Injunctions: “One-click” to eBay

Patent Law

Prof Merges – 11.9.2010

Relief

Issuance Complaint filed in District Court

Preliminaryinjunctionhearing

Damages assessed forthis period if marking

(or actual notice)

Prospective Effect

Final injunction

issues

35 USC § 283. Injunctive relief.

The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.

MercExchange, L.L.C., holds a number of patents, including a business method patent for an electronic market designed to facilitate the sale of goods between private individuals by establishing a central authority to promote trust among participants. See U.S. Patent No. 5,845,265.

United States Patent 5,845,265 Woolston December 1, 1998

“Consignment nodes”AbstractA method and apparatus for creating a computerized market

for used and collectible goods by use of a plurality of low cost posting terminals and a market maker computer in a legal framework that establishes a bailee relationship and consignment contract with a purchaser of a good . . . in an electronic market for used goods while assuring the safe and trusted physical possession of a good with a vetted bailee.

Inventors: Woolston; Thomas G. (Arlington, VA) Assignee:MercExchange, L.L.C. (Alexandria, VA) Filed: November 7, 1995

1. A system for presenting a data record of a good for sale to a market for goods, said market for goods having an interface to a wide area communication network for presenting and offering goods for sale to a purchaser, a payment clearing means for processing a purchase request from said purchaser, a database means for storing and tracking said data record of said good for sale, a communications means for communicating with said system to accept said data record of said good and a payment means for transferring funds to a user of said system, said system comprising:

a digital image means for creating a digital image of a good for sale;

a user interface for receiving textual information from a user;

a bar code scanner;

a bar code printer;

a storage device;

a communications means for communicating with the market; and

a computer locally connected to said [other elements] said computer adapted to receive said digital image of said good for sale from said digital image means, generate a data record of said good for sale, incorporate said digital image of said good for sale into said data record, receive a textual description of said good for sale from said user interface, store said data record on said storage device, transfer said data record to the market for goods via said communications means and receive a tracking number for said good for sale from the market for goods via said communications means, store said tracking number … printing a bar code from said tracking number on said bar code printer.

• A jury found that MercExchange's patent was valid, that eBay and Half.com had infringed that patent, and that an award of damages was appropriate.

Trial court opinion

•Questioned validity of “business method” patents

eBay v. MercExchange

• Trial court

• Federal Circuit

• Supreme Court

“Substantial evidence was adduced at trial showing that the plaintiff does not practice its inventions and exists merely to license its patented technology to others. Indeed, the plaintiff has made numerous comments to the media before, during, and after this trial indicating that it did not seek to enjoin eBay but rather sought appropriate damages for the infringement.”

-- 275 F.Supp.2d 695, at 712

“In the case at bar, the evidence of the plaintiff's willingness to license its patents, its lack of commercial activity in practicing the patents, and its comments to the media as to its intent with respect to enforcement of its patent rights, are sufficient to rebut the presumption that it will suffer irreparable harm if an injunction does not issue.” -- Id.

“The defendants also argue that because there is a growing concern over the issuance of business-method patents, which forced the PTO to implement [additional] review policy . . . , and caused legislation to be introduced … the public interest would not be served by such an injunction. While this argument is certainly not dispositive, it lends significant weight against the imposition of an injunction, particularly in this case where the patentee does not practice its patents, nor has any intention of practicing its patents.” -- 275 F.Supp.2d 695, 714

eBay v. MercExchange

• MercExchange, LLC v. eBay, Inc., 401 F.3d 1323 (Fed. Cir. 2005)

– “Automatic injunction” rule: after patentee wins case, injunction will automatically issue

Federal Circuit opinion

“Because the ‘right to exclude recognized in a patent is but the essence of the concept of property,’ the general rule is that a permanent injunction will issue once infringement and validity have been adjudged.”

-- 401 F.3d 1323, 1338

401 F.3d 1323, 1339

“A general concern regarding business-method patents, however, is not the type of important public need that justifies the unusual step of denying injunctive relief.”

“If the injunction gives the patentee additional leverage in licensing, that is a natural consequence of the right to exclude and not an inappropriate reward to a party that does not intend to compete in the marketplace with potential infringers.”

Supreme Court

• Reversed Federal Circuit

• Rejected “automatic rule”

• Reimposed historical standard

The 4 Part Test: Plaintiff must show –

(1) [T]hat it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. – book, p. 935

Remedies: Injunctions

Injunction -- 4 Factors:

1. Reasonable likelihood of success2. Irreparable harm3. Balance of hardships4. Impact on public interest

Supreme Court opinion

Like the Patent Act, the Copyright Act provides that courts "may" grant injunctive relief "on such terms as it may deem reasonable to prevent or restrain infringement of a copyright." 17 U.S.C. § 502(a). -- p. 935

What was wrong with the district court test?

“[I]t appeared to adopt certain expansive principles suggesting that injunctive relief could not issue in a broad swath of cases. Most notably, it concluded that a “plaintiff’s willingness to license its patents” and “its lack of commercial activity in practicing the patents” … But traditional equitable principles do not permit such broad classifications.” -- 936

What was wrong with the Federal Circuit test?

Too mechanical: “[T]he Court of Appeals departed in the opposite direction from the four-factor test. The court articulated a “general rule,” unique to patent disputes… Just as the District Court erred in its categorical denial of injunctive relief, the Court of Appeals erred in its categorical grant of such relief.

[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 works 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.

We hold only that the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.

Concurrences

“[T]here is a difference between exercising equitable discretion pursuant to the established four-factor test and writing on an entirely clean slate.” – Roberts, Scalia & Ginsburg, concurring

Kennedy, Stevens, Souter & Breyer

The lesson of the historical practice, therefore, is most helpful and instructive when the circumstances of a case bear substantial parallels to litigation the courts have confronted before. -- 938

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… . 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.

NY Times – Op Ed 3.22.06Patently Ridiculous

[P]rofiteers, including lawyers and hedge funds, have turned the very purpose of patent rights — to encourage people to invent and produce — on its head, using them to tax, blackmail and even shut down productive companies unless they pay high enough ransoms. These so-called patent trolls have emerged as the villains in this intellectual property debate.

The Supreme Court now appears ready to weigh in and — we hope — restore some sanity to the system.

Post-eBay “Scorecard”

IP Today has published an interesting report on permanent injunction decisions since the Supreme Court's 2006 decision in eBay v. MercExchange. The authors found 67 district court injunction decisions. 48 (72%) granted relief; 19 (28%) denied relief. – Patently-O Nov. 17, 2009

Z4 v. Microsoft“[T]he jury found that Microsoft's Office and

Windows software products infringed the asserted claims of the two patents-in-suit. z4 asks the Court to enjoin Microsoft from making, using, selling, offering for sale, and/or importing its current software products that use product activation, i.e. Windows XP products since 2001 and Office products since 2000.”

In the absence of a permanent injunction against Microsoft, z4 will not suffer lost profits, the loss of brand name recognition or the loss of market share because of Microsoft’s continued sale of the infringing products. These are the type of injuries that are often incalculable and irreparable. The only entity z4 is possibly prevented from marketing, selling or licensing its technology to absent an injunction is Microsoft . . . – p. 950

Z4 v. Microsoft

“[A] violation of the right to exclude does not inevitably lead to the conclusion that a patent holder cannot be adequately compensated by remedies at law such as monetary damages without first applying the principles of equity.”

-- Id.

The key: p. 951“In his concurrence, … Justice Kennedy specifically

mentioned the situation where a "patented invention is but a small component of the product the companies seek to produce" … Here, product activation is a very small component of the Microsoft Windows and Office software products that the jury found to infringe z4's patents. … Accordingly, Justice Kennedy's comments support the conclusion that monetary damages would be sufficient to compensate z4 for any future infringement by Microsoft.

Preliminary injunctions

• The Amazon.com story

• “One-click” ordering patent

‘411 Patent ABSTRACT:

A method and system for placing an order to purchase an item via the Internet. The order is placed by a purchaser at a client system and received by a server system. The server system receives purchaser information including identification of the purchaser, payment information, and shipment information from the client system. The server system then assigns a client identifier to the client system and associates the assigned client identifier with the received purchaser information. The server system sends to the client system the assigned client identifier and an HTML document identifying the item and including an order button. . . . In response to the selection of the order button, the client system sends to the server system a request to purchase the identified item. The server system receives the request and combines the purchaser information associated with the client identifier of the client system to generate an order to purchase the item in accordance with the billing and shipment information whereby the purchaser effects the ordering of the product by selection of the order button.

US Patent 5,960,411

1. A method of placing an order for an item comprising:

under control of a client system, displaying information identifying the item; and

in response to only a single action being performed, sending a request to order the item along with an identifier of a purchaser of the item to a server system …

retrieving additional information previously stored for the purchaser identified by the identifier in the received request; and

generating an order to purchase the requested item for the purchaser identified by the identifier in the received request using the retrieved additional information; and

fulfilling the generated order to complete purchase of the item

whereby the item is ordered without using a shopping cart ordering model.

US Patent 5,960,411

9. A server system for generating an order comprising:

a shopping cart ordering component; and

a single-action ordering component including:

a data storage medium storing information for a plurality of users;

a receiving component for receiving requests to order an item, a request including an indication of one of the plurality of users, the request being sent in response to only a single action being performed; and

an order placement component that retrieves from the data storage medium information for the indicated user and that uses the retrieved information to place an order for the indicated user for the item; and

an order fulfillment component that completes a purchase of the item in accordance with the order placed by the single-action ordering component.

US Patent 5,960,411

10. The server system of claim 9 wherein the request is sent by a client system in response to a single action being performed.

What it Boils Down To:

The client system [i.e., user’s or customer’s computer] is provided with an identifier that identifies a customer [in a file permanently stored on customer’s computer, e.g., a “Cookie” file]. The client system displays information [about an item to purchase]. [After the customer indicates he or she wants to buy something,] the client system sends to a server system the provided identifier and a request to order the identified item.

The server system uses the identifier to identify additional information needed to generate an order for the item and then generates the order.

-- from specification

Claim 1A method of placing an order for an item comprising:

under control of a client system,

displaying information identifying the item; and

in response to only a single action being performed, sending a request to order the item along with an identifier of a purchaser of the item to a server system;

under control of a single-action ordering component of the server system;

receiving the request;

retrieving additional information previously stored for the purchaser . . .; and

generating an order to purchase the requested item . . .fulfilling the generated order . . .

whereby the item is ordered without using a shopping cart ordering model.

Express LaneBuy it now with just 1 click!

• infringement?

• validity?

The Wall Street Journal, Friday, December 3, 1999Amazon.com Is Granted an Injunction In barnesandnoble.com Patent Dispute By Scott Thurm and Rebecca Quick

A federal district judge in Seattle granted Amazon.com Inc. a preliminary injunction in a patent dispute, barring rival barnesandnoble.com Inc. from using a one-click system for online orders. U.S. District Judge Marsha J. Pechman late Wednesday ordered barnesandnoble.com to stop using its Express Lane service by tomorrow.

WSJ, cont’d

In her ruling, Judge Pechman said barnesandnoble.com could avoid infringing on Amazon.com's patent "by simply requiring users to take an additional action to confirm orders placed by using Express Lane."

CompuServe Information Manager

Price Volume Graph

Reference 1

Web-Basket

Dr. John Lockwood

August 1996

Web-basket is a Linux-based software package for e-commerce on the World Wide Web. This software provides an efficient mechanism formaintaining user accounts, inventory, and orders placed through the World Wide Web.

http://www.morwood.net/web-basket/

The Internet Engineering Task Force

a text file that is stored on your hard drive that tells the Web server about you, your computer, and your activities.

Draft Cookie Specification

Reference 2

Appendix FInstant Buy OptionMerchants also can provide shoppers with an Instant Buy button for some or all items, enabling them to skip check out review. This provides added appeal for customers who already know the single item they want to purchase during their shopping excursion.

© 1996 Reference 3

A single click on its picture is all it takes to order an item.

Reference 4

[O]ur solution allows one-click ordering anywhere you see a product picture or a price.

A user’s identifying and purchasing information is captured and stored “the very first time a user clicks on an item to order.”

Federal Circuit holding

• District court erred in ignoring Compuserve Trend prior art – Creates doubt about Amazon’s

“reasonable likelihood of success on the merits”

• Does this mean Amazon patent is invalid?

– Subsequent settlement . . .

“Public Interest” Element

• Federal Circuit had in the past usually identified public interest with patent enforcement

• Some exceptions . . .

• Obviously changed post-eBay