The United States has an odd pattern of taking a giant step (or two) backwards just as the rest of the world is, finally, moving forward. The so-called “RESTORE” Act is in that same unfortunate American tradition of trashing the present in order to step backwards to some mythical vision of a halcyon past, just as everyone else finally starts to see the wisdom of moving forward. So, just as Germany is, finally, moving away from automatic injunctions in patent cases and towards a more careful balancing of interests,[1] a few U.S. Senators and Representatives are attempting to move the United States almost twenty years backwards. The so-called RESTORE Act introduced in the U.S. Senate by Senators Coons (D.Del.) and Cotton (R-Ark)[2] seeks to overturn the U.S. Supreme Court’s 2006 decision in eBay vs. MercExchange.
The unanimous eBay decision clarified that patent holders are not entitled to special rights when it comes to determining whether an injunction should be issued for infringement. Instead, in eBay, the Court held that the usual, equitable factors govern the issuance of injunctions in patent cases just as they do in every other type of case.
The proposed legislation now seeks to overturn the nearly twenty years of post-eBay jurisprudence and return the U.S. to a standard for issuance of injunctions in patent cases in which no rights are balanced and no rationality is used to determine whether an injunction is warranted. The proposed bill’s intended outcome is that courts would be forced to rubber stamp injunctions in nearly every patent case in which infringement is found. While the proposed legislation does not specially single out standard essential patents, it does not create an exemption for them either.
So, let’s take a level set and look back to those pre-eBay days to review whether such a drastic step backwards is warranted. When I started my career as a patent litigator way back in the 1990s, patent litigation was relatively rare and nearly uniformly between companies selling competing products. In those long ago days, the question in every one of those cases was whether the patent holder could restrict others from selling implementing products, so that the patent holder alone would be able to sell implementing products. It thus made sense to grant injunctions whenever infringement of a valid patent was found because those cases involved irreparable injury for which money damages were insufficient. We never thought about the equities of the situation back then, because the equities always seemed clear.[3]
But, then came the rise of lawsuits filed by non-practicing entities (“NPEs”). The dot-com bust of the early 2000’s spawned the demise of multitudes of companies both large and small that sometimes had significant patent holdings. Frequently, the only (or most significant) assets left in those bankrupt dot-coms were patents. Those patents often ended up either being asserted by “once were companies” or being sold on to be asserted by “purchase in” NPEs.[4]
Before that dot-com bust, patents rarely changed hands unless a company or business line was acquired by another company that continued to sell products. Since the dot com bust, patents have been traded with ever increasing frequency unconnected to product lines or product sales. What started as a way for a few venture capitalists to recoup some of the money they had invested in startups that went bankrupt during the dot com bust has spiraled into a vast industry.[5] Many different types of companies, both large and small, sell patents these days whenever those patents no longer serve a function in the originating company or when those companies are seeking to make a bit of extra money.
Also, at least in the technology space, the number of patent cases has increased substantially since the 1990s and the vast majority of those patent cases are currently being filed by NPEs.[6] By one count, NPEs account for over 88% of all U.S. patent cases.[7] That is an incredible burden on our courts, and on product companies, from entities that create no innovations and make and sell no useful products.
In addition, since eBay was decided, we have seen the rise of shadowy litigation investment entities who invest in patent litigation with the only goal to make as much money as possible, not to make useful products, and not to support the development of new and useful inventions.[8] These shadowy entities and consortiums often try to hide their involvement and identity, sometimes using prop plaintiffs who have literally no idea about the cases they purportedly have filed.[9] There are many issues that arise from this: incentivization of the filing of non-meritorious litigation; higher litigation costs for companies that can result in increased costs to consumers, an increased burden on courts, the violation of ethical rules and potential fraud on the court and on the accused company (since the plaintiff is not usually actually in control of the case and is not the real party in interest), and the potential for national security risks.[10]
With that background in mind, it is clear that the RESTORE Act (as applied to regular patents and even more so as applied to SEPs) is a terrible idea that does not recognize or understand these changes, or the current patent ownership and litigation environment (conversely, it also is clear that the Litigation Transparency Act of 2024, which also was recently introduced in Congress,[11] is sorely needed).
Moreover, the justifications proposed by the bill’s authors (and others) for its passage are simply untrue. For example, the bills’ authors claim the legislation is needed because when “U.S. courts enforce the exclusivity of patent rights, America becomes a world leader in innovation.”[12] But, nearly two decades after eBay was decided, America remains a world leader in innovation. To claim otherwise is to reject the evidence of your eyes and ears.
Another ground for passage stated in the press release is that restoring “the presumption of injunctive relief in cases where a court has ruled that a patent has been infringed is, perhaps, the most impactful thing that can be done to empower American inventors, entrepreneurs and startups.” But again, that rejects the actual evidence: American inventors are more prolific today than they were two decades ago pre-eBay. The U.S. PTO’s website says that in 2019 (the last year for which I can find the data), 285,113 U.S. origin patents were filed and 167,115 were granted. In the last full year pre-eBay, 2005, only 207,347 U.S. origin patents were filed and only 74,637 were granted.[6] Here’s a chart of the increase in U.S. utility patents granted by year by Dennis Crouch which notes that in 2023, the number of U.S. inventors rose as compared to 2022.[13]
The bill’s authors also claim that fewer injunctions are sought and fewer received these days than in the pre-eBay. That may be correct, but companies can still obtain injunctions in the U.S. when the balance of equities weigh in their favor. Injunctions are issued in nearly all pharma and biotech patent cases when infringement is found because the balance of equities usually favors the patent holder (almost uniformly a practicing entity who is selling implementing products or one that has exclusive license rights to make implementing products) in those cases.
Things are different, however, in the tech space because, in the technology arena, the vast majority of all patent cases are filed by NPEs and shadowy litigation investment financiers and consortiums of financiers whose only goal is to extract money from companies that sell useful products. So, we need to ask ourselves, is it in our societal interest to allow entities that do not make or sell any products (and usually have not invented anything but only purchased patents from someone else) to obtain an injunction against a company that makes and sells useful products without first showing the need for such an injunction.
The eBay decision does not mean that injunctions cannot issue in tech cases. It merely means that injunctions will only issue when they are reasonable under the circumstances of a particular case. That is what weighing the equities means. It means that an injunction will only issue when it is fair and reasonable to the parties and to the public for an injunction to be granted. If an entity’s primary goal and primary purpose is to obtain money from patent licensing, it is the rare case indeed where an injunction will be warranted, and money damages will not suffice.
This is not the 1990s. Patent ownership and patent litigation in the United States have fundamentally changed over the last thirty years. The decision in eBay recognized those changes early on and addressed the need to balance the equities because of those changes. The RESTORE Act seeks to take us back decades in order to solve a problem that does not, in fact, exist. Let’s turn the page on this. I heartily urge that the RESTORE Act be rejected. There is no need and no reason to go back.
[1] Peter Georg Picht from the University of Zurich and Jorge Contreras from the University of Utah wrote an interesting piece comparing U.S. injunction rules as they currently exist and Germany’s new rules on granting injunctions under the Second Act for the Modernization of Patent Law and the CJIE’s Huawei v. ZTE decision. It’s well worth a read: Proportionality Defenses in FRAND Cases: a Comparative Assessment of the Revised German Patent Injunction Rules and U.S. Case Law | GRUR International | Oxford Academic (oup.com).
[2] Senator Coons, colleagues introduce bipartisan, bicameral bill to restore injunctive relief for patent infringement (senate.gov).
[3] Although, in retrospect, in at least some of the cases, we should have been asking whether the public good would be served by enjoining a complex product because of infringement of a patent directed to a minor feature or an insignificant component part.
[4] There are various types of non-practicing entities. I often use the terminology “once-were company” to mean an entity that at one time developed and sold a product, but which no longer does and instead now is an NPE that makes most or all of its revenue by licensing or litigating the patents it obtained when it was making products. I use the terminology “purchase in” company or purchase in NPE to mean an NPE which did not originate the patents but instead purchased them from a company that did (or from another entity that purchased from the originating company). Some companies of course start out as once were companies and end up as a purchase in NPEs, or over time become a blend of them both.
[5] Since the dot com bust, a whole industry has developed that is devoted to buying and selling patents for licensing and litigation. See Intellectual Property Auctions - Ocean Tomo; Patents for Sale | Patent MarketPlace | Patent for Sale (ipofferings.com); Sell Your Patent - Buying and Selling Patents (transactionsip.com). Each subsequent tech downturn, including the current one, has seen patent sales increase. Because of that, according to one report, it “was a great time to buy patents in 2023.” https://www.roipatents.com/s/It-was-a-Great-Time-to-Buy-Patents-in-2023-The-Brokered-Patent-Market-2023-IAM-Media-20240410.pdf. In response to these increased sales, a defensive patent purchase industry has also developed to help companies mitigate risks from sold on patents. See Patent Sales | RPX Corp and Homepage - Allied Security Trust (ast.com). You have to ask yourself, once again, is all of this spending on patents to litigate and patents as a defense to litigation worthwhile from a societal perspective.
[9] See, An Overview of How Third-Party Litigation Funders are Being Addressed by Courts and Policymakers | Thought Leadership | Baker Botts for a good overview of some of the emerging case law on this issue.
[11] Issa Introduces Discussion Draft of Legislation Reforming Third-Party Financed Civil Litigation | Representative Darrell Issa (house.gov)
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