NPEs and injunctions

Continuing our ongoing series looking at the patent hot potato that is patent trolling – that is, owning a patent merely to wait under a bridge and jump out at a large passing traveller on the invention road who takes a walk over your patent bridge (to stretch a metaphor to its breaking point) we look at the fuss in the US.

The U.S. Supreme Court 2006 in eBay v. MercExchange ruled on the grant of injunctions to trolls. This decision is apparently affecting operating companies as well as holding companies, Non-Practising Entities (NPEs) or patent trolls.

That unanimous decision made it virtually impossible for the trolls to obtain injunctions preventing sales.

Then last November, Ricoh Company (Japan) claimed in a federal courtroom in of all places Madison, Wisconsin, that Quanta (Taiwan) optical drives infringed two Ricoh patents, Nos. 6,661,755 and 5,063,552 and Taiwan’s Quanta. The jury (which included a receptionist, a preschool cook, a former dairy farmer, and a barista) agreed and awarded 14.5 million dollars damages.

Ricoh is no traditional troll as it is an electronic goods manufacturer employing 100,000 people worldwide, with an annual revenue of about 20 billion dollars.

However Wisconsin District Court Judge Barbara Crabb rejected Ricoh’s request for an injunction to prevent Quanta from selling the patented optical drives, citing the eBay case. Crabb was not persuaded that Ricoh would suffer irreparable harm if an injunction did not issue.

When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.

Judge Crabb contrasted NPEs with researchers, inventors, and competitors. Sensibly, because Ricoh does not manufacture or sell the patented optical disc drive, Crabb stated that Ricoh was not a direct competitor of Quanta, and so would not suffer irreparable harm in the absence of an injunction.

Ricoh had previously licensed its patent to numerous companies and so Crabb also decided that their main motive was not

to narrowly limit the practice of its invention

but instead

simply maximize a potential licensing fee.

noting that:

[b]ecause that is not an adequate ground for an injunction, plaintiff’s motion for a permanent injunction will be denied.

This behaviour, Crabb reasoned, showed that Ricoh did not have a problem exchanging their patent rights for cash rather than competitive advantage. The parties were ordered to negotiate a compulsory license for future use. The Judge Crabb take on patent trolls and injunctions is this:

An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees. For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent… legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.

It remains to be seen whether this view will prevail but a lessening of the sums awarded to NPEs is welcome for all. Yet although the NPE business model is not necessarily attractive it does perforce mean a increase in the value and recognition of patents which is good for inventors and innovation.

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