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Are patent trolls holding up innovation?; Terry College of Business @ UGA;

It’s a decision faced by inventors — and their attorneys: Is it better for them to sit on their patent or produce the product? Research by Terry College of Business economics professor John Turner shows that these so-called patent trolls thwart innovation if they decide squatting on their patents could produce a bigger payoff when a company uses their patented idea. “You wait around and see if somebody will use it, and then when they do, you attempt to enforce your right to exclude them from doing that. But the real goal is to extract some payment,” he said. The payment could come in the form of a licensing agreement with royalties or damages resulting from litigation. About two-thirds of the patent lawsuits are filed by patent trolls, which is the term used for “non-practicing entities.” The result is the “unproductive entrepreneurship effect,” which results in a lower rate of innovation, according to Turner’s research, which appeared in the January 2018 International Journal of Industrial Organization. The problem has intensified in the last 20 years because of the proliferation of information technology, Turner said. Think about making a smartphone: It’s difficult for an individual firm to determine which patents might cover what they do because there are hundreds of components in the design. Samsung and Apple, for example, continue to battle in court over design patents. Even free Wi-Fi at a coffee shop was a patented idea — and yes, the patent holder sued coffee shop owners in the 1990s. When a person or firm is producing a product they developed, they may use — without realizing it — a patented idea of a complementary piece of technology to create their innovation. In addition, patents are sometimes written in an esoteric language and are meant to be vague, he said. “Sometimes they’re never going to be completely sure if they’re infringing on someone else’s patent,” he said. That’s why Turner questions in his paper if it’s a good idea to have firms discover and develop innovations to a point of receiving a patent but not make any products. “Are they actually adding value, or are they more trouble than they’re worth because they’re making innovation costly for others?” he said.

IP consulting and law firm; What are patent trolls, and how do they affect innovation?; https://www.dennemeyer.com/ip-blog/news/what-are-patent-trolls-and-how-do-they-affect-innovation/

Victims of patent trolls suffer serious impacts, including significant market losses, waylaid research and legal or reputational costs. Faced with these consequences, defendants and their peers often change tack in one of two ways. The first option is to increase innovation. A current or potential victim may boost research and development spending to work around exerted patent claims and limit future troll behavior. However, as found by the Canadian study, this activity often creates fewer or lower-value patents. It is reasonable to hypothesize that rushed or panicked developments completed under legal threat do not meaningfully benefit the state of the art. The second approach is to reduce innovation activities in response to patent trolling. A victim may feel cornered or restricted, forced to abandon a particular product, process or line of investigation. Much like the first response, this reduces market diversity and hurts the balance of competition. In turn, this can increase prices for consumers while fostering monopolies for companies better able to resist or weather unfair practices. Naturally, the disadvantage is significantly skewed toward smaller entities, whose limited reach and resources make them softer prey.

Filippo, Associate Professor of Finance @ Northwestern. "Roadblock to Innovation: The Role of Patent Litigation in Corporate R&D", Technology and Policy Research Initiative, 1-7-2019, https://sites.bu.edu/tpri/2019/01/07/roadblock-to-innovation-the-role-of-patent-litigation-in-corporate-rd/ LJS

A new paper examines the effects on innovation after the Supreme Court’s 2006 decision in eBay v. MercExchange. Before eBay, courts would almost automatically enjoin patent infringers from any further use or sale of an infringing product or service. After eBay, courts had the discretion to allow the infringer to continue to use or sell an infringing product and award money damages instead. Since an injunction could stop an entire product or even shut down a company, the relaxation of the injunction rule reduced the risk to defendant firms in patent litigation and limited the power of patent trolls’ threat of an injunction.¶ Filippo Mezzanotti, assistant professor of finance at Northwestern’s Kellogg School of Management and fellow at TPRI, asks what effect this new rule had on innovation. Several findings stand out.¶ First, the share price of so-called “patent trolls” dropped significantly, both on the day of the decision and over the next month, since they would no longer have the powerful threat of injunctions to use in patent litigation to extract large settlements or licensing agreements. At the same time, firms that operated in technology areas with higher levels of patent litigation before eBay tended to see their stock prices increase the day that eBay was announced. These stock price movements suggest that the market had not anticipated the eBay decision, and that the market expected it to harm patent trolls and result in less future patent litigation for those companies often having to defend patents in court.¶ Second, Mezzanotti compared the patenting activity of firms operating in highly-litigated technologies with that of firms in technologies without as much litigation; the more litigious industries would be those most affected by the eBay decision. He found that firms with more exposure to patent litigation pre-eBay filed more patent applications after eBay than those in other industries. While the average quality of patents remained stable (as measured by citations in other patents), firms were actually more likely to develop “breakthrough” technologies, i.e., patents in the top 10% of cited patents for its technology class. The eBay decision freed up innovative firms to focus on true innovation, rather than litigating patents.

Joe, has covered the intersection of law and technology at The American Lawyer, The Seattle Times, The Associated Press, Wired, and Agence France-Presse. "Supreme Court sends off patent troll that challenged review rules with an 8-0 slapdown", Ars Technica, 6-23-2016, https://arstechnica.com/tech-policy/2016/06/how-a-patent-troll-brought-its-color-shifting-speedometer-to-the-supreme-court/ LJS

Patent trolls don't fare well at the Supreme Court. When they show up, their cases tend to result in decisions that are ruinous for the profit margins of their industry. Two prominent examples: the 2006 eBay v. MercExchange case effectively ended trolls' abilities to get injunctions, and the 2014 Alice Corp. case made it far easier for patent defendants to invalidate abstract software patents.¶ And yet, the cases keep coming. The most recent example is Cuozzo Speed Technologies LLC v. Lee, a case that was resolved earlier this week with an 8-0 opinion dismantling arguments presented by Cuozzo, a patent-holding entity controlled by two New York patent lawyers, Daniel Mitry and Timothy Salmon. The two attorneys own dozens of other patent shell companies through their consultancy, Empire IP.¶ What were Mitry and Salmon hoping for? Using the Cuozzo case as their vehicle, they hoped to tweak changes in the rules for "inter partes reviews," or IPRs, a proceeding created by Congress in 2012 that allows the patent office to take a second look at patents to see if they should never have been issued in the first place. While the tech sector still seeks legislative reform to end the spate of "patent troll" lawsuits, IPRs have been an effective way to shut down some patent cases at a fraction of the cost of a full-blown court trial.¶ The two patent lawyers didn't get the rule change they were looking for. Instead, they were on the receiving end of a resounding 8-0 opinion written by Justice Stephen Breyer, arguably the justice most incensed by the patent troll business model.¶ The main issue in the Cuozzo case was a wonky one about standard of proof. When the US Patent and Trademark Office takes a second look at a patent through the IPR process, it uses a standard called the "broadest reasonable interpretation" (or BRI) to decide what the claims mean. Under the "broadest reasonable" standard, a whole lot of prior art can be brought in to potentially beat the patent. Cuozzo's lawyers argued that the Patent Office shouldn't be allowed to use that standard and instead should use a narrower one used in district courts.¶ The fact that the Cuozzo case even went this far says more about the business of patent trolling than it does about the state of the law. Lawyers like Mitry and Salmon, who specialize in finding old patents that can be enforced against modern products, are still making plenty of money. But there's mounting evidence that the IPR process, combined with recent legal rulings that favor patent defendants, has cut into their profits. In fact, IPRs have been effective enough that any opportunity to limit or destabilize them looks good. The Cuozzo attack failed completely, and the status quo will stand. But it's worth taking a look at the origins of this patent and how the high court sent the trolls home.¶ A speeding ticket, an idea, a patent¶ On November 28, 1999, a young New Jersey auto technician named Giuseppe Cuozzo got a speeding ticket. "I was driving my VW in New York on an unfamiliar road," he explained in a 2013 declaration submitted during the IPR proceeding. "I did not see any speed limit signs indicating the speed limit, however, I was pulled over and ticketed by a police officer for speeding."¶ That, he says, spurred an idea: combining GPS technology with a speedometer to let a driver know whether he or she was speeding, "without requiring the driver to refer to roadside speed limit signs."¶ In October 2000, Cuozzo, then 19 years old, walked into the office of a local company called Invention Submission Corporation. ISC promised it could help him get a patent, and the company charged $875 for a patentability search and opinion. Cuozzo didn't have the cash, so he put $250 down and signed an agreement to pay the rest in installments, with 10 percent interest. (In all, he paid $1,522.43 for the search and opinion.)¶ Together with the down payment, Cuozzo submitted a four-page document (PDF) outlining his invention. Cuozzo had seen GPS navigation systems in certain BMW cars he'd worked on. He described combining a GPS system with a CD-ROM database of street names and speed limits; the speedometer would then change color to red when a driver was over the limit.¶ The hand-written "Description of Invention" is earnest and heartfelt, although riddled with spelling and grammatical errors. Cuozzo writes that his invention will be created with "wireing, lighting and progaming" and will "keep you for speeding or from geting a summons," and thus "will pay for its safe."¶ That was good enough for the Kaardal law firm, which told Cuozzo that "patent protection could potentially be obtainable for your invention." The patent referral service would cost $9,945—far more than Cuozzo could pay. "My only option was to use money that was in a trust account set up by my parents when I was a child," he explained in the declaration. "Gathering that money from the trust account and convincing my parents that I needed to do that took a few months."¶ On March 18, 2002, Cuozzo filed a patent application, with his mother covering the $370 filing fee. Two years later, it would issue as US Patent No. 6,778,074.¶ There's no record Cuozzo did much with his patent for the next eight years. In 2012, he sold it to Salmon and Mitry, who put it into Empire IP, their growing patent trolling company. They created Cuozzo Speed Technologies LLC, a shell company whose sole asset was Cuozzo's patent.¶ Cuozzo Speed Technologies promptly filed several lawsuits in New Jersey, saying that modern GPS navigation systems infringed Cuozzo's patent rights. JVC, TomTom, Garmin, GM, and Mazda were all named as defendants. In 2014, a new batch of lawsuits was filed in the patent hotspot of East Texas, seeking royalty payments from Motorola, Verizon, and Fullpower Technologies over navigation products.¶ Mitry and Salmon didn't respond to requests for an interview for this story. Salmon also declined an interview from Ars earlier this year when the Supreme Court agreed to take up the Cuozzo case. Cuozzo couldn't be reached.¶ Mr. Cuozzo Goes to Washington¶ The IPR process was created in 2012, and Garmin, one of Cuozzo's targets, wasted no time in asking the US Patent Office to reconsider Cuozzo's patent. After considering the briefs and hearing a day of argument from lawyers on both sides, the Patent Trial and Appeal Board issued its very first IPR opinion, throwing out claims 10, 14, and 17 of Cuozzo's patent. The panel of three administrative patent judges held that combinations of claims in earlier patents all should have blocked Cuozzo's '074 patent from ever issuing. The judges also denied Cuozzo's motion to amend his claims.¶ Lawyers for Cuozzo appealed to the Federal Circuit, but Garmin was upheld on a 2-1 decision. Cuozzo asked for the whole court to reconsider its argument, but Federal Circuit judges voted 6-5 to let the decision stand. Perhaps seeing that stark division, the Supreme Court agreed to take up the case, where it was argued in April. (Garmin reached a settlement with Cuozzo, but Cuozzo's challenge to IPR rules continued, with USPTO head Michele Lee as the defendant.)¶ Pharmaceutical and biotech trade groups, afraid that the IPR process may damage their most valuable patents, filed briefs siding with Cuozzo. So did various groups of IP lawyers and heavy patent litigants like Interdigital, Tessera, and Trading Technologies Inc.¶ A large group of tech and Internet companies, including Dell, Cisco, Google, and Intel, supported the patent office's current standards, and they asked the court to reject (PDF) Cuozzo's challenge. The case was argued on April 25.¶ On Monday, the court published the 8-0 opinion shutting down Cuozzo. The IPR process is "less like a judicial proceeding and more like a specialized agency proceeding," wrote Breyer for a unanimous court. Anyone can initiate an IPR, even if they haven't been sued or threatened by the patent owner; that's quite different from challenging a patent in court, where proper standing is a strict requirement. He continued:¶ "Construing a patent claim according to its broadest reasonable construction helps to protect the public," Breyer noted. "A reasonable, yet unlawfully broad claim might discourage the use of the invention by a member of the public."¶ "There's no absolute right to amend," nor should there be, Breyer states. Even considering all that, the process "is not as unfair as Cuozzo suggests."¶ Cuozzo also lost 6-2 on a separate issue, about whether or not they should be allowed to appeal a patent office decision to throw two additional claims into review. The majority sided with the patent office, but Justices Samuel Alito and Sonia Sotomayor dissented.¶ The Cuozzo case means that the status quo stands for the IPR process. Even if Cuozzo had somehow won, it's debatable how much difference the changed standard would have made. But the fact that the Patent Office's procedures now have the Supreme Court's seal of approval means that IPRs are here to stay and are being run correctly. That's bad news for patent trolls and their allies and good news for everyone else.

Richard M. Sherman Distinguished Professor of Law, Berkeley Law School

Withholding Injunctions in Copyright Cases: Impacts of eBay; 63 Wm. & Mary L. Rev. 773 (2022), https://scholarship.law.wm.edu/wmlr/vol63/iss3/3

served as U.S. Ambassador to the People’s Republic of China from 2014 until 2017, and as a U.S. Senator from Montana from 1978 until 2014; It’s Time for the U.S. to Tackle Patent Trolls; Harvard Business Review;

Yet, there’s another significant challenge facing our innovation economy, one that often goes under reported. Abusive patent lawsuits against some of our most innovative companies are on the rise, forcing more and more successful businesses to delay hiring new workers, raising wages, and developing new products. Instead, they’re forced to spend money defending themselves against meritless accusations. The wealthy investors who file these abusive lawsuits, and are often referred to as “patent trolls,” buy up portfolios of broad, unused patents that, in many cases, the U.S. Patent & Trademark Office (USPTO) never should have issued in the first place. They then assert the low-quality patents in lawsuits to accuse others of patent infringement – all this even though the patents being asserted will continue to go unused. The impact on American innovation is devastating. According to one study, each year, patent trolls create $29 billion in direct, out-of-pocket costs from the companies they go after. Another study found that the companies that settle with patent trolls, or lose to them in court, wind up reducing investments in research and development by an average of more than $160 million over the next two years. Massive amounts of money are being drained from the hardworking people who are driving our economy forward to instead line the pockets of wealthy investors who are offering no goods or services of their own.

Joe, senior policy analyst at EFF, where he works on patents, encryption, platform liability, and free expression online. "Entrepreneurs Tell USPTO Director Iancu: Patent Trolls Aren’t Just “Monster Stories”", Electronic Frontier Foundation, 2/14/2019. https://www.eff.org/deeplinks/2019/02/uspto-director-iancu-patent-trolls-arent-just-monster-stories LJS

Patent trolls aren’t a thing that happens once in a while or an exception to the rule. Over the past two decades, troll litigation has become the rule. There are different ways to measure exactly what a “troll” is, but by one recent measurement, a staggering 85 percent of recently filed patent lawsuits in the tech sector were filed by trolls.¶ That’s almost 9 out of 10 lawsuits being filed by an entity with no real product or service. Because the Patent Office issues so many low-quality software patents, the vast majority of these suits are brought by entities that played no role in the development of the real-world technology they attack. Instead, trolls use vague and overbroad patents to sue the innovators who create products and services. This is how we end up with patent trolls suing people for running an online contest or making a podcast.¶ Three Steps Forward, Two Steps Back¶ The news isn’t all bad. Reformers have made substantial progress in the fight against patent trolls. A string of positive Supreme Court decisions, beginning with the 2006 eBay v. MercExchange decision, and going on through 2014’s Alice v. CLS Bank ruling, have made it feasible to fight trolls in court. Meanwhile, the America Invents Act created a useful new process for challenging bad patents right in the patent office—the inter partes review. ¶ Supreme Court decisions have made it harder for patent trolls to rope defendants into remote, inappropriate venues like the Eastern District of Texas; easier to award fees against patent owners who abuse the system; and perhaps most importantly, the Alice decision has made it easier to knock out bogus software patents more quickly.

Filippo, Northwestern University Kellogg School of Management; Timothy, Boston University Questrom School of Business and NBER. “Patent policy and American innovation after eBay: An empirical examination.” Volume 48, Issue 5, June 2019, Pages 1271-1281. LJS

In economic theory, “innovation incentives” stand for a wide variety¶ of different types of risky investment. In practice, these investments are¶ notoriously difficult to measure well. Economists who study the subject¶ tend to rely on three available measures: R&D, patents and pro¶ ductivity.16 Each outcome has benefits and drawbacks. R&D investment¶ is measured in dollars– a metric that is easy to interpret– but only¶ captures inputs to the innovation process. While patents are arguably a¶ better measure of innovative output, not all inventions are patented,¶ and even when they are patented it remains hard to attach a dollar¶ value to the underlying invention. Many economists would argue that¶ the best measure of technological progress is productivity growth¶ changes in the amount of output produced for a given level of inputs.¶ However, productivity growth is difficult to measure, and often requires¶ the analyst to make strong assumptions.¶ Despite these challenges, it is still worth considering whether data¶ on R&D, patents or productivity provides any evidence that changes in¶ patent law, starting with eBay, had a measurable impact on American¶ innovation. As discussed above, our objective is not to provide a causal¶ estimate of the impact of the eBay decision. Rather, given the rhetoric¶ regarding eBay and subsequent changes in patent policy, we are asking¶ whether the available evidence can support the strong claim that eBay¶ had a large stifling impact on American innovation.¶ Ideally, we could rely on experimental evidence to evaluate claims¶ that recent changes in patent law are leading to less innovation.¶ However, a controlled experiment requires a control group, which¶ presents serious challenges when the experiment involves randomly¶ assigning current law to one set of firms (or economies) and a coun¶ terfactual legal regime to others. We consider two feasible alternatives that exploit variation in U.S. patent law over time.¶ The first alternative is to simply look for changes in the rate of in¶ novation before and after the eBay decision. While a sharp decline in¶ innovation (or its growth rate) around 2006 would be consistent with¶ the hypothesis that recent U.S. patent policy changes have been¶ harmful, we must be cautious about interpreting this type of evidence.¶ A good experiment requires that we hold “all else equal,” and in¶ practice, there are many uncontrolled differences in the pre and post¶ eBay innovation landscape. Potentially confounding factors include¶ changes in the business environment, including the rise of Non¶ Practicing Entities, and changes in the broader economic and techno¶ logical environment, such as the great recession. Nevertheless, if we fail¶ to find any evidence of an “eBay effect” in this type of pre/post analysis,¶ it would suggest that confounding factors are at least as important to¶ innovation as changes in patent policy.¶ Our second feasible alternative compares changes in innovation¶ activity around the time of the eBay ruling across groups that may have¶ been differentially affected by the decision. This type of analysis is si¶ milar to what economists call a differences-in-differences design. In this¶ type of empirical analysis, the control group serves the same purpose as¶ in the idealized experiment described above– it provides measures of¶ counterfactual outcomes (i.e. the but-for world) that we would have¶ expected for the treated. Because we could not randomly assign the¶ treatment, however, the “but for” assumption is a much stronger one in¶ our analysis below.

Evan, Partner and the Chair of the International Trade Commission (ITC) Litigation Practice at Fabricant LLP; Gene, patent attorney and President & CEO of IPWatchdog, Inc. "Obtaining Injunctions Under eBay Versus at the International Trade Commission", IPWatchdog, 2-6-2020, https://ipwatchdog.com/2020/02/06/obtaining-injunctions-ebay-versus-international-trade-commission/id=118576/ LJS

In light of eBay, the U.S. International Trade Commission (ITC), which has always played a large role in patent litigation and enforcement strategies because of its statutory authority to issue exclusion orders and cease and desist orders, emerged as an important forum for patent owners. The ITC is an independent, nonpartisan, quasi-judicial federal agency that fulfills a range of trade-related mandates. One such mandate arises under Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337, which requires the ITC to determine whether there is an unfair act in the importation of products into the United States, and/or subsequent sale of products in the United States. Section 337 defines the infringement of a patent, copyright, registered trademark or mask work to be such an unlawful act.¶ The ITC does not follow the Supreme Court’s precedent in eBay v. MercExchange, which interpreted Section 283 of the Patent Act, 35 U.S.C. § 283, and instead operates under Section 337 of the Tariff Act of 1930. It is important to understand that the ITC is not ignoring the Supreme Court, but rather the statutory charge of the ITC is decidedly different from that of a federal district court and the Supreme Court’s decision is simply not applicable. “The difference between exclusion orders granted under Section 337 and injunctions granted under the Patent Act, 35 U.S.C. § 283, follows ‘the long-standing principle that importation is treated differently than domestic activity.’” Spansion Inc. v. International Trade Commission, 629 F.3d 1331, 1359 (Fed. Cir. 2010). An ITC exclusion order, for all intents and purposes, is effectively a form of injunctive relief.

In the past decade, the eBay decision has had a considerable impact on the issuance of injunctions in copyright cases. The previously common view that any violation of an exclusive right entitles copyright owners to injunctive relief because that violation, like a trespass to land, constitutes irreparable harm cannot be reconciled with eBay’s conception of exclusive rights and remedies as “distinct” from one another. eBay has meant that copyright owners now bear a much stiffer burden of proof when seeking injunctive relief. It is no longer enough to show actual or likely success on the merits. The longstanding presumption of irreparable harm is no more, and plaintiffs who fail to offer meaningful proof of such harm are likely to be denied this remedy. It is fair to say that eBay resurrected irreparable harm as a key factor in judicial decisions about whether to exercise discretion to order this remedy for infringement. Even so, Campbell’s endorsement of presuming irreparable harm in “simple piracy” cases (that is, when the defendant has made exact or near exact copies of the plaintiff’s work that is undercutting the market for legitimate copies) should perhaps be revived as a reasonable exception to eBay’s general rule against presumptions. Courts are also more attentive now to hardships that injunctions impose on defendants as a balancing factor. Defendants have more opportunity to counter plaintiffs’ arguments about hardships. The public interest, however, has so far played a lesser role in the post eBay cases, except in close or novel issue cases. Going forward, courts should pay closer attention to the effects of injunctive relief on public interests and consider harms that injunctions would cause to innocent third parties as part of the public-interest factor rather than in the hardship-balancing factor. The burdens on judges are greater now also. They cannot just invoke the old presumption of irreparable harm and ignore the hardship-balancing and public-interest factors. They are required to explain their reasoning as to each of the four factors and describe how they have weighed factors together when some favor the plaintiff and some the defendant. The Supreme Court’s decision in Campbell may have helped to pave the way for the ruling in eBay. However, as this Article has shown, Campbell’s note 10 had much less impact on court decisions in the years leading up to the eBay decision than one might have expected from one of the foundational cases in copyright jurisprudence. At the very least, eBay’s reliance on Campbell and other copyright cases seemingly clarified the relevance of its holding on requests for injunctive relief in copyright disputes. Overall, eBay has had a positive effect on judicial consideration of injunctive relief in copyright cases. Before eBay, courts almost automatically issued injunctions when copyright owners had shown that the defendants had likely or actually infringed their rights. They too easily presumed from this finding that the infringement or likely infringement had caused irreparable harm without considering a balancing of hardships or the public interest. Yet, eBay has rarely hindered the issuance of injunctions in simple piracy cases. This is as it should be.

Marie, Associate with Wolf Greenfield Intellectual Property Law. "An Exercise in Restraint: Seeking and Combatting Injunctive Relief", IPWatchdog, 8-23-2022, https://ipwatchdog.com/2022/08/23/exercise-restraint-seeking-combatting-injunctive-relief/id=151016/ LJS

When we examine the number of contested motions for permanent injunction in U.S. district courts from 2013 through 2017, as reported by Lex Machina, we see two things. First, the number of motions filed for permanent injunctions are generally low since this remedy is only available where the case is litigated all the way to the conclusion and a finding of infringement has been entered. Next, we see an overall increase in the number of motions for permanent injunctions filed by patentees over the course of five years. However, thereafter in 2018, we see a drop in both the number of motions filed and the grant rate of such motions.¶ Permanent Injunction Grant Rates¶ While it is not entirely clear why the number of motions for permanent injunctions dropped so significantly from 2017 to 2018, one potential reason for this is introduction of inter partes review with the passing of the America Invents Act (AIA) in 2011, which introduced substantial implications for parallel district court litigation. We saw the filings for IPRs substantially increase in 2013. The normal progression of a district court case is three to five years in the United States and so it is possible that the filings of IPRs impacted overall patent success rates, and in turn, the number of motions for permanent injunctions.¶ The additional decline seen in permanent injunctions after 2018 may be attributable to the decrease in overall patent case filings in 2018. Nearly 40% fewer patent cases were filed in 2018 as compared to those filed in 2015. This leads to fewer cases going to trial and in turn, fewer cases where the patent owner is successful and seeks permanent injunctive relief. Statistics also suggest that approximately 90% of high-tech litigation in 2018 was initiated by non-practicing entities (NPEs) which may have negatively impacted the number of injunctions sought at the end of a case years later. As we explore below, NPEs can experience heightened difficulty meeting several of the eBay factors.¶ In addition to seeking injunctive relief after a finding of infringement, patentees can seek preliminary injunctive relief at the outset of litigation. Such relief is extraordinary given the early stage of the case as compared to the end of litigation where a merits determination has been reached. We analyzed the grant rate for motions for preliminary injunctions filed between January 2, 2013, and December 31, 2020, in U.S. district courts as reported by Lex Machina. Of the 490 motions for preliminary injunctions filed, 41% (203 motions) were granted. You may note that there are significantly more motions for preliminary injunctions (490) than permanent injunctions detailed above (207). This may seem counterintuitive given that preliminary injunctions are harder to obtain, however, there are several reasons for the increased filings.¶ First, we’re starting with a fairly select group of cases. The filing of a preliminary injunction motion is not done lightly given the cost of what ends up being an expensive mini-trial at the start of a case. Thus, we most often see highly motivated plaintiffs filing such motions. Often these are competitors who have strong infringement cases. Another reason for the larger number of filings is the Federal Circuit’s holding in In re Seagate Tech., LLC (abrogated by Halo Elecs., Inc. v. Pulse Elecs., Inc., 579 U.S. 93, 136 S. Ct. 1923, 195 L. Ed. 2d 278 (2016)).¶ The decision makes the filing of a motion for a preliminary injunction a prerequisite for obtaining or defending against requests for enhanced damages for post-filing conduct in patent cases:¶ “[W]hen an accused infringer’s post-filing conduct is reckless, a patentee can move for a preliminary injunction, which generally provides an adequate remedy for combating post-filing willful infringement … A patentee who does not attempt to stop an accused infringer’s activities in this manner should not be allowed to accrue enhanced damages based solely on the infringer’s post-filing conduct. Similarly, if a patentee attempts to secure injunctive relief but fails, it is likely the infringement did not rise to the level of recklessness.”¶ While motions for preliminary injunction may outnumber the filings for post-judgment injunctive relief, grant rates do not. Comparing the grant rate of preliminary (41%) and permanent (87%) injunctions, we see that the bar is much higher at the outset of the case. This is likely attributable to the standard used by courts to assess such preliminary requests. The standard for obtaining a preliminary injunction echoes most of what we see in the eBay test for permanent relief. However, the patentee must also show a likelihood of success on proving infringement. Pfizer, Inc. v. Teva Pharms. USA, Inc., 429 F.3d 1364, 1372 (Fed. Cir. 2005). This results in a mini-trial on the merits, often necessitating expert testimony. Moreover, a finding of both likelihood of success on the merits and irreparable harm to the patentee are required to obtain the injunctive relief at the outset of the case. General Protecht Grp., Inc. v. Levitron Mfg., Co., 651 F.3d 1355, 1366 (Fed. Cir. 2011).

Patrick Murray, and Roberta Lam; Nirav Desai is a director in the trial and appellate practice group, and the electronics practice group, at Sterne Kessler Goldstein & Fox PLLC.; Patrick Murray is the manager of business development and analytics at the firm.; Roberta Lam is a student at the University of Arizona’s James E. Rogers College of Law. She was a 2023 summer associate at Sterne Kessler.; A Look At US Injunctive Relief Trends Amid UPC Chatter; https://www.sternekessler.com/news-insights/publications/look-us-injunctive-relief-trends-amid-upc-chatter/

U.S. courts determine whether a permanent injunction is appropriate using the test from the 2006 Supreme Court decision in eBay Inc. v. MercExchange LLC. Under this test, the proponent must prove that: It has suffered an irreparable injury; Legal remedies are insufficient compensation; A remedy in equity is necessary; and A permanent injunction would not be counter to public policy.[2] Under eBay, the Supreme Court has held that the Patent Act does not create a predisposition for the granting of permanent injunctions. Rather, the court has firmly held that the equity principles of injunctive relief apply in patent cases as it does in any other cases. From 2022-2023, U.S. courts have granted 22 out of 38 utility patent cases a permanent injunction, which is roughly 58%. U.S. Trends and Exceptions An analysis of data from Docket Navigator reveals a recent uptick in both the number of motions for preliminary injunctions as well as the frequency that these motions are granted in patent cases. It’s important to note that these trends appear to be driven in large part by anti-counterfeiting cases involving design patents filed against so-called John Doe defendants, particularly in the U.S. District Court for the Northern District of Illinois. At the same time, the analysis underscores the extent to which persuasive arguments can secure preliminary injunctions despite the legal headwinds against plaintiffs receiving this type of relief. Similar Docket Navigator data shows that in patent cases that have gone to trial, courts grant motions for permanent injunctions in a majority of cases. Despite this trend in outcomes, plaintiffs have tended to seek injunctive relief after trial in fewer cases over the past several years, perhaps suggesting that only the strongest arguments for permanent injunctions are being presented to judges. The circumstances of the case are important as well. U.S. courts will carve out exceptions for injunctive relief if there is sufficient evidence to call into question the ability of both parties’ ability to return to the status quo. For example, appellate courts have repeatedly recognized that injunctions may be “appropriate based on barriers to collectability after judgment,” as per the 2017 SAS Institute Inc. v. World Programming Ltd. decision in the U.S. Court of Appeals for the Fourth Circuit.[3] Courts will examine the defendant’s assets and take into account obligations owed by insolvents when determining whether monetary damages is an available remedy.[4] Finally, the U.S. is a particularly favorable venue for design patents. From 2022-2023, 62 out of 69 design patents were granted a preliminary injunction, roughly 90%. This is an increase from 2021-2022, where 43 out of 56 design patents were granted a preliminary injunction, roughly 77%. For the design patents that were taken to trial in 2022 and 2023, 81 out of 83 design patents were granted a permanent injunction, which is roughly 98%. This is also an increase from 2021-2022, where 48 out of 56 design patents were granted a permanent injunction, roughly 92%. Concluding Remarks While the predicted availability of injunctive relief is one reason the UPC is the hottest topic in intellectual property circles at the moment, recent trends suggest that the U.S. is still a great destination for injunctive relief in many situations. The U.S. represents a significant share in terms of gross domestic product — even when compared to the combined UPCA signatory states ($26.9 trillion vs. $15.5 trillion)[5] — which makes it a venue of economic importance that cannot be ignored.

Filippo, Northwestern University Kellogg School of Management; Timothy, Boston University Questrom School of Business and NBER. “Patent policy and American innovation after eBay: An empirical examination.” Volume 48, Issue 5, June 2019, Pages 1271-1281. LJS

If changes in the law of patent damages or eligibility led to a reduction in U.S. patent value, we should expect to see a reduction in the¶ number (or growth rate) of new U.S. patent applications relative to the¶ rest of the world. Fig. 1 compares the number of annual applications¶ filed at the USPTO and EPO between 1990 and 2016, using data from¶ the World Intellectual Property Organization (WIPO). In this and all¶ subsequent figures, the vertical line represents the 2006 eBay decision,¶ and the gray shaded bar corresponds to the great recession years of¶ 2008 and 2009.17¶ Although applications to both patent offices increased over this 26¶ year period, U.S. applications grew faster in both absolute and per¶ centage terms. Moreover, there is no apparent decline is U.S. utility¶ applications following the 2006 eBay decision, regardless of whether¶ we use the EPO or the pre-eBay U.S. application growth rate as our¶ baseline.¶ Fig. 1 suggests that any decline in U.S. patent value caused by eBay¶ and subsequent patent policy changes was not enough to prevent applicants from continuing to seek them, and indeed, pursuing them with¶ greater intensity than in other parts of the world. It is not clear what¶ this trend means for innovation overall. First, as we have already suggested, patents do not measure total innovative output. Second, there¶ may be other explanations for trends in the figure. For instance, the¶ USPTO may have increased rejection rates over time, leading applicants¶ to divide their ideas across more applications or file more request for¶ continue examinations (RCEs). Nevertheless, Fig. 1 is at odds with the¶ hypothesis that recent changes in U.S. patent law are harming domestic¶ innovation incentives. In fact, if we assume that reductions in patent¶ value have a first order impact on incentives to patent, we would expect¶ to find a reduction in US filings relative to Europe.¶ To understand what is driving the faster growth in US applications¶ observed in Fig. 1, we can look at their composition. Specifically, we¶ use industry codes published by USPTO to divide new utility patent¶ applicants into three broad groups: Computing (ICT), Life Sciences and¶ Other (mainly Mechanical and Electrical).18 Fig. 2 plots the number of¶ new applications in each industry group by year.¶ It is immediately apparent from Fig. 2 that most of the increase in¶ U.S. patent applications is associated with computer technologies (with¶ a bit of an assist from the Other group). Changes in patent eligibility¶ that made it easier to obtain software and business method patents¶ notably the 1998 State Street vs. Signature decision– almost certainly¶ contributed to this pattern. At the same time, it may also reflect a response to real economic changes associated with ICT revolution, as¶ suggested by Kortum and Lerner (1999). The dramatic increase in¶ Computer patents, and the problems associated with them (Jaffe and¶ Lerner 2004), are arguably key drivers of the legal changes we are¶ seeking to evaluate.¶ Importantly for us, there does appear to be some slowing in the¶ growth of computer patents after eBay. Such a slowdown would be¶ consistent with the idea that legal and policy changes reduced incentives to seek Computer patents. However, the timing of this slow¶ down coincides with the financial crisis, and Fig. 1 shows a resurgence¶ in the growth rate of total U.S. patent applications between 2012 and 2016.19¶ In the Appendix, we show that the results in Fig. 2 are not sensitive¶ to the way we classify patents. In particular, Appendix Figure A.1 shows¶ very similar patterns based on the alternative technology classification¶ scheme of Hall et al (2001), and it also shows that the increase in US¶ patenting relative to European patenting between 1990 and 2010 is¶ largely associated with Computing.20 Table A.1 provides estimates from¶ a simple regression model showing that, if anything, US patenting has¶ grown faster than European patenting after the eBay decision. 21¶ Since patenting is not equivalent to innovation, we now turn to¶ alternative measures to see whether they provide any evidence that¶ post-eBay U.S. patent policy produced a measurable impact.22

Richard M. Sherman Distinguished Professor of Law, Berkeley Law School

Withholding Injunctions in Copyright Cases: Impacts of eBay; 63 Wm. & Mary L. Rev. 773 (2022), https://scholarship.law.wm.edu/wmlr/vol63/iss3/3

--- they’re also not predictable and infinitely regressive because they justify tiny word pics

Reading the net benefit as a DA solves their offense

The aff must use their hege good offense from the impact file and the aff case.

Removing the injunction option, however, not only changes the bargaining range (and makes infringement a valid business option), but, by extension, it lowers the expected returns of investing in the creation and commercialization of patents, in the first place.[35] Further, lack of an effective injunction remedy perversely incentivizes more litigation activity relative to the baseline. With a no-injunction presumption, a potential licensee has a diminished incentive to negotiate with a patent holder. Instead, it can refuse to license, infringe the patent, try its hand in court, avoid royalties entirely until litigation is finished, and in the end never be forced to pay a higher royalty in damages than it would have if it had negotiated at the outset. As long as the expected cost of litigation is less than the expected gain from infringing without paying any royalties, potential licensees will always have an incentive to pursue this strategy. The net result is a shift in bargaining power so that, even when license agreements are struck, royalty rates are lower than they would otherwise be, as well as an increased likelihood of infringement. It also establishes this lower royalty rate as the “customary” rate, which ensures that subsequent royalty negotiations, particularly in the standard-setting context, are artificially constrained. This effect is multiplied in the SEP context in which the nominal fair, reasonable, and non-discriminatory (“FRAND”) royalty rate is said to be determined with reference to the ex ante bargaining position—that is, before the true value of the patent is known once it has been implemented and commercialized. As a result, the inability to seek an injunction against an infringer further ensures that patent holders operate with reduced incentives to invest in technology and to enter into standards because they are precluded from benefiting from any subsequent increase in the value of their patents once they do so. As Richard Epstein, Scott Kieff, and Dan Spulber write: The simple reality is that before a standard is set, it just is not clear whether a patent might become more or less valuable. Some upward pressure on value may be created later to the extent that the patent is important to a standard that is important to the market. In addition, some downward pressure may be caused by a later RAND commitment or some other factor, such as repeat play. The FTC seems to want to give manufacturers all of the benefits of both of these dynamic effects by in effect giving the manufacturer the free option of picking different focal points for elements of the damages calculations. The patentee is forced to surrender all of the benefit of the upward pressure while the manufacturer is allowed to get all of the benefit of the downward pressure.[36] The importance of injunctions in the SEP context, and their effect on licensing rates, has been well-recognized by policymakers. For instance, in a report published in 2011, the FTC argued that: The threat of an injunction can lead an infringer to pay higher royalties than the patentee could have obtained in a competitive technology market. *** The patentee can use the threat of an injunction to obtain royalties covering not only the market value of the patented invention, but also a portion of the costs that the infringer would incur if it were enjoined and had to switch.[37] In other words, the FTC endorses the idea that injunctions affect bargaining range during infringement proceedings, which in turn affects their ex ante bargaining range. The FTC thus concludes that courts award damages that exclude the value derived from the threat of injunctions.[38] But while the premise is correct, the normative conclusion that the FTC draws does not follow. The higher licensing fees obtained by the threat of injunctions are a feature, not a bug, of the system. They reward licensees that have concluded ex ante license agreements (and who have not, therefore, wasted judicial resources when private bargaining was available), relative to those that have declined to do so. This is precisely the return on risk and innovation that patents are intended to secure. Compounding this miscalculation, opponents of injunctions overestimate the extent of the threat of patent holdup by employing an inappropriate estimation of the proper willingness of potential licensees to negotiate. It is, of course, not optimal to set remedies such that patent holders are over-incentivized to withhold licenses by threatening litigation in order to increase their royalties over the efficient level. But determining whether a potential licensee is really willing to license at a reasonable rate, or is instead holding up negotiation to gain its own litigation-driven bargaining power, is not straightforward. And the measure of willingness commonly employed by commentators—including the FTC—is mistaken.

Behind many of these changes lies a powerful intellectual movement, alleging that excessive patent protection is holding back western economies. These critics chiefly fear that the owners of the standard essential patents (“SEPs”) crucial to much of modern technology are charging their commercial partners too much for the rights to use their patents—referred to as patent holdup and royalty stacking[7]—and that so-called patent trolls (“patent-assertion entities” or “PAEs”) are deterring innovation by small startups by employing “extortionate” litigation tactics.[8] Oversimplifying, the argument is that, by selecting certain winning technologies, standardization artificially weakens implementers’ bargaining position vis à vis patent holders. Accordingly, critics argue that the royalties charged by SEP holders should not exceed those that they could have obtained before their technology was included in a standard. However, there is little evidence beyond occasional anecdotes to support the first of these concerns, and a growing body of empirical research points in the opposite direction.[9] And the latter concern, while real, is complex, and the optimal policy response should address these complexities more than typical proposals do. Yet despite the limited evidence and complexities, policymakers have been quick to act on them. It may even be the case that the policy changes that have been made are impeding the ability of owners of SEPs to enforce their rights to such an extent that they are now being under-rewarded. Most notably, there is at least some evidence to suggest that the looser enforcement of IP rights is resulting in holdout behavior (i.e., situations where would-be licensees avoid concluding a license agreement because they know that they are shielded from legal repercussions for infringement).[10] While this does not appear to have resulted in a marked decrease in innovative output so far, there is certainly a risk of that happening, especially if lawmakers continue to alter the legal regime in ways that systematically disadvantage patent holders. Indeed, although the causes are unclear, already there are concerns about secular stagnation and the slowdown in productivity growth.[11] In that context, policies that weaken incentives to innovate seem like the height of folly. Moreover, since many important innovations bear fruit only many years after the initial investment in research and development, any subsequent change of course may have few short-term benefits and might even have short-term costs, making it politically difficult if not impossible to change course once more significant adverse effects on innovation start to appear.

The first graph in the report clearly dispels the notion that patent litigation is excessive. It shows the trends over time in the number of patent grants and the number of patent infringement complaints filed in U.S. district courts. As seen in the graph, there is a sharp increase in the number of complaints filed after 2011 due to the anti-joinder provisions of the America Invents Act (AIA). As astute observers of the U.S. patent system understand, this increase in complaints does not represent new disputes but merely a separation of defendants into individual lawsuits thereby mechanically increasing the number of complaints. Therefore, the decline in complaints observed after 2013 is more impressive than it appears as the decline would have been even greater were it not for the anti-joinder provision. Even still, complaints are only about a third higher than they were in the period leading up to the AIA. Furthermore, patent infringement complaints as a share of granted patents is low and is also declining. Marcum reports this share averaged 1.7% from 2013 to 2017 and is less than 1% today. Injunction Grants Are Low The Marcum report provides further evidence of the pernicious effect the U.S. Supreme Court’s eBay decision has had on the ability of patent owners to enforce the exclusionary right embodied in their patent. Prior research has shown that patent owners are less likely to seek injunctions and those injunctions are less likely to be granted following eBay. It should be no surprise then that there has been a significant decline in injunction grants over the last 15 years. The Marcum report focuses on injunction grants excluding default judgments. They note that “cases with default judgments do not typically represent contested disputes” as the defendant has failed “to take required actions or respond to court proceedings.” The report shows that injunction grants (excluding default judgments) have fallen from a peak of 80 in the period 2008 to 2012 to just 36 in the period 2018 to 2022. That is, in the most recent period, there is an average of just seven injunctions per year—less than half the average in the earlier period. In addition to a low level of injunctions, enhancement of damages is rare. Only 22% of remedies awards were enhanced due to a finding of willful infringement. NPE Litigation Is Not Pervasive If the anecdotes are to be believed, not only is patent litigation excessive but it is being driven by “patent trolls.” Patent trolls or, less pejoratively, PAEs, are patent owners who acquire patents and then assert them against alleged infringers. The Marcum report casts a broader net and examines the remedies available to all NPEs which includes PAEs but also includes individuals, universities, and research entities. They find that over the 20 years of their study, only 23% of remedies were awarded to NPEs. Furthermore, the impact of eBay has been even more dramatic for NPEs. As a result of eBay, injunctions are effectively unavailable to NPEs with only 12 injunction grants (excluding default judgments) over the last 10 years of the study. As damages are effectively the only remedy available to NPEs, it is unsurprising that Marcum finds that median damage awards to NPEs tend to be higher than the awards to practicing entities. However, the median damage awards to NPEs (excluding default judgments) have declined approximately 25-30%from their peak in the period 2008 to 2012. The Marcum report shows that there is indeed something wrong with the patent system in the United States but it’s not excessive litigation or patent trolls. The real problem is the inability of patent owners to enforce their rights against infringers. Given the difficulty of obtaining injunctive relief and the limited enhancement of damages, it is unsurprising that predatory infringement has become a standard business practice when, at worst, all an infringer can be expected to pay is a reasonable royalty and, at best, nothing at all.

Our study joins a growing literature that analyzes the economic consequences of NPEs. Cohen, Gurun, and Kominers (2017) show that, when suing public firms, NPEs tend to target those that are cash rich, leading to a substantial decrease in their innovative activities. Tucker (2014) and Smeets (2015) also find a decline in innovation at firms sued by NPEs. Our study differs from previous papers in two distinct ways. First, prior work has focused on analyzing the effects of being sued by an NPE. Lawsuits are the main tool NPEs have when targeting large, public firms (as in in Cohen et al.’s and Smeets’s samples). Crucially, our findings indicate that the simple threat of litigation expressed via the frivolous demand letters anti-troll laws aim to curtail can disrupt the operations of startups. Second, prior studies examine the consequences for firms that have been directly targeted by NPEs. By contrast, our empirical setting captures both the realized and expected effects of frivolous NPE demands by analyzing legal changes that reduce the risk any firm in a state faces of being targeted by such demands.