eBay, Its Effects, and the RESTORE Patent Rights Act

If the essence of patent rights—the right to exclude—is ever to be restored post-eBay, a new legislative vehicle for doing so has arrived in Congress. The Realizing Engineering, Science, and Technology Opportunities by Restoring Exclusive (RESTORE) Patent Rights Act is bipartisan and bicameral, as well as short and sweet—less than four pages.

This legislation would return the status quo ante eBay v. MercExchange, empowering the promise of patent exclusivity. Proven patent infringers would no longer be able to continue infringing after judgment against them, whether by making, using or selling a patented invention without permission.

Senators Chris Coons (D-DE) and Tom Cotton (R-AR) recently introduced the RESTORE Patent Rights Act (S. 4840) in the U.S. Senate. Representatives Nathaniel Moran (R-TX) and Madeleine Dean (D-PA.), joined by cosponsors, Representatives Hank Johnson (D-GA), Deborah Ross (D-NC) and Chip Roy (R-TX), sponsored the House companion bill (H.R. 9221).

The RESTORE Patent Rights Act would establish a rebuttable presumption in statute in favor of granting permanent injunction. Once a court enters final judgment that a patent is infringed, the court would presumptively grant permanent injunctive relief to halt the infringing conduct.

The 2006 Supreme Court decision in eBay practically turned patent rights into a compulsory license. Patent owners rarely obtain permanent injunctions these days. Unable to stop continued infringement with an injunction, the best they can do is extract a modicum of the value of their invention through subpar licenses.

The resulting harm to IP owners is seen in two areas: patent litigation and weakened patents and market incentives.

Patent Litigation Effects

A recent report on patent litigation by Marcum tracks changes in U.S. patent litigation trends on account of eBay.

Perhaps most notably, the study determines that permanent injunctions are awarded much less frequently. Courts awarded patent owners 80 injunctions between 2008 and 2012, soon after the 2006 eBay v. MercExchange ruling. Between 2018 and 2022, courts granted injunctive relief in just 36 cases.

Moreover, damages awards in patent infringement cases have diminished since eBay. Courts today award median patent litigation damages of $3.7 million. And in cases where damages are awarded, courts levy enhanced damages against willfulness just 22% of the time.

Furthermore, Marcum reports that nonpracticing entities (NPEs), innovators that don’t make their own inventive products (including universities and R&D firms that license their patents to manufacturers), received 23%of remedies awarded between 2013 and 2022. This includes a mere 12 injunctions granted to NPEs.

Patent case filings dropped from 6,497 in 2013 to 3,639 in 2022. This reduction happened despite the 2011 America Invents Act’s anti-joinder provision, which requires pursuing defendants in separate infringement cases.

Compared to the number of patents granted, an average of 1.7% of patents were involved in infringement litigation from 2013 to 2017. Marcum reports that percentage as dipping to 1%.

The Marcum patent litigation study demonstrates how extensive eBay’s adverse effects have been for innovators’ patent exclusivity. As many view it, eBay has effectively created a categorical rule of denying permanent injunctions.

Weakened Patents, Market Distortions

University of Richmond Law Professor Kristen Osenga writes in a recent paper, “Not only does the lack of injunctive relief no longer serve as a deterrent to infringement, but it also negatively impacts the functioning of efficient markets and negotiations of fair market value.”

She finds that patents are devalued on account of the unavailability of enjoining other parties from using, making, selling or importing a patented invention. “[W]here an injunction is not available, parties who wish to use the technology have no need to negotiate in good faith—or at all.” When patent owners can say no to would-be licensors and can enforce their exclusivity, Osenga says, it increases the market value of patents.

AUTM data indicate that the eBay ruling was followed by nonexclusive licenses outpacing exclusive licensing, Osenga notes in her Hudson Institute report containing these data.

Judging from the Marcum, Osenga and other analyses, pre-eBay intellectual property rights in inventions have been turned upside down. Thus, the RESTORE Patent Rights Act is warranted.

This legislation aligns with the secure private-property-rights standard that American courts long upheld for patent owners. George Mason Law Professor Adam Mossoff’s recent research finds that, from 1790 to 1880, U.S. courts in more than 91% of the cases in which patent infringement was proven issued permanent injunctions—and they didn’t employ any four-factor equities test. Rather than eBay’s just-say-no results, courts historically operated on the philosophy that if there is infringement, injunction is the appropriate remedy.

Enforcing patent exclusivity through civil litigation is much bleaker for patent owners since 2006. U.S. patents continue to lose value while predatory infringement has become the norm. Restoring patent rights—namely through access to injunctive relief—would help reverse eBay’s adverse effects and boost IP’s market value.

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Author: maxkabakov
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