In a decision that may result in increased patent licensing revenues for universities and research organizations, Judge Leonard T. Davis became the first district judge to enter a permanent injunction against a non-competitor since the United States Supreme Court’s decision in eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006) (eBay). For universities and research organizations, this important decision will likely restore some of the bargaining power believed to have been lost as a result of the eBay decision and, in turn, result in increased licensing fees.
A Year Since eBay
It has been more than a year since the Supreme Court issued the eBay decision. That decision upset the long-standing “general rule” that, absent special circumstances, a district court should issue a permanent injunction in a patent case after a finding of infringement and validity of the patent-in-suit. The Supreme Court held in eBay that a patent holder seeking a permanent injunction must satisfy the four-prong test that courts have historically applied when considering requests for injunctive relief, namely (1) irreparable harm; (2) absence of adequate remedy at law; (3) the balance of hardships weigh in its favor; and (4) an injunction would not be contrary to the public interest. Id. at 1841.
Because of the renewed emphasis on the four-prong test, and the irreparable harm prong in particular, it was widely believed that eBay would make it very difficult for patent holders who do not practice their inventions to obtain injunctive relief. Without the threat of injunction, the bargaining power of organizations that license but do not compete in the market (such as colleges, universities, and patent aggregators) would be severely weakened.
In large part, the post-eBay conventional wisdom has held up. Although several district courts have issued permanent injunctions against infringing competitors since eBay, courts have consistently denied requests for injunctive relief involving non-competitors based on the eBay decision. Enter Commonwealth Scientific and Industrial Research Organization (CSIRO).
The CSIRO Case
CSIRO is Australia’s primary governmental research body. It holds and licenses hundreds of U.S. patents in many different fields, including wireless networking. CSIRO’s U.S. Patent No. 5,487,069 (the ‘069 Patent) corrected a major technical problem that had hindered efforts to develop indoor wireless networks. CSIRO actively, and successfully, licensed the patented technology, but has never practiced its invention. CSIRO’s technology is now a core part of the 802.11a and 802.11g wireless standards, which were ratified by the Institute of Electrical and Electronics Engineers (the IEEE) in 1999 and 2003, respectively. The 802.11g standard became a popular Wi-Fi standard for early adopters of consumer electronics. Both standards remain popular today in many different applications. CSIRO’s position is that products compliant with either standard infringe the ‘069 Patent.
CSIRO is now seeking to enforce the ‘069 Patent against a number of major players in the wireless networking field, including Microsoft, Apple, Hewlett-Packard, Dell, Intel, Netgear, D-Link, Belkin, and others. On February 2, 2005, CSIRO sued Buffalo in the Eastern District of Texas alleging infringement of the ‘069 Patent. Commonwealth Scientific and Indus. Research Org. v. Buffalo Tech., Inc., __ F.Supp.2d ___, 2007 WL 1739999 (E.D. Tex. 2007). Buffalo is a maker of Wireless Local Area Network products (such as routers, antennas, and adapters) that utilize the 802.11a and 802.11g standards. Buffalo’s products are sold to distributors and retail outlet stores.
On November 13, 2006, Judge Davis granted summary judgment as to infringement of the ‘069 Patent. CSIRO subsequently moved for a permanent injunction seeking to prevent future sales of Buffalo’s infringing products. Given CSIRO’s business model, in many ways, its suit against Buffalo was a test case for injunction practice in the post-eBayera.
Buffalo opposed the motion by arguing that because CSIRO is not a market competitor, Buffalo’s sales of infringing products do not deprive CSIRO of revenues, market share, or brand recognition, leaving CSIRO unable to prove irreparable harm. Buffalo also highlighted several post-eBay decisions that either granted injunctive relief in favor of competitors or denied the same relief to non-competing licensors.
In rejecting Buffalo’s position, Judge Davis first quoted the following language from the eBay decision, which Judge Davis described as a warning against “creating broad classifications:”
[S]ome patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their work to market themselves. Such patent holders may be able to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so. 126 S. Ct. at 1840.
Judge Davis then went on to explain why CSIRO satisfied the irreparable harm prong of the four-factor test:
CSIRO has shown that its harm is not merely financial. While CSIRO does not compete with Buffalo for marketshare, CSIRO does compete internationally with other research groups—such as universities—for resources, ideas, and the best scientific minds to transform those ideas into realities. Having its patents challenged via the courts not only impugns CSIRO’s reputation as a leading scientific research entity but forces it to divert millions of dollars away from research and into litigation costs. Delays in funding result in lost research capabilities, lost opportunities to develop additional research capabilities, lost opportunities to accelerate existing projects or begin new projects. Once those opportunities have passed, they are often lost for good, as another entity takes advantage of the opportunity. Delays in research are likely to result in important knowledge not being developed at all or CSIRO being pushed out of valuable fields as other research groups achieve critical intellectual property positions. Thus, the loss of harm is irreparable.
This reasoning is significant because many universities and research organizations conduct business much the same way that CSIRO does. Their ability to successfully exploit their patents depends heavily on the credible threat of injunctive relief. Judge Davis’s decision goes a long way in restoring some of the bargaining power that universities and research organizations appeared to have lost after the eBay decision.
The post-eBay landscape is still unclear for other kinds of inventors or entities that do not practice their patented inventions. In particular, Judge Davis’s reasoning may be too narrow to be useful for patent holding companies or venture capital funds that aggressively acquire diverse portfolios of patents for licensing. On the other hand, an individual inventor may now be able to argue that the inability to obtain an injunction against an early infringer will embolden the market to follow the infringer’s lead, making licensing opportunities disappear forever and depriving him of the true value of his invention. That post-eBay chapter has yet to be written.