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Are Bans on Infringing Products Bad for Consumers?

Wealth of Ideas Newsletter, February 2013

In early January, the U.S. Justice Department (DOJ) teamed up with the U.S. Patent and Trademark Office (USPTO) to urge the U.S. International Trade Commission (ITC) to limit the granting of sales bans on products that have been found to infringe another party’s patent(s).

“In an era where competition and consumer welfare thrive on interconnected, interoperable network platforms, the DOJ and USPTO urge the ITC to consider whether a patent holder has acknowledged voluntarily through a commitment to license its patents on F/RAND [fair, reasonable, and non-discriminatory] terms that money damages, rather than injunctive or exclusionary relief, is the appropriate remedy for infringement,” said the policy statement jointly issued by the two government agencies.

The statement also said that the ITC “may conclude, after applying its public interest factors, that exclusion orders (sales injunctions) are inappropriate.”

The issue of whether a ban on sales of a product that infringes a patent is more of a punishment for the infringer or more of an inconvenience for the consumers who want to buy that same product is one that has troubled the courts through many patent lawsuits. For instance, in the lengthy and expensive litigation between Apple and Samsung, Apple has repeatedly attempted to secure an injunction on Samsung’s Galaxy Nexus device. As recently as February 14, Apple was still (unsuccessfully) trying to convince the U.S. Court of Appeals for the Federal Circuit to have a full panel reconsider its ruling that it would be necessary to determine a “causal nexus” between the infringing feature and consumer demand for the accused product in order to secure a preliminary injunction on that product.

NTP v. Research in Motion

And back when the BlackBerry was the king of all mobile devices, BlackBerry users anxiously awaited the outcome of the patent litigation between Research in Motion (the maker of the BlackBerry) and patent holding company NTP, Inc.

The case almost became a matter of national security: The U.S. Department of Defense filed a brief requesting that the BlackBerry service be allowed to continue uninterrupted because of the large number of BlackBerry users in the U.S. government! NTP was granted its injunction, but the NTP-RIM case settled before the injunction was enforced.

i4i v. Microsoft

Patent holder rights vs. consumer rights was also a major issue in the lawsuit between Microsoft and i4i, a small Canadian company that sued the technology giant in 2007 for infringing its patents related to custom XML code. i4i claimed that Microsoft’s Word software infringed the patents and requested an injunction on sales of Word.

Microsoft lost battles all along the way but continued to fight: A federal judge awarded i4i the injunction and $300 million in damages; the Court of Appeals for the Federal Circuit upheld the award and injunction; and the case made it all the way to the U.S. Supreme Court. The Supremes rejected Microsoft’s appeal and upheld the rulings of the two lower courts.

However, since Microsoft removed the infringing code from Word software, the injunction was not enforced. Still, the large damages award stood and the case was considered a victory for patent owners’ rights – especially since, at that time, Microsoft and other Big Tech companies were busy lobbying for patent reform to make it easier to invalidate what they considered “questionable” patents.

Sales Bans and Unintended Consequences

In all the cases we cited above, none of the injunctions against popular consumer items came to pass. But what if they did? Around the time that it looked likely that new sales of Microsoft Word might be banned, PCWorld ran an article speculating on what the possible effects would be. Their prediction: Existing users who already owned copies of Word would have plenty of time to find a workaround, and a ban on Word might lead the publishers of other word processing software programs to improve their product and gain market share. Continuing that train of thought, the author went on to speculate that banning Word might even lead to the development of a true universal document format – not one owned and controlled by a single software company.

Since Microsoft Word wasn’t banned after all, we don’t know what would have happened if it had been. It seems, though, that consumers and competitors have their own ways of keeping their business processes going no matter what – and popular products and software might not be as crucial as it sometimes appears in the greater scheme of things.

Returning to the DOJ-USPTO petition at the ITC, the designation of some patents as “standards essential” patents complicates matters. A patent owner’s only right is the right to exclude others from making, using, selling, offering for sale, or importing the patented invention for the term of the patent. But in the case of a standards essential patent, or in a case in which the infringing product is widely used by consumers who rely on it to do business, the patent owner’s rights may not be so clear-cut.

At what point, we must collectively ask ourselves as Americans, did the rights guaranteed to inventors by the U.S. Constitution become less important than the rights of consumers?