Compulsory Licensing / Injunction

The Paris Convention for the Protection of Industrial Property gives countries broad discretion to implement compulsory licensing. More recently, the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) imposed certain restrictions, namely that governments must: (a) consider cases on their individual merits; (b) make an effort to negotiate a voluntary license on reasonable commercial terms prior to authorizing third party use; and (c) require "adequate remuneration . . . taking into account the economic value of the authorization" . Currently, many countries require compulsory licensing of patents, including Australia , Brazil , France , Germany , Canada , and Japan . In some cases compulsory licensing applies across the board, and in other cases mostly to pharmaceutical and medically related patents . A good general article can be found at Wikipedia.com, and summaries of the laws for individual countries can be found at the website of the Consumer Project on Technology.

Until 2006 the U.S. had no compulsory licensing, with only two exceptions. The Clean Air Act provides for compulsory licensing to a preferred manufacturer where development of the technology was funded by U.S. government grants. In addition, the Atomic Energy Act authorizes forced sale of an atomic-energy invention or discovery to the government .

Nevertheless, in eBay, Inc. v. MercExchange the Supreme Court effectively forced the country into the world of compulsory licensing by refusing to uphold mandatory injunctive relief. In particular, the Court held that District Courts must exercise "discretion consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards". Thus, a patent holder of must satisfy the traditional "four-factor test" for issuance of an injunction: "(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, 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. . . . "

From a practical standpoint this latest ruling means that patent holders who want injunctive relieve may want to refrain from ever even suggesting their willingness to license, and should certainly refrain from negotiating with the infringer. In the eBay case, the trial court found infringement of several of the claims, but went on to deny permanent injunction on the grounds that MercExchange had made public statements regarding its willingness to license its patents . It also means that the value of a patent depends to some extent upon who owns it. A patent holder that is competing in the marketplace, for example, should have an easier time securing an injunction (or a higher royalty) than a patent holder that is not commercializing its patented technology.

Since the eBay decision, the District Courts have granted or denied injunctive relief based upon these very principles. For example, in Tivo Inc. v. EchoStar Comm. Corp . a Texas District Court granted injunctive relief to the patent holder, largely on the grounds that EchoStar competes directly with Tivo, marketing their infringing products to potential DVR customers as an alternative to purchasing Tivo's DVRs. Just one day earlier the very same court denied injunctive relief in Paice LLC v. Toyota on the grounds that the patent holder failed to prove irreparable harm. Among the significant findings were that the patent holder was not practicing the claimed invention, and that the patent holder offered to license the technology to Toyota. The court found that offer evidence that a monetary award would be sufficient compensation.

Whether this shift to compulsory licensing is good for the country remains to be seen. Certainly there has been quite an outcry by established businesses against what they see as "patent trolls" who hold patent rights but are not competing in the marketplace. Perhaps the proper balance can be achieved by levying what are effectively high fines against the infringers through enhanced damages. In z4 Techs., Inc. v. Microsoft Corp . Texas District Court levied an additional twenty five million dollars in enhanced willfulness damages against Microsoft, in addition to $2.3 million in costs and attorneys’ fees.

[T]here is ample circumstantial evidence that to Microsoft[,] Colvin and his patent rights were insignificant because Microsoft never thought Colvin would be able to pursue his rights against it. The evidence presented at trial suggests that Microsoft considered z4 a small and irrelevant company that was not worthy of Microsoft’s time and attention, even if Microsoft was potentially infringing its patents.