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June 26, 2006

I guess size DOES matter

The Eastern District of Texas is one of the first out of the gate in the eBay permanent injunction race with the z4 Technologies, Inc. v. Microsoft decision. Using the four-factor principles of equity test for patent permanent injunctions set out last month in eBay, the Court determined a permanent injunction against Microsoft was not necessary and that monetary damages were sufficient to compensate z4 Technologies.

In reading the opinion, it seems that a majority of the Court’s decision revolves around the fact that z4's Technologies patented invention is only a "small component" of Microsoft’s product. Two of the four factors use this "small component" language.

Regarding the first factor, in determining whether z4 Technologies will suffer irreparable harm from Microsoft using their patented invention, the Court stated z4's small component in the overall Microsoft product doesn’t deter others from licensing the small component from z4 Technologies. The only harm z4 Technologies really suffers is being able to sell or license directly to Microsoft.

In the second factor, whether monetary damages are considered an adequate remedy, the Court cites Justice Kennedy’s concurring opinion in eBay stating in situations where the invention is but a small component, legal damages may be sufficient for compensation and an injunction may not serve the public interest.

So here is where it gets tricky, although it is only a "small component" in satisfying the first and second factors of the four-factor test, the Court then agrees with Microsoft for the third factor that taking out this "small component" may follow the hypothetical potential hardships set out by Microsoft that borderline on an economic meltdown. It is curious how such a "small component" can have such devastating effects.

Finally, regarding the fourth factor of public interest, the Court states that it "is unaware of any negative effects that might befall the public in the absence of an injunction." However, there is one giant "negative effect". One of the real promotions of the useful arts is in the full disclosure of ideas for a limited monopoly that spurs others to improve upon ideas in order to secure their own monopoly. Microsoft didn’t improve upon the idea, they just used it, and willfully at that.

Condoning this patent parasite behavior that in essence sucks the life blood out of a patent (i.e. the right to exclude others from making, selling, etc.), is a negative effect for the public regardless of how successful Microsoft is at implementing z4 Technologies’ "small component". Scary thought, but is the Court giving the go ahead to infringe valid patents as long is there is money and means to be successful at it?

The courts really need to evaluate what promotion of the useful arts actually is. Promotion of the useful arts doesn’t necessarily come about just because the product can be held in the hand, and the public’s only benefit from an invention isn’t just its physical use. The knowledge is given to the public for a reason. Full disclosure of an idea in a patent allows other to improve upon the idea. Injunctive relief should be following an improve it or lose it theory. Microsoft didn’t improve upon the "small component," so they should have to lose it in their product.

Posted by Laura Wood at 09:45 AM.
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