Sen. Coons, RESTORE This Bill to the Shelf

On Tuesday, Sen. Chris Coons introduced the RESTORE Act.  This bill tries to overturn the Supreme Court’s eBay v. MercExchange decision.  Justice Thomas, writing for a unanimous court in eBay,overturned the Federal Circuit’s ahistorical rule, incompatible with the principles of equity, that an injunction should presumptively be issued on any finding of patent infringement. In its place, Justice Thomas’s decision returned the test for injunctive relief to the ordinary equitable principles of favoring legal remedies, such as damages, unless irreparable harm and inadequacy of legal remedies is proven.  

Sen. Coons has been trying for years to overrule this decision, and RESTORE is just his latest attempt.  

It was a bad idea when he proposed doing it in his STRONGER Act.  It was a bad idea when a House version was introduced a year later.  It was a bad idea one year after that, when Sen. Coons reintroduced STRONGER.  In fact, it was such a bad idea that the majority of my testimony to the Senate Judiciary Committee’s IP Subcommittee—a committee Sen. Coons was the ranking member of at the time—focused on just how bad an idea it was.

Solving a non-existent problem

But beyond the many reasons its a bad idea, there’s also the simple fact that the sponsors are claiming that this bill solves a problem that the data shows doesn’t really exist—at least, not when it comes to companies that make things.

To start with, the sponsors argue that “[s]ince [eBay], obtaining injunctive relief in patent cases has become significantly more difficult and significantly more rare.”  Except the data they point to shows that not to be the case—at least, as long as we’re talking about companies that actually make things.  In the paper linked in the bill’s press release, the data is quite clear—eBay didn’t significantly impact operating companies who assert patents, and it was quite helpful to the targets of NPEsNon-Practicing Entity.  A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More.

The linked paper notes that, in its dataset of cases, pre-eBay operating companies received permanent injunctions in 198 cases and had them denied in 19.  That amounts to a permanent injunction grant rate of 91.2%.  Post-eBay?  Operating companies received permanent injunctions in 249 cases and had them denied in 31, for a permanent injunction grant rate of… 88.9%.  (NPEsNon-Practicing Entity.  A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More, on the other hand, went from an 85% to 47% success rate on permanent injunction requests pre- and post-eBay.)

Those operating company numbers are well within the rate of normal statistical variability, not meaningfully different rates.  But maybe operating companies requested injunctions less often post-eBay?

Well, the paper’s data again shows that to be not highly relevant.  The request rates pre- and post-eBay do differ, but the inflection point isn’t around eBay – it’s around the 2011 passage of the America Invents Act.  And that’s significant because, prior to 2011, it was much easier to target multiple defendants in a single lawsuit.  The AIAAmerica Invents Act of 2011.  AIA made modest reforms, most notably moving the U.S. to a first-inventor-to-file system more aligned with foreign practice, but also including expanding prior user rights to all patent-eligible subject matter, and instituting a post-grant review proceeding. made this far more difficult, significantly increasing case numbers—but, critically, that increase was almost entirely in NPE cases.  Operating company litigation rates were not significantly affected by the passage of the AIAAmerica Invents Act of 2011.  AIA made modest reforms, most notably moving the U.S. to a first-inventor-to-file system more aligned with foreign practice, but also including expanding prior user rights to all patent-eligible subject matter, and instituting a post-grant review proceeding..  

In other words, the lower request rate?  That’s likely to be due to joinder changes increasing the raw number of overall cases, but doing so primarily in the category of cases that are less likely to request an injunction—cases brought by companies that don’t make anything, also known as NPEsNon-Practicing Entity.  A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More.  And again, my own research matches this assessment, showing that while there is a decrease in request rate, it is highly differential and primarily due to NPENon-Practicing Entity.  A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More behavior changes.

So, let’s summarize the data (which, again, is from the very paper that Coons et al. point to as justifying this bill.)

In other words, eBay primarily reduced injunctive relief for NPEsNon-Practicing Entity.  A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More, with limited to no negative impact on operating companies.

Solving it badly

So, we know there’s no problem to solve.  But why is this a bad solution?  My testimony goes through this in detail, but the short version?  It doesn’t help operating companies.  In fact, it harms them.  And it completely contradicts the ordinary principles of American law.  All to provide a windfall benefit to companies that don’t actually make a thing.

Beyond my testimony, though, we can start with who it actually helps.  As discussed above, it helps NPEs—companies that don’t make anything.  And many of those NPEsNon-Practicing Entity.  A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More have questionable backgrounds.  Some, like Fortress/VLSI, are owned by foreign sovereign wealth funds.  Others?  We don’t know, because they refuse to disclose who’s funding them, sometimes to the point of dropping cases rather than admitting who’s behind them.  

In other words, at best RESTORE represents a mechanism for foreign investors to target American industry for their own financial benefit.  At worst, motivated adversaries might use patent litigation to target industries and products critical to national security.  We’ve seen hints of this with Huawei’s licensing campaigns in the U.S., and we know that at least some NPEsNon-Practicing Entity.  A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. More are being funded by Chinese entities.

Sen. Coons has said that “autocratic states like China and Russia are using heavy-handed economic coercion to intimidate smaller countries and economies to get their way” and that the Senate should act to prevent this.  So why is he trying to make it easier for them to do so?

Beyond that, RESTORE harms efforts to bring manufacturing back to America.  Imagine two countries.  

In Country A, if it turns out that you’re making products that infringe a patent, you’ll have to pay a court-ordered reasonable price for that patent, but your manufacturing won’t be at risk of being shut down until you pay whatever price the patent owner demands.  In Country B, the opposite is true.  Your manufacturing operations will be shut down until you pay, and the patent owner sets the price.

Country A is the U.S. after eBay.  And Country B is the country that Sen. Coons wants to RESTORE us to.  Where are you going to put your manufacturing?  Personally, I’m going to Country A.  

But Sen. Coons wants the U.S. to be a place where manufacturers are at risk of their entire operation being shut down over a single component.  That’s an odd position to take for someone who has claimed to champion American manufacturing.

So why is it that, even though this bill would violate basic principles of American law, help foreign adversaries, and harm domestic manufacturing, Sen. Coons and his allies support it?

I don’t know.  You’d have to ask him that.