the patented technology played a very small role in defendantââ?¬â?¢s products; and (ii) the defendant intended to phase out its use of the technology in its next product release. z4 Techs., Inc. v. Microsoft Corp., No. 6:06-CV-142, 2006 U.S. Dist. LEXIS 40762, *3, *8 (E.D. Tex. June 14, 2006); see also 3M Innovative Props. Co. v. Avery Dennison Corp., No. 01-1781, 2006 U.S. Dist. LEXIS 70263, *4-*5 (D. Minn. Sept. 25, 2006) (granting injunction in light of plaintiffââ?¬â?¢s consistent refusal to license patent, citing eBay); Voda v. Cordis Corp., No. CIV-03-1512-L, 2006 U.S. Dist. LEXIS 63623, *18 (W.D. Okla. Sept. 5, 2006) (denying injunction because plaintiff “failed to demonstrate either irreparable injury or that monetary damages are inadequate” and, in light of eBay was no longer entitled to any presumption of such); Paice LLC v. Toyota Motor Corp., No. 2:04-CV-211-DF, 2006 WL 2385139 (E.D. Tex. Aug. 16, 2006) (denying injunction, citing eBay, z4 Techs.); Finisar Corp. v. DirecTV Group, No. 1:05-CV-264, 2006 U.S. Dist. LEXIS 76380, *4 (E.D. Tex. July 7, 2006) (denying injunction).¹

C. What Does eBay Teach Copyright Jurisprudence?

It is notable that the z4 Techs. court was offered the copyright apple, but declined to bite:

z4ââ?¬â?¢s arguments for the application of a presumption of irreparable harm [based on copyright jurisprudence] are creative, but z4 cannot cite to any Supreme Court or Federal Circuit case that requires the application of a rebuttable presumption of irreparable harm with regard to a permanent injunction. In Amoco Production, the Supreme Court stated that applying a presumption of irreparable harm in the context of an injunction “is contrary to traditional equitable principles.”… z4ââ?¬â?¢s suggestion, that the right to exclude creates a presumption of irreparable harm, is not in line with the Supreme Courtââ?¬â?¢s holding, which mandates that courts balance the traditional principles of equity when considering the remedy of a permanent injunction in patent cases. Accordingly, the Court does not apply a presumption of irreparable harm.

z4 Techs., 2006 U.S. Dist. LEXIS 40762, *6-*7 (citations omitted). This decision suggests that a contrary result could obtain: instead of copyright jurisprudence hamstringing the promise of eBay, eBay could signal an end to the easy ride copyright plaintiffs have gotten. The only instructive copyright cases are at loggerheads:

• Tillery v. Leonard & Sciolla, LLP, No. 05-6182, 2006 U.S. Dist. LEXIS 38145 (E.D. Pa. June 9, 2006), noted that eBay “casts doubt on the continued validity” of the view that “[i]f ââ?¬Ë?the plaintiff makes a strong showing of likely confusion [on a federal unfair competition claim], irreparable injury follows as a matter of course.ââ?¬â?¢”
• Disney Enters., Inc. v. Delane, No. DKC 2005-1291, 2006 U.S. Dist. LEXIS 59076, *12-*14 (D. Md. July 28, 2006), citing eBay, likewise required the plaintiff to meet each of the four factors before granting an injunction. See also Lava Records, LLC v. Ates, No. 05-13142006 U.S. Dist. LEXIS 46683 (W.D. La. July 11, 2006) (same).
• Busch v. Seahawk Software Dev., L.L.C., No. CV 04-0425-PHX-PGR, 2006 U.S. Dist. LEXIS 39484, *13-*14 (D. Ariz. June 12, 2006), on the other hand, cited eBay, then nevertheless dutifully granted injunctive relief, based on the presumptions concerning irreparable harm, adequacy of damages, balance of hardships, and public interest in favor of the copyright holder where infringement is shown.
• CBS Broad., Inc. v. EchoStar Communs. Corp., 450 F.3d 505, 518 (11th Cir. 2006), cited eBay in an unrelated portion of the opinion, then went on to hold that “[u]nder the Copyright Act… a plaintiff need not show irreparable harm in order to obtain a permanent injunction, so long as there is past infringement and a likelihood of future infringement.”

III. Conclusion

Many commentators have reacted to the eBay decision with a prediction that it will result in the issuance of fewer injunctions in patent cases. While that result cannot help but obtain (in that such injunctions were previously all but automatic), copyright jurisprudence suggests that injunctive relief will still be a very common result of a finding of infringement. That said, only time will tell eBayââ?¬â?¢s true effect. The first decision in its wake ââ?¬â?? z4 Techs. ââ?¬â?? suggests perhaps that instead of copyright jurisprudence acting to insure patent injunctive relief remains common, patent jurisprudence may work to make copyright injunctions less so.

Notes

1  Compare with Litecubes, L.L.C. v. N. Light Prods., Inc., No. 4:04CV00485 ERW, 2006 U.S. Dist. LEXIS 60575 (E.D. Mo. Aug. 25, 2006) (granting injunction); TiVo Inc. v. EchoStar Comms. Corp., No. 2:04 CV 1 DF., 2006 WL 2398681 (E.D. Tex. Aug. 17, 2006) (same); Telequip Corp. v. Change Exch., 5:01-CV-1748, 2006 U.S. Dist. LEXIS 61469 (N.D.N.Y. Aug. 15, 2006) (citing eBay, but then granting injunction because “monetary damages are not an adequate remedy against future infringement because the principal value of a patent is its statutory right to exclude,” relying on pre-eBay cases). A prior version of this article appeared in IPLaw 360 on August 30, 2006.