The right to exclude has historically been among the most fundamental attributes of a patent monopoly around the world. It is for this reason that injunctive relief plays a much greater role in patent law than it does elsewhere, relative to monetary compensation.
Does a finding of patent infringement automatically entail an injunction against the infringer? At first glance, this question appears absurdly easy – if the essence of the patent monopoly is the right to exclude, then wouldn’t its curtailment amount to an evisceration of the patent right itself, with all the dangerous consequences that come with such a drastic step?
Article 28 of the TRIPS plainly guarantees patentees the right to exclude, so isn’t it abundantly clear that any country that refuses an injunction upon a finding of infringement is acting in violation of TRIPS? The problem, however, is that the common law of injunctive relief evolved as an equitable remedy, meaning that it cannot possibly be straitjacketed into the rigid “If-Then” rules of the patent statute. This tension between the equitable and statutory rules governing injunctive relief came to a head in 2006, when the SCOTUS passed judgement in eBay v. MercExchange.
eBay v. MercExchange
The eBay court held that permanent injunctions do not automatically follow from a finding of infringement, resolving the tension above in favour of the equitable rule. Any plea for an injunction by the patentee would have to be examined on its own merits, based on the four-factor test historically used by equity courts for this purpose. Thus, the burden of the plaintiff extended from merely establishing infringement to additionally proving that (1) it has suffered irreparable harm; (2) non-injunctive remedies, such as damages, are inadequate compensation; (3) the balance of hardships favours the grant of an injunction; and (4) the grant of an injunction would not harm the public interest.
eBay’s complex balancing act also involved a diktat that irreparable harm or inadequacy of damages would not be precluded merely because the plaintiff was predominantly in the business of licensing the infringed patent.
Some have asked whether injunction denials under the eBay regime would even amount to compulsory licences in the first place. The most famous member of this school has to be Judge Prost in Paice v. Toyota:
We use the term ongoing royalty to distinguish this equitable remedy from a compulsory license. The term “compulsory license” implies that anyone who meets certain criteria has congressional authority to use that which is licensed. See, e.g., 17 U.S.C. § 115 (“When phonorecords of a nondramatic musical work have been distributed . . . under the authority of the copyright owner, any other person . . . may, by complying with the provisions of this section, obtain a compulsory license to make and distribute phonorecords of the work.” (emphasis added)). By contrast, the ongoingroyalty order at issue here is limited to one particular set of defendants; there is no implied authority in the court’s order for any other auto manufacturer to follow in Toyota’s footsteps and use the patented invention with the court’s imprimatur.
We need look no further than Judge Rader’s concurring opinion in the same case to find a strong rebuttal of this view:
District courts have considerable discretion in crafting equitable remedies, and in a limited number of cases, as here, imposition of an ongoing royalty may be appropriate. Nonetheless, calling a compulsory license an “ongoing royalty” does not make it any less a compulsory license. To avoid many of the disruptive implications of a royalty imposed as an alternative to the preferred remedy of exclusion, the trial court’s discretion should not reach so far as to deny the parties a formal opportunity to set the terms of a royalty on their own. With such an opportunity in place, an ongoing royalty would be an ongoing royalty, not a compulsory license.
Regardless, the statutory or non-statutory nature of the permissive regime is irrelevant to a TRIPS analysis, given that the Agreement neither uses the words “compulsory licence”, nor presumes that all non-voluntary third-party practice of a patented invention must be based in statute.
Post-eBay jurisprudence: TRIPS-compliant?
The SCOTUS decision in eBay has opened the floodgates for lower courts in the US to award de facto compulsory licences by finding infringement but allowing the infringer to continue practicing the patent subject to the payment of a royalty in the form of damages to the patentee.
Three broad aspects of the TRIPS come to mind when examining these decisions: Articles 30, 31 and 44.2. Article 30 governs general exceptions to patent rights, stipulating that in order for such exceptions to be TRIPS-compliant, they must be limited, must not unreasonably prejudice the patentee’s legitimate interests, or those of third parties. Article 31 regulates compulsory licensing, and lays down a list of conditions that must be met for non-voluntary practice of a patented invention by a third party to be valid.
For a CL to be generally Article 31-compliant, it must jump all the hurdles contained therein:
- Its grant must be on the basis of the individual merits of the case
- It must be preceded by voluntary negotiations (barring emergencies, extreme urgency, etc.)
- Its scope and duration must be purpose-limited
- It must be non-exclusive
- It must be non-assignable
- It must be predominantly for the supply of the domestic market
- Its continued applicability must be liable to be interrogated
- It must provide for adequate royalties
- Its grant must be subject to judicial review
- The quantum of royalties must be subject to judicial review
An eBay-type injunction denial CL would prima facie comply with all the requirements above except (b), (c), and (f) [in some cases]. (That’s 2, 3 and 6 on this list.)
At least one author has argued that the eBay regime would be covered by Article 30, but this fails to account for the significant narrowing down of that provision by the WTO’s dispute settlement body in Canada – Patent Protection. Attempts to read Article 30 liberally to allow CLs are nothing new – the earliest form of the Paragraph 6 system (which I’ll get to in my next post) started off by seeking an authoritative wide interpretation of Article 30 to cover CLs over patented drugs for export into impoverished countries. Canada – Patent Protection stood in the way of this proposal, and must necessarily stand in the way of any attempt to read Article 30 in a manner that accommodates a de facto CL system that’s as incredibly wide-ranging and potent as the eBay regime.
That brings us to Article 31. Any Article 31.b objections are inherently superficial, and do not speak to the heart of the problem, since they can be surmounted without substantially changing the essence of the eBay regime. Indeed, Paice came close to shutting this line of argument out entirely, when it contemplated a mandatory post-trial negotiation between the parties, prior to the court’s intervention in setting the ongoing royalty. This sort of intervention can be implemented fairly easily, rendering the Article 31.b hurdle a non-issue.
I believe that Art. 31.c is the most interesting question, but it appears that Art. 31.f has stolen the limelight in international discussions. In the next post, I’ll examine what I think is the red herring argument, and outline India’s diplomatic position on the issue.