Injunctions decrease predatory infringement and drive innovation

An injunction is not merely a remedy ordered by a court against someone found liable for violating a property right such as a patent. When property owners lose the ability to say “no” when faced with the unauthorized access or use of their property, common sense says that infringement will become more common and commercial transactions more difficult and protracted.35 In patent law, this is now known as “predatory infringement,” in which defendants choose a commercial strategy of “infringe now, pay later,” at worst, or, at best, they get away with infringement through a lengthy legal battle of attrition in which the patent owner ultimately just gives up. The existence of predatory infringement is difficult to measure; yet, the simple idea that reduced legal protection may result in predatory infringement is being confirmed by some empirical studies.36 Common sense also tells us that the loss of injunction to stop violations of property rights also devalues property in the marketplace—it is simply worth less given that it offers less protection to its owner. This is a basic idea in economics. The exclusive nature of property is the key to efficient use of assets. Exclusion means an injunction. An injunction is the legal backstop for commercial negotiations—it is the protection that secures to any property owner the freedom to say “no” to an offer to purchase or access one’s property. In patent law, an injunction allows a patent owner to walk away from negotiations if the party wishing to use the patented technology is unwilling to pay the asking price. But where an injunction is unlikely to be granted, that third party has little-to-no incentive to negotiate a license and instead may choose the “infringe now, pay later” strategy of predatory infringement. Even when a company chooses to follow ethical practices and properly purchase a license—pay for the rights to use the invention—the lack of injunctive relief necessarily means that the patent is worth less in this commercial transaction. The licensee is purchasing fewer rights, because the right to exclude is no longer one of the rights that the patent owner can offer for sale. This legal and economic logic has now been confirmed by an empirical study. In a recent study, AUTM reviewed university patent licenses with companies between 1996 and 2021, looking at whether a company purchases an exclusive or nonexclusive license. Understandably, an exclusive license is a higher-valued transfer of property rights, because the buyer is the only person legally allowed to use and commercially benefit from the patented technology. In legal and economic terms, an exclusive license is the transfer of the exclusive right to make, use, or sell something—it is the sale of the entire property right—and so it is worth more to the buyer. Nonexclusive licenses are generally lower-valued assets and cost less because the technology is made available to multiple parties that are in competition with each other in the marketplace. Figure 1. AUTM US Licensing Activity Survey: 1996–2021 Figure 1 Source: AUTM. As figure 1 illustrates, prior to the eBay decision in 2006, the amount of exclusive licensing and nonexclusive licensing was very similar. After 2006, nonexclusive licensing grew significantly, while exclusive licensing dropped off or remained stagnant. In fact, since approximately 2011, the time of the Federal Circuit Bosch decision, the relative rate of nonexclusive licenses has skyrocketed compared to the rate of exclusive licenses. Though overall licensing activity has increased over the period studied by AUTM, the growth is almost entirely attributable to nonexclusive licenses. Again, a nonexclusive license is one in which the right to exclude—the right secured by an injunction—is not purchased by the licensee. Following eBay and Bosch, as confirmed by the empirical studies, injunctions are metaphorically off the table, which means exclusion is no longer a term available for purchase from a patent owner by a licensee. What economically rational company would pay more for something that the patent owner no longer possesses and thus cannot sell? To apply here the classic cliché about someone trying to sell something they don’t own: if a patent owner offers an exclusive license today, it’s trying to sell you the Brooklyn Bridge. The AUTM data is an initial empirical insight into the negative commercial effects of the loss of injunctions as a remedy for patent infringement. It requires more study and analysis based on rigorous statistical methods. However, it provides support for the supposition that eBay not only has fostered the practice of predatory infringement, but has devalued patents as commercial assets generally. Exclusion is no longer one of the terms a patent owner can offer for sale in a license. Where an injunction is unavailable, patents have become less valuable—and that is a very b”ig problem because it reduces the ability of patent owners to obtain returns on their investments that drive growth in the innovation economy.