eBay Casualty: E.D. Texas Court Denies Injunctive Relief to Halt Microsoft’s Infringing Activities
I’m writing a paper on this very topic, but history is happening faster than I can type . . .
z4 Technologies, Inc. v. Microsoft (E.D.Texas 2006)
z4 Tech appears to be the first post-eBay decision denying a permanent injunction after a patent has been valid and infringed. Here, the jury found that the patents were willfully infringed by Microsoft and that there was insufficient evidence to find the patents invalid. z4 then asked the Court to enjoin Microsoft from making, using, or selling its infringing product (Windows XP).
The Court followed the “traditional four-factor test used by courts of equity.” to determine whether to issue an injunction:
I. Irreparable Injury to Patentee: The patentee argued that infringement of a patent created a rebuttable presumption of irreparable harm to the patentee. The district court dismissed this “creative” argument as lacking precedential foundation:
z4’s arguments for the application of a presumption of irreparable harm are creative, but z4 cannot cite to any Supreme Court or Federal Circuit case that requires the application of a rebuttable presumption of irreparable harm with regard to a permanent injunction.
In fact, the court cited the Supreme Court case of Amoco Production for the proposition that a presumption of irreparable harm in the context of an injunction is “contrary to traditional equitable principles.”
Because z4 does not create any products, the Court found that z4 the first factor weighed in favor of the willful infringer, Microsoft.
In the absence of a permanent injunction against Microsoft, z4 will not suffer lost profits, the loss of brand name recognition or the loss of market share because of Microsoft’s continued sale of the infringing products. These are the type of injuries that are often incalculable and irreparable. The only entity z4 is possibly prevented from marketing, selling or licensing its technology to absent an injunction is Microsoft. As . . . z4 can be compensated for any harm it suffers in the way of future infringement at the hands of Microsoft by calculating a reasonable royalty for Microsoft’s continued use of the product activation technology. Accordingly, z4 has not demonstrated that it will suffer irreparable harm absent a permanent injunction.
II. Remedies Available at Law (Is Money Sufficient?): Here, the court cited Kennedy’s concurring opinion from eBay:
Justice Kennedy specifically mentioned the situation where a “patented invention is but a small component of the product the companies seek to produce” and states that in such a situation, “legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.” . . .
Here, product activation is a very small component of the Microsoft Windows and Office software products that the jury found to infringe z4’s patents. The infringing product activation component of the software is in no way related to the core functionality for which the software is purchased by consumers. Accordingly, Justice Kennedy’s comments support the conclusion that monetary damages would be sufficient to compensate z4 for any future infringement by Microsoft.
In addition, Microsoft has promised that its new version of Windows (2007) will phase out all the infringing components. Thus, any ongoing royalty would only last for a couple of years. “For the reasons stated above, z4 has not demonstrated that monetary damages are insufficient to compensate it for any future infringement by Microsoft.”
III. Balance of Hardships: Microsoft argued that it would be really hard to redesign even a small component of Microsoft office. From what I have heard about the complicated code noodle, that assertion must be true. Thus, the court found that the balance of the hardships weigh in favor of Microsoft.
IV. Public Interest: Microsoft office is really popular, and “it is likely that any minor disruption to the distribution of the products in question could occur and would have an effect on the public due to the public’s undisputed and enormous reliance on these products. . . . Although these negative effects are somewhat speculative, such potential negative effects on the public weigh, even if only slightly, against granting an injunction.”
Commentary: As I predicted earlier, one way to avoid an injunction is to be a very successful infringer. I would have suspected that Microsoft’s willfulness would have weighed in z4’s favor, but the court did not even mention willfulness in its analysis of the equitable relief factors.
In a forthcoming paper code-named Injunction Denied, I address the issue of injunctive and monetary relief in patent cases. In particular, I focus on the situation where equities favor the defendant, and ask the question what monetary remedy a court should then impose? My answer may surprise you. . .
Notes:
- Download the z4 Decision.
- The z4 patents relate to antipiracy software. See U.S. Patent Nos. 6,044,471 and 6,785,825.
- The Eastern District of Texas has been a very hot forum for patent litigation for the past few years. This case may change that tide.
- Hat tip to Hal Wegner for the alert.
eBay Casualty: E.D. Texas Court Denies Injunctive Relief to Halt Microsoft’s Infringing Activities
39 thoughts on “eBay Casualty: E.D. Texas Court Denies Injunctive Relief to Halt Microsoft’s Infringing Activities”
“methinks the ‘may’ in 35 USC 283 should be read in conjunction with 35 USC 261 which states that ‘patents shall have the attributes of personal property.'”
I think you’ve got it backwards, Ronald. 35 USC 261 begins with “Subject to the provisions of this title…” So 35 USC 261 should be read in view of other provisions of the title, not the other way around. The title and content of Section 261 make it pretty clear that this is about alienability of patent rights, both before and after a patent is granted. It’s absurd to suggest that Section 261 somehow vests patent rights with the status of natural rights, right up there with “Life, Liberty, and Property.”
By the way, your front lawn is real property, not personal property. So, your analogy fails.
methinks the “may” in 35 USC 283 should be read in conjunction with 35 USC 261 which states that “patents shall have the attributes of personal property.”
Imagine if somebody parked their trailer on your front lawn, so you call the cops to get the trailer moved, but the cops refuse.
In a very practical sense I fail to see how the interests of the public at large are negated to any degree in the case of a system for software activation. It is not an integral part of the OS per se. It is a “lockbox” for enabling the use of the associated software…no more and no less. While certainly a more sophisticated lockbox than the ones typically employed by other software publishers, its elimination via a permanent injunction does not preclude in any manner companies such as MS from adopting other lockbox techniques.
From the standpoint of the public at large, I daresay that virtually all users of MS software requiring the activation scheme currently employed by MS would be more than happy to see it go down in flames, myself included. I am tired of repartitioning a drive and reloading MS XP, only to then discover that my totally legit copy of the software must be reactivated, and not via the relatively simple online process. No, I must place a phone call to an activation center, and then spend time unnecessarily entering numerous string of numbers just to re-unlock the darn thing.
Instead of calling the invention an intergral part of the OS, it would have been much more accurate to use a lockbox analogy to demonstrate that MS could easily have adopted another approach that was non-infringing.
The denial of the injunction in z4 under these circumstances is troubling, to say the least.
While this isn’t Fed. Cir. level, seems like the case left open a pretty large issue on appeal regarding the rebuttable presumption of irreparable harm.
Did Ebay overrule this Fed. Cir. precendent too? See e.g. Richardson v. Suzuki, 868 F.2d 1226 (Fed. Cir. 1987). Richardson quotes Smith International Inc. v. Hughes Tool (argument rejected by z4 court).
Joe,
I have to agree with Another MS Hater on the point about patents and disclosure.
I’ve applied for a number of patents in technology, and basically the use I make of them is as protection that allows me to disseminate my ideas. My expectation, based on the law, is that when they take off, I will be able to build a business around those ideas, being the patent holder.
As an example, a few months after I and my co-inventor filed our first patent, we went to a technology conference and explained our concept. Certainly nobody there indicated that they had heard of any such ideas before, and the participants included representatives from the major companies in the industry. In addition, we posted our paper on our website, where it has been viewed by tens of thousands of visitors. If people came across our ideas, it was far more likely that it was due to those means than it was due to their reading the patents themselves. But it was only the protections afforded by patents that made this public dissemination in any way sensible.
You also claim that often (or is it typically?) patent holders have had no “causal” impact on the development of technology. yet how can you possibly know this? In the case of my example, how many people at this stage can claim, plausibly, that they have not been “causally” influenced by our public descriptions of our ideas to adopt them? There may be some who came up with the same ideas independently, but except in rare cases, how can this be known, especially when they have self-serving reasons to make that claim?
Joe, I call BS on you…
Like I said, patents are different.
95 % of them are total junk (and those 95 % mostly belong to those MSs and HPs of the world – the worst patent system abusers whose CEOs look more like a bunch of crooks to me)
However, there are quite a few Patents teaching how to make really new stuff.
One example would be Brent Townshend’s patent(s) on 56k modem – a critical communication patent.
There is a certain amount of intentional obfuscation and legalese in each patent, but this is done to make patent claims more defensible in court.
The information about new technology is usually communicated to the industry through private communicatons under NDAs or gets publicly disclosed at some conferences or trade shows. The founder of NTP actually built some working prototypes of early wireless paging technology which was shown to the industry at some trade show well before RIM was founded.
The much hated (by all memory manufacturers)Rambus actually disclosed all the useful details about their technology to the industry under NDA (only to be accused of unfair practices while the industry stole their patented technology)
Get to know the facts: each and every truly novel and useful invention is known to the industry well in advance of the patent grant. Those inventors do not invent new things just to sit on their patents – they want their incentions to be built, but most of the time lack resources to do it themselves. Patent is just a way to claim compensation from willful corporate infringers: without patents Townshend might be living under ther bridge and Rambus founders might be collecting a dole..
Is this what you want ?
“Patent system is supposed to encourage open publication of truly new and unobvious results so that after a short period … of exclusivity they pass to the public domain.”
The fallacy at the core of that argument is that patents are not written to inform – they are written to obfuscate. Look at the Forgent patent – that patent was in place for years and no one thought it applied to jpeg. It sure as heck did nothing to spread useful knowledge. The NTP patents did nothing to spread useful knowledge and had no causal link to the development of the BlackBerry.
Where is the evidence that anyone can or does go looking at the patent register to find inspirations for new products or solutions to problems? The patent registry gets checked for problems, not solutions, and that is what it is creating for the economy – problems, not solutions.
Hey, Joe,
The primary purpose of the patent system is NOT to bring new inventions to life: people would still invent new and useful things even without patents (and will use trade secrets to hide their inventions from others, just like back in the Middle Ages)
Patent system is supposed to encourage open publication of truly new and unobvious results so that after a short period (people like you would say it’s too long, but those people know nothing about all of the hurdles in the path of underfunded attempts to commercialize any truly novel and useful invention) of exclusivity they pass to the public domain.
“Are you objecting to the granting of exclusivity, or are you one of those (and there are so many) who believes that all inventions should be available for free?”
No I don’t think that all inventions should be free. I think that:
1. inventions should be new and non-obvious to be patentable;
2. the period of exclusivity should be tied to how long it was likely to be before someone else inevitably came to the same result (much less than 17 years for high tech inventions);
3. the use of injunctions is inappropriate where an invention has been inadvertantly infringed and incorporated into a more complex product (think the jpeg patent dispute).
There is a fundamental difference between a technical advance and the writing of a creative artistic work – the technical advance was inevitable, the writing of that particular artistic work was not.
I have in fact personally done original creative technical work and the product I helped create is in regular use around the world. The work we did was not patentable and yet it was done.
As Nathan Myhrvold correctly stated in his recent congressional testimony, MS and other tech behemots came to power not by innovating, but by forcing their monopoly on the market, and in the process, stealing (or buying cheaply via corporate acquisition) all new inventions incorporated in their products.
This can be said of all of the tech giants, like MS, HP, Apple, Cisco etc. etc. etc.
These companies are the true abusers of the patent system.
I’ve read through a lot of patents by MS Research folks. 95 % of them are absolute BS.
I wouldn’t trade my one patent (still pending) for a 100 of those MS “patents”
And those guys complain the most about low patent quality…
Joe Smith wrote:
“The granting of patents allows a period of exclusivity in the hope that it will encourage invention to take place sooner. In today’s world of rapid advances it is doubtful that the benefits from promoting slightly earlier invention match the disadvantages which flow to all from a seventeen year period of exclusivity.”
If you feel that way, then how would you feel about not granting exclusivity of manufacture, but GUARANTEEING a royalty stream from all those who practice, to the rightful inventor?
Are you objecting to the granting of exclusivity, or are you one of those (and there are so many) who believes that all inventions should be available for free? (Perhaps unless they themselves should someday come to have an invention.)
There is clearly a deep seated loathing so many have for those who invent. One sees this in interviews of subjects. There’s clearly a “Why didn’t I think of that?” mentality at work. Which rapidly becomes “Well I’m sure I could have, might have, I suppose I could have thought of it too. Sure why not? The other guy did, so of course I could have also. Why not?” And that train of thought soon degrades into a “Well why should anyone profit off of their invention? The Patent Office must be wrong in recognizing them. Of course! The USPTO is full of idiots. They have to be wrong.” And then, “Well they’re just dirty trolls anyway. They’re trying to destroy society and the patent office is helping them”.
Interesting psychology.
What if this were to happen with screenplays or musical compositions? “He’s a symphonic troll! He only writes the symphony, he doesn’t even perform all orchestral parts himself! Troll. I hate musical trolls, they’re destroying society!”
Or “You only wrote the screenplay, you didn’t act in the movie. Why should you earn anything! Besides, I could have thought up a story like that, sure, in fact I just did after I read your script! It’s just sick that people make money for mere stories. I’m convinced that if all screenplays automatically belonged to the public, why, people would write more screenplays.”
Interesting. How invention is judged and expected to live by different standards than other creative endeavors, which are in fact HONORED by such things as TONY’s, Oscars, and Pulitzers.
“Ask yourself the question: who has done more damage to innovation in the software industry? Has it been the sparingly few patent holders who have managed to win court cases against Microsoft? Or has it been Microsoft itself, which has copied shamelessly from legions of innovators over the decades, and raked in likely 100 times the profits that those innovators ever pocketed on their own inventions?” — “Tom”
“Tom”, there is profoundly more truth to your words than even you yourself may be aware of. Just today (though dated June 15th), Mark Stephens who writes by the name Robert X. Cringely, commented:
“The other attribute that Microsoft has historically lacked is ethics, which also comes directly from the cult of Bill, with its infinite shades of gray. Microsoft has to this point generally thrived by stealing technology from other companies. But now it is at the point where there isn’t that much left to steal, so Microsoft is faced with operating in a whole new manner — actually inventing stuff. This requires discipline — not just discipline to do the work, but discipline not to backslide and steal a little of this and that when the going gets rough.
In short, for Microsoft to have the barest hope of preserving its monopoly, it has to build a whole new monopoly based on honest, original work devoid of politics, backstabbing, and lies. This means not only does Gates have to go, but for all practical purposes CEO Steve Ballmer should go, too, because he’s as responsible as Gates for this mess.”
…We live in a new age – all of us: one where bloggers like Dennis Crouch here as well as people like you who partake in the debates they host, can literally shape history in profoundly significant ways, and protect truth & justice from being usurped by the ruthless and powerful. This is in fact happening at this very moment. Bill Gates announcement last week did not come out of a vacuum. It was part of a chain reaction of falling dominoes ignited by another law blogger who appears to be a friend and professional colleague of Dennis’s. Microsoft has been “monitoring” certain events closely since then, and when on the morning of March 21st a certain patent issued (as it was long expected to) it became clear that Microsoft’s house of cards was indeed in jeopardy. That afternoon Jim Alchin was ordered to make an announcement about the imminent delay of Windows Vista ostensibly for “security reasons” but in reality to buy time to potentially strip out already integrated features that would infringe the March 21st patent.
{ Try a Google search on keywords: hastily allchin march 21 }
In rapid succession came other news from Redmond. As reported by Slashdot.org in
“IE7 Separated from Windows Explorer”
( see here link to slashdot.org )
That separation was said to be “impossible” by Gates himself in testimony given at their landmark antitrust trial, and was in fact one of the prime reasons why antitrust action was deemed necessary in the first place. Now, it is being implemented – (conveniently) post March 21st, in the name of just-recognized “security defects”, rather than to reduce liability for infringement. And this is but a miniscule part of a bigger crime sheet soon to be revealed, in part thanks to law bloggers like the host of this one. And as “Robert X. Cringely” points out the road ahead from this point forward is messy and unclear for Microsoft. It’s not surprising Bill is jumping ship now.
So yeah “Tom”, you are so correct in recognizing that some of the biggest “heroes” of the technology and business world in fact committed the most egregious crimes against the true inventors out there. They grossly abused the system using their power and influence, bribed people, even prestigious universities. They fooled the public into believing that “the system is broken”, when in truth they were the ones breaking the system. They slandered honest and devoted government employees with accusations of “Examiner incompetence”, while committing perjury by taking credit for inventions they stole. They lobbied Congress full force to overhaul the US patent system to favor their own interests to the detriment of honest inventors they stole from, while concealing from Congress the abominably un-American schemes they practiced like bringing stolen American inventions to foreign countries to feign having them invented there, again to evade US laws. And they practiced such highwire activities in flagrant violation of SEC requirements mandating the disclosure of even far less exotic risks to their shareholders.
But just as history will record these things, history will also recognize the people who felt compelled to protect the noble ideals of the Constitution, and prevent the triumph of evil. What Dennis is doing here is the direct descendant of what took place in little wooden buildings, by candle light, in the troubled years leading up to 1776.
eBay v. MercExchange
Last month, the Supreme Court handed down its opinion on eBay v. MercExchange. I talked about this case in November last year (see here), but didn’t get the chance to discuss it when the Supreme Court opinion was released. Because