By Codifying the eBay Factors, RESTORE Does Not Solve the Problem of Obtaining Injunctive Relief

For America’s first two centuries, over 90% of patent owners who won patent infringement cases on a not invalid patent were awarded an injunction. Would-be-infringers dealt with injunctions by acquiring startups, licensing patents, designing around the invention, and offering co-development and partnerships with patent owners. Competition increased because the act of avoiding injunctions spurred innovation.

In 2006, the Supreme Court upended U.S. innovation in eBay vs. MercExchange (eBay). The eBay decision mandated a four-factor test (eBay Factors) that made injunctions nearly impossible to obtain. A working paper from Professor Kristina M.L. Acri shows that eBay reduced injunctions by 91.2% for patent owners without a product and 66.7% for patent owners with a product.

eBay opened the floodgates to massive predatory infringement, destroying countless startups, especially those commercializing critical emerging technologies, and arguably contributed to enabling China to take the lead in 37 of 44 technologies critical to our economic and national security.

The eBay Factors

eBayBesides creating the eBay Factors, the decision placed the burden to prove it survives the eBay Factors on the patent owner. These are distinct and different things.

The eBay Factors:

“That test requires a plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law 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. The decision to grant or deny such relief is an act of equitable discretion by the district court, reviewable on appeal for abuse of discretion.”

Under eBay Factor (1) the patent owner must prove it is has suffered irreparable harm caused by the infringement. eBay’s hypothesis is that if the patent owner has a product, it suffers irreparable harm, but if it doesn’t, monetary damages are sufficient to cure the harm, so no injunction is ordered.

The eBay Factors Cause Predatory Infringement

Unfortunately, eBay’s hypothesis fails to consider the economic dynamics of introducing new products into markets saturated with huge incumbents. Patented inventions introduce risk to huge corporations as their existing products are replaced by new patented products. If an invention cannot be bought, licensed or designed around, incumbents risk losing market share. Prior to eBay, the cost of stealing patented technology was high – an injunction could shut down the entire line of business and all that was invested in it.

Because the eBay Factors require so much for a product on the market to get an injunction, huge corporations can flood the market with infringing products, forcing the startup out of business. Once out of business, the startup has no product and can no longer get an injunction. eBay means that if a huge corporation steals a patented invention from a startup, it keeps it.

RESTORE Merely Shifts the Burden

The Realizing Engineering, Science, and Technology Opportunities by Restoring Exclusive (RESTORE) Patent Rights Act of 2024 (RESTORE Act), introduced in July, establishes a rebuttable presumption that the patent owner should be granted an injunction:

“REBUTTABLE PRESUMPTION. — If, in a case under this title, the court enters a final judgment finding infringement of a right secured by patent, the patent owner shall be entitled to a rebuttable presumption that the court should grant a permanent injunction with respect to that infringing conduct.’’

This operative language reverses eBay’s burden, placing it to the adjudged infringer to overcome the rebuttable presumption. RESTORE does not address the eBay Factors; it merely flips the burden.

RESTORE Operative Language Does Not Abrogate the eBay Factors

The eBay Factors are the mandated defenses against injunctive relief. Some proponents of RESTORE assert that it “explicitly abrogates” the eBay Factors. However, RESTORE does not mention eBay or the eBay Factors, so it can’t explicitly abrogate the eBay Factors.

RESTORE could effectively abrogate the eBay Factors without naming them. For example, the 1952 Patent Act effectively abrogated the flash of genius doctrine of Cuno Engineering v. Automatic Devices (Cuno) without explicitly naming Cuno by adding the sentence “Patentability shall not be negated by the manner in which the invention was made” to Section 103. This effectively abrogated Cuno’s flash of genius doctrine because it was a “manner in which the invention was made” so it could no longer be used to negate patentability.

If RESTORE is to similarly abrogate the eBay Factors, its operative language must prevent the use of the Factors. Unfortunately, RESTORE’s operative language fails to address the eBay Factors, so RESTORE does not abrogate the eBay Factors. Under RESTORE, it is entirely possible that federal judges could still rely on the eBay Factors when determining if an injunction is appropriate. For example, there is nothing in RESTORE that would prevent an infringer from arguing that an injunction is not appropriate because the patent owner has not suffered irreparable harm. Faced with that argument, if the patent owner did not submit evidence of irreparable harm would it ever be possible for the patent owner to prevail and obtain an injunction? Maybe, but maybe not. The point is that, while the aim of RESTORE is good—to overrule eBay—the language of the bill simply does not guarantee that would actually happen.

RESTORE’s Findings Codify the eBay Factors

So, while RESTORE’s proponents claim it abrogates the eBay Factors,  and while there is no doubt that seems to be the intent, the truth is the bill – it is silent on them. Certainly, arguments will be made that the eBay Factors still stand, and the courts will be asked to clarify the intent of Congress. And this intent can be found in the  Findings section in RESTORE.

RESTORE’s first four Findings have nothing to do with the eBay Factors.  However, Findings (5) and (6) bring eBay Factor (1), irreparable harm, into play:

“(5) Given the irreparable harm that is caused by multiple acts of infringement or willful infringement of a patent, courts historically presumed that an injunction should be granted to prevent such acts, with a burden on defendants to rebut such a presumption with standard equitable defenses.

(6) Recently, courts have ended the approach described in paragraph (5), which contradicts the traditional, historical practice governing the equitable remedy described in that paragraph.”

RESTORE reverses the burden, so the patent owner simply requests an injunction. The adjudged infringer then counters using standard equitable defenses. eBay mandated the eBay Factors as the standard equitable defenses to injunctions, so the adjudged infringers are directed by Findings (5) and (6) to continue to rely on the eBay Factors in order to defeat any injunction requested. It is hard to imagine a more specific and direct Congressional intent on keeping eBay in play.

RESTORE’s silence on the remaining eBay Factors has the effect of carrying all the eBay Factors through. eBay itself is not abrogated, so its mandate carries through as well.

But RESTORE doesn’t stop there in codifying the eBay Factors. Findings (7) states the problem with eBay is solely burden shifting.

“(7) Eliminating the traditional, historical equitable practice of applying a rebuttable presumption of injunctive relief in the case of continuing acts of infringement or willful infringement of a patent has—

(A) substantially reduced the ability of patent owners to obtain injunctions to stop continuing or willful infringement of patents; and

(B) created incentives for large, multinational companies to commit predatory acts of infringement, especially with respect to patents owned by undercapitalized entities, such as individual inventors, institutions of higher education, startups, and small or medium-sized enterprises.”

RESTORE’s Finding (7) explains that the substantial damage to patent owners and the incentives for predatory infringement are solely caused by eBay’s burden reversal, not because the eBay Factors are also damaging.

The court must assume that the intent of Congress is (i) eBay Factor (1), irreparable harm, remains a standard equitable defense; (ii) the damage of eBay is only caused by its burden reversal and not the eBay Factors themselves; and (iii) the eBay Factors carry though and remain mandated.

RESTORE Does Not Return the Law Injunctions to Pre-eBay

According to Professor Adam Mossoff of George Mason University Antonin Scalia Law School, prior to eBay: “… no judge applied a four-factor test for issuing an injunction, either for a permanent or a preliminary injunction. […] Courts awarded permanent injunctions in 91% of the cases in which the defendant was found to infringe a patent that it failed to invalidate.”

The Federal Circuit mirrors Mossoff’s research stating in its 2005 eBay decision, “the general rule is that a permanent injunction will issue once infringement and validity have been adjudged.”

RESTORE cannot return the law of injunctive relief to its state prior to eBay because RESTORE codifies, at minimum, eBay Factor (1), irreparable harm, which did not exist prior to eBay.

RESTORE Would Be Bad Law

Who has the burden to prove the eBay Factors does not matter. If the patent owner has the burden, it must show a product on the market. If the infringer has the burden, it must show the patent owner does not have a product. No matter who has the burden, the facts showing a product are publicly available and easy to prove.

The eBay Factors encourage patent infringement because it is too easy for a large corporation to flood the market with knockoffs and run the startup out of business, thereby eliminating the injunctive threat.

RESTORE effectively codifies the eBay Factors, which is the primary cause of eBay’s damage to U.S. innovation and a major reason why China now leads the world in 37 of 44 technologies critical to our economic and national security.

If RESTORE passes, U.S. innovation will remain handicapped in ways no other country handicaps their own innovation engines, and the United States will lose yet another generation of innovation to China. America just doesn’t have that option.

How to Fix RESTORE

HR 8134, the Restoring America’s Leadership in Innovation Act (RALIA) uses effective language to restore injunctive relief.

“(1) IN GENERAL.—Upon a finding of infringement of a patent, the court shall presume that further infringement of the patent would cause the patent owner irreparable harm. This presumption may be overcome only by a showing of clear and convincing evidence by the infringing party that the patent owner would not be irreparably harmed by further infringement of the patent. The patent owner is not required to make or sell a product covered by the patent to show irreparable harm.”

“(b) SENSE OF CONGRESS.—It is the sense of Congress that this section abrogates the Supreme Court’s ruling in and subsequent lower court interpretations of eBay v. MercExchange, 547 U.S. 388 (2006), which has been applied as a de facto presumption against granting patent owners injunctive relief.”

RALIA expressly abrogates eBay. While it also adds a presumption that a patent owner is irreparably harmed by the act of infringement, the presumption can cannot be overcome if the patent owner does not have a product.

This is not the same as the state prior to eBay, but it will act similarly, and the problems created by eBay will be gone.

Image Source: Deposit Photos
Author: kchungtw
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