In case you missed it, I testified to the Senate Judiciary Committee’s Subcommittee on Intellectual Property this week on the RESTORE Act – legislation that would overturn the unanimous Supreme Court precedent established in eBay v. MercExchange and make defendants liable to inappropriate injunctive relief. The hearing is available to watch here, and my written testimony is available here. Below is a summary of my written testimony.
Five years ago, I testified before this Subcommittee on essentially the same topic as the one in front of you today—a proposal to overturn the eBay v. MercExchange decision. My testimony then described the positive impacts of the eBay decision on our innovation ecosystem and how the proposed reversal of this decision would harm basic principles of the law of equity and remedies, and would almost exclusively benefit non-practicing entities.
In the past five years, nothing about the reality of injunctive relief has changed. The positive benefits of the eBay decision for investment in research and development, including in filing patents, continue to exist. Abusive patent litigation has not disappeared, but the rate of its growth has been reduced. Meanwhile, and contrary to the erroneous findings set out in the RESTORE Act, injunctive relief continues to be available according to the historical test for such relief. Operating companies can generally obtain injunctions on the patents they practice. Although non-practicing entities are less able to obtain injunctions, some still do. This is neither surprising nor problematic. Injunctions are a form of relief that has never been automatic, but rather a discretionary equitable remedy that is only available when ordinary legal remedies would fail to provide adequate recompense.
This approach to equitable relief has a long-standing basis in American law. As far back as the Founding, Congress was clear: “suits in equity shall not be sustained in either of the courts of the United States, in any case where plain, adequate and complete remedy may be had at law.” In fact, the Supreme Court has itself summarized the principles of injunctive relief in a single sentence, holding that “[i]n brief, the bases for injunctive relief are irreparable injury and inadequacy of legal remedies.” This well-established tradition was ignored by the Federal CircuitSee CAFC until their error was corrected by the eBay decision. This, in turn, returned the system of injunctive relief to its historical roots, a legal tradition in which competitive harms are remedied by injunctions while monetary harms are remedied by damages.
This system works—and it works well. Injunctions remain available, posteBay, for most classes of plaintiffs. Operating companies who successfully sue a competitor will nearly always receive injunctions. Even some non-practicing entities, such as universities working with an exclusive licensee of their technology, can receive injunctions. Only in the specific circumstance of a plaintiff who licenses their patent non-exclusively and indiscriminately, and does so without placing a product on the market, are injunctions difficult to obtain—and even in such cases, injunctions are still available in some circumstances.
The current injunctive relief system is also responsive to the realities of modern products. While a silent presumption of injunctive relief might have made sense when a product would embody one or two patents, that is no longer the situation. Modern products, especially in the high-tech industries in which CCIA members operate, can potentially implicate thousands or tens of thousands of patents. When a patent covers a seat warmer in a vehicle, providing the patent owner with the ability to force the manufacturer to halt production and sale of the entire vehicle line simply does not make sense. Instead, it provides the patent owner with inappropriate leverage in licensing negotiations by allowing them to extract not just the value created by their patented technology, but also a significant portion of the value created by the manufacturer’s own innovations.
The historical practice of only issuing an injunction when irreparable harm exists has helped to tether patent damages and patent licensing negotiations to the true value of patented technologies. And the economic literature is clear that, in this circumstance, the specter of injunctive relief can allow patent owners to extract value created not by their technology but by the defendant’s innovations using the threat of an injunction removing their product from the market entirely. When a patent owner can level the threat of shutting down a defendant’s entire business or removing a product from the market completely, the license being negotiated is no longer tied to the value of the patent but instead tilted towards the patent owner who can extract the entire market value of the product as a result. The eBay decision has mitigated this threat, placing the negotiating table back on a level footing and allowing patent owners and innovators to bargain fairly, without undue power on either side.
Adopting a presumption of injunctive relief would have another, perhaps unintuitive, impact—this one on American manufacturing. Because an injunction bars not just the sale of a product in the United States but also its manufacture here, an injunction against an American manufacturer threatens not just its U.S. sales but also its worldwide sales by removing the company’s ability to make its products. In contrast, if a company manufactures their product overseas, a U.S. injunction only threatens their American sales. This disparity places American manufacturers at a disadvantage compared to companies that manufacture overseas, creating an incentive to move manufacturing outside of the United States in order to avoid the potential threat of an entire manufacturing line having to shut down. At a time when reshoring of manufacturing is a national priority, creating additional headwinds against those efforts is ill-advised.
A comprehensive presumption of injunctive relief for all plaintiffs against all products is fundamentally harmful, as my testimony explains. RESTORE as currently drafted would significantly harm innovation in the United States. At a minimum, RESTORE should be modified to avoid placing U.S. manufacturers at a competitive disadvantage. This could be done by limiting the presumption to situations in which a patent owner could meet the requirement that it actively works its patent, either itself or in conjunction with an exclusive licensee. In this situation, a presumption could in fact be appropriate. Conditioning the presumption of injunctive relief on this type of working requirement would mitigate competitive disparities between U.S. and foreign manufacture, make injunctive relief consistent with historical equitable practice, and would help increase innovative output and social welfare according to the economic literature on patents and negotiations. I would respectfully urge the bill’s sponsors to include such a modification before reintroducing RESTORE.
