Tuesday, May 16, 2006

Supreme Court weakens U.S. patents?

The United States Supreme Court in eBay v. MercExchange has held that, instead of applying a general rule that patent infringement leads to an injunction barring the infringer from using the patent, courts instead should, as in most other areas of law, apply the four-factor equity test used for deciding whether to order permanent injunctions. In other words, the plaintiff must show that:

(1) it has suffered irreparable injury from the infringement,
(2) monetary damages are inadequate to compensate for the injury,
(3) the balance of the hardships warrants a remedy in equity (roughly speaking, that the plaintiff will be hurt more by lack of injuntion than the defendant will by the injunction), and
(4) the public interest would not be disserved by a permanent injunction.

This holding overturns that of the U.S. Federal Circuit favoring the general rule that, subject to a few exceptions, injunctions should issue when there is infringement. The Federal Circuit generally hears all appeals in U.S. patent infringement cases. It has been a de facto supreme court of patents, since, at least until this year, the actual Supreme Court accepted patent appeals quite infrequently. If past history is any indication, the Federal Circuit will probably try to liberally interpret the Supreme Court's opinion to maintain the rules that it has championed. Here, it may try to read its rule of general injunctions into the four-factor test.

There are a number of clever arguments the Federal Circuit might accept in order to effectively revert to the general rule. It might favor the plaintiff with presumptions that each of the four factors are generally found in patent cases, or reason by analogy that where injunctions were issued in a similar case in the past, the four factors impliedly must have been found, and thus should also be found in the present case. This would allow the Federal Circuit to distinguish eBay as involving a particularly problematic variety of patents (business methods), or even just a particularly problematic instance such patents, and in effect keep applying the general rule to other kinds of patents.

Thus, given the structure of U.S. federal courts, where generally all patent appeals go through the Federal Circuit, the U.S. Supreme Court may have to take several more injunction cases involving different circumstances than eBay before it effectively overturns the ubiquitous use or threat of injunctions in U.S. patent cases.

The concurring opinions also suggest that Justices Thomas and Alito may be the swing votes in the Court's upcoming decision in Metabolite. Chief Justice Roberts will recuse himself. Stay tuned.

USPTO to re-examine Amazon "one-click" patent

The USPTO has agreed, per Peter Calveley's request. to re-examine claim #11, the most notorious portion of Amazon's "one-click" patent.

Thursday, May 04, 2006

Medical bureaucrats must respect life and liberty, says court

Alex Taberrok writes about a wonderful decision out of the D.C. Circuit. The court basically held that the FDA is violating the Fifth Amendment (and I'd add, natural and common law) rights to life and liberty of terminally ill patients by preventing them from getting drugs for their purpose of saving their lives unless the FDA has a compelling interest in doing so that outweighs these rights. Amazingly enough, up until this court's decision one had a Fifth and Fourteenth Amendment right to terminate the life of a fetus (a right with which I agree) by getting an abortion (or taking an abortion pill) without the government placing an "undue burden" on these medical procedures, but no such right under United States law to try to save one's own life with relatively safe medication.

Here's the court's opinion. I find the court's argument quite compelling, as it's based on both liberty and life, rather than just pitting one against the other as in the abortion debate. Alas, despite the compelling argument this doctrine may have a tough time surviving our current legal positivist (statutory language can do no wrong, and neither can regulation...) Supreme Court, not to mention a political environment where most of the planet thinks that medicine should be centrally planned by state bureaucrats, the patients be damned.

Monday, May 01, 2006

Security and the burden of lawsuit

The need to sue can be an expensive burden. A plaintiff often needs to go through a very long and expensive legal process, the results of which may be little or nothing due to the insolvency of the party sued.

Because of this problem, large chunks of commercial law and practice -- and especially the areas of mortgages involving real property, secured transactions involving goods, and negotiable instruments -- deal with allocating the burden of lawsuit. Generally, the burden of lawsuit over a transaction should be shifted to the partie(s) who are more likely to breach the legal obligations created by the transaction, or more likely to become insolvent, or both.

Creditors often use collateral to shift the burden of lawsuit to debtors. Instead of having to sue to get their money, creditors simply repossess the collateral, shifting the burden of lawsuit to the debtor. Creditors sometimes also use a surety (e.g. a co-signer) to reduce the burden of lawsuit by adding a target who is more solvent.

Another way creditors shift at most of the burden of lawsuit is by having the debtor sign a promissory note. The creditor can then sell the note to a third party who is entitled to collect the note as a holder in due course, free of most defenses to payment on the original contract. Freedom from most defenses (such as fraud, failure to perform, etc.) to the original transaction makes the debt owed by the debtor to the holder in due course very clear-cut, thus greatly lowering the burden of lawsuit for the new creditor. The original creditor benefited because it could sell this unburdened debt at a higher price than a debt burdened by legal problems with the original transaction. If the original creditor breached a contract with the debtor (for example by failing to deliver promised goods), the burden of lawsuit is now on the debtor to sue the original creditor: the debtor must pay the note regardless. (In the United States, there are some recent consumer protection exceptions to this general rule). If the debtor fails to pay the note, this is a very straightforward lawsuit compared to the usual breach of contract, and thus likely to be settled at little cost. Thus, the promissory note has shifted most of the burden of lawsuit from the creditor to the debtor.

At a more basic level, the burden of lawsuit is shifted by shifting actual control as well as legal possession over objects of value. "Possession is 9/10 of the law." To this end, security technology and in particular smart contracts will likely become very useful devices for shifting the burden of lawsuit in commercial transactions.