U.S. must continue improving the patent process

The ruling by a three-judge panel granting Apple injunctive relief against Samsung is a setback and should be reversed by the full appellate court

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For the past several weeks, the ongoing series of lawsuits between Apple and Samsung over smartphone patents has been back in the news. Last week Samsung announced that it plans on paying up, but expects to be reimbursed should other patents in the dispute be invalidated, which is likely based on U.S. Patent and Trade Office (USPTO) proceedings thus far.  

This followed a 2-1 vote by a panel of a federal circuit court of appeals to grant Apple an injunction against Samsung as part of an infringement remedy, overturning a district court’s decision. That ruling to enjoin Samsung was surprising. 

Injunctive relief is a drastic remedy casting a huge shadow over upstream markets — for example, the companies that manufacture the touchscreens — and downstream markets, such as the thousands of Android app developers. Typically, injunctions require that the product at issue be taken off the market, even if the infringing patent covers minor product functions, designs or elements. 

Because of the severity of the consequences, courts usually look for irreparable harm before awarding an injunction. Indeed, the U.S. Supreme Court, in eBay Inc. v. MercExchange LLC, determined that lower courts were obliged to consider more equitable remedy standards, such as fines, and that injunctive relief should be the last resort, applicable only in cases where the patent holder would be irreparably harmed if an injunction did not issue. 

In Apple Inc. v. Samsung Electronics Co. Ltd., the court of the Northern District of California declined to impose the injunction that Apple sought, stating that Apple would not suffer the irreparable harm that would warrant it. That decision was reversed by a three-judge panel of the federal appeals court, though the chief judge issued a strongly worded dissent citing the lower court judge’s finding of fact that Apple would not be irreparably harmed. 

The ruling in favor of the injunction has important implications and should be reconsidered by the full appellate court. Because it dismisses the eBay standard’s framework for drastic remedies like injunctions, the ruling imperils the entire intellectual property system with an increase in abusive patent litigation. Coercive patent litigation, already a problem, can now be armed with the threat of injunctions. That will slow innovation, harming U.S. consumers and the economy. Concerns such as that led organizations such as the Computer & Communications Industry Association, Public Knowledge and the Electronic Frontier Foundation and companies such as Google, Facebook, eBay and even two Samsung competitors, HTC and Lenovo, to voice opposition to the recent decision and urge the appeals court to give the case an en banc, or full-court, hearing. 

The principal worry is that if lower courts are going to ignore the Supreme Court’s eBay standard, litigation abusers such as patent trolls will have a new and costly threat to leverage. As it is, patent litigation destroys more than $60 billion in firm wealth each year, according to a March 2015 study. In 2012, Santa Clara University School of Law research found that companies with less than $100 million annual revenue represented 66% of defendants to troll suits.

The courts are not the only problem, of course. There’s also the USPTO. Although the USPTO served commerce well in the Industrial Age, it now struggles to keep up with the rapid pace of digital innovation. Yet even if the USPTO were to be transformed tomorrow, the courts would still have to deal with the many low-quality patents that have already been granted. Low-quality, mistakenly granted patents pose a tremendous problem for small businesses that face the threat of business-crippling injunctions. 

Courts should impose injunctive relief judiciously, as per the eBay standard. Courts should not be in a position to order Boeing to stop selling 777 jets after finding that its supplier of seat cushions infringed on a patent, because nobody purchases the aircraft or the airline ticket based on those cushions. Given the thousands of patents that go into a smartphone or similarly complex device, the nexus of harm to imposed remedy is similar. 

Given the dissenting position stated by the appellate court’s chief judge, the full court should grant Samsung’s motion for en banc hearing and properly apply the holding of eBay. Injunctions are a drastic remedy only applicable when financial remedies are insufficient to avoid irreparable harm. The court must maintain this important standard. 

Steven Titch is a policy adviser for technology and telecom policy at the Heartland Institute.

Copyright © 2015 IDG Communications, Inc.

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