Commentary “Patent Trolls” and Patent Remedies John M. Golden* One would not, therefore, of all faculties, or qualities of the mind, wish, for a friend, or a child, that he should have that of invention. For his attempts to benefit mankind in that way, however well imagined, if they do not succeed, expose him, though very unjustly, to general ridicule and contempt; and, if they do succeed, to envy, robbery, and abuse. —Benjamin Franklin1 I. Introduction Recently there has been much concern that the United States patent system is “out of balance.”2 Although the average ratio between issued patents and real gross domestic product (GDP) is still lower than the average levels for the 1930s through the 1960s, and about the same as the average level for the 1970s,3 there is a strong perception that patents have become a * Assistant Professor, The University of Texas School of Law. Prior to beginning employment at the University of Texas School of Law, I was part of a team of attorneys representing MercExchange, L.L.C. in eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006). I thank John Allison, Bernie Black, Oren Bracha, Christopher Cotropia, Jens Dammann, Mark Gergen, Dick Markovits, Larry Sager, Gregory Vetter, participants in the University of Texas School of Law’s Center for Law, Business, and Economics Workshop, and of course, the editors of the Texas Law Review for helpful comments and discussions. I have reviewed a draft of Mark Lemley and Carl Shapiro’s reply to this Commentary but, in accordance with the order of initial drafting, make no reference to it in the balance of this Commentary. 1. Letter from Benjamin Franklin to John Lining (Mar. 18, 1755), in 5 THE PAPERS OF BENJAMIN FRANKLIN 521, 527 (Leonard W. Labaree ed., 1962). 2. Carl Shapiro, Injunctions, Hold-Up, and Patent Royalties 1 (Competition Policy Ctr., Working Paper No. CPC06-062, 2006), available at http://repositories.cdlib.org/cgi/viewcontent. cgi?article=1062&context=iber/cpc. 3. The average number of issued patents per billion dollars of real gross domestic product (measured in “chained 2000 dollars”) was about 15.7 for the years 2000 through 2005. Compare PATENT TECH. MONITORING TEAM, U.S. PATENT & TRADEMARK OFFICE, U.S. PATENT ACTIVITY CALENDAR YEARS 1790 TO THE PRESENT 4–5 (2007), http://www.uspto.gov/go/oeip/taf/h_ counts.pdf [hereinafter U.S. PATENT ACTIVITY] (listing the number of patents issued from 2000 through 2005), with Bureau of Econ. Analysis, U.S. Dep’t of Commerce, GDP and Other Major NIPA Series, 1929–2006: II, SURV. CURRENT BUS., Aug. 2006, at 169, 175 [hereinafter GDP] (listing the yearly real gross domestic product from 2000 through 2005). This patent-to-real-GDP ratio is higher than the corresponding ratios (still using 2000 dollars) for the 1990s, when the ratio was about 13.8, and for the 1980s, when the ratio was about 11.9. Compare U.S. PATENT ACTIVITY, supra, at 4, with GDP, supra, at 175. On the other hand, the 2000-through-2005 ratio is about the same as for the 1970s, when the ratio was about 15.6. Compare U.S. PATENT ACTIVITY, supra, at 4, with GDP, supra, at 174. Further, the 2000-through-2005 ratio is lower than those for Electronic copy available at: http://ssrn.com/abstract=991698 2112 Texas Law Review [Vol. 85:2111 substantial and growing tax on modern economic activity. Academics, policymakers, and even sitting judges4 have suggested that patent law may have overleaped its proper bounds, or at least become too likely to frustrate, rather than to fulfill, its constitutional purpose of “promot[ing] the Progress of Science and useful Arts.”5 Strong private interests, including a number of prominent information-technology companies, have echoed such suggestions.6 A favorite villain in such accounts is the “patent troll”— apparently one of a class of patent owners who do not provide end products or services themselves, but who do demand royalties as a price for authorizing the work of others.7 preceding decades: the corresponding ratio for the 1960s was about 18.3; for the 1950s and 1940s, about 20.0; and for the 1930s, about 56.1. Compare U.S. PATENT ACTIVITY, supra, at 3–4, with GDP, supra, at 174. Although I do not know that patent-per-GDP ratios are particularly meaningful signals of the extent to which patents “tax” an economy, more oft-cited numbers regarding the raw number of patents issued per year, e.g., ADAM B. JAFFE & JOSH LERNER, INNOVATION AND ITS DISCONTENTS 11 (2004), may not be particularly meaningful signals either—as comparison with patent-per-GDP ratios may, if nothing else, help to suggest. 4. See, e.g., Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 126 S. Ct. 2921, 2929 (2006) (Breyer, J., dissenting) (“[A] decision from this generalist Court could contribute to the important ongoing debate . . . as to whether the patent system . . . adequately reflects the ‘careful balance’ that ‘the federal patent laws . . . embod[y].’” (quoting Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 146 (1989))); eBay, 126 S. Ct. at 1842 (Kennedy, J., concurring) (“[T]he threat of an injunction [may be] employed simply for undue leverage in negotiations . . . .”); FED. TRADE COMM’N, TO PROMOTE INNOVATION: THE PROPER BALANCE OF COMPETITION AND PATENT LAW AND POLICY 5 (2003) (“[M]any participants in and observers of the patent system expressed significant concerns that, in some ways, the patent system is out of balance with competition policy.”); JAFFE & LERNER, supra note 3, at 2 (“[T]he patent system . . . is generating waste and uncertainty that hinders and threatens the innovative process.”); Lori Andrews et al., When Patents Threaten Science, 314 SCIENCE 1395, 1395 (2006) (“The USPTO has issued various patents that could interfere with the work of basic scientists, social scientists, and engineers.”). 5. U.S. CONST. art. I, § 8, cl. 8. 6. See, e.g., Brief of American Innovators’ Alliance as Amicus Curiae in Support of Petitioners at 1, eBay, 126 S. Ct. 1837 (No. 05-130) (presenting arguments on behalf of “a coalition of United States high-technology companies that includes Intel Corporation, Micron Technology, Inc., Microsoft Corporation, and Oracle Corporation” (parentheticals omitted)); Brief of Business Software Alliance et al. as Amici Curiae in Support of Petitioners at 1, eBay, 126 S. Ct. 1837 (No. 05-130) (presenting arguments on behalf of some of “the world’s leading software and hardware technology companies,” including “three of the four largest U.S. patent recipients for 2005”— namely, Hewlett-Packard, Intel, and IBM (citing Press Release, U.S. Patent & Trademark Office, USPTO Releases Annual List of Top 10 Organizations Receiving Most U.S. Patents (Jan. 10, 2006), available at http://www.uspto.gov/web/offices/com/speeches/06-03.htm). 7. The magnitude of what contemporary fashion terms the “patent-troll problem” remains substantially unknown, in part because a widely accepted definition of a patent troll has yet to be devised. See, e.g., Mark A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 TEXAS L. REV. 1991, 2009 (2007) (“Defining a patent troll has proven a tricky business, but that does not mean the problem does not exist.”); Ronald J. Mann, Do Patents Facilitate Financing in the Software Industry?, 83 TEXAS L. REV. 961, 1023 (2005) (“[A]ny effort to design a suitable definition of the term ‘troll’ is likely to lend credence to the view that the status as a troll is in the eye of the beholder.”). Difficulty in defining a patent troll may not be an accident: the term was apparently invented after the label “patent extortionist” was found to have the unfortunate effect of inviting suit for libel. James F. McDonough III, Comment, The Myth of the Patent Troll: An Alternative View of the Function of Patent Dealers in an Idea Economy, 56 EMORY L.J. 189, 192 (2006). Thus, from the very start, the term patent troll has proven useful because, though Electronic copy available at: http://ssrn.com/abstract=991698 2007] “Patent Trolls” and Patent Remedies 2113 In the wake of the Supreme Court’s 2006 decision in eBay Inc. v. MercExchange, L.L.C., patent remedies have become a focal point of concerns about how the patent system operates. In eBay, the Supreme Court rejected a “‘general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.’”8 In a concurring opinion, Justice Kennedy and three other justices explicitly connected rejec- tion of such a “general rule” with concern about so-called patent trolls by suggesting that the traditional practice of issuing permanent injunctions had to be reconsidered in part because “[a]n industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.”9 The unanimous Court provided a counterbalancing admonition against denying injunctions because of “a plaintiff’s willingness to license its patents and its lack of commercial activ- ity in practicing the patents.”10 Despite the unanimous Court’s warning against “certain expansive principles suggesting that injunctive relief could not issue in a broad swath of cases,”11 district courts have responded in apparent lockstep to Justice Kennedy’s concerns about trolls. Since the Supreme Court issued its opinion in eBay, district courts appear to have con- sistently denied permanent injunctions in cases where an infringer has contested the patent holder’s request for such relief and the infringer and patent holder were not competitors.12 Thus, the district courts’ post-eBay disparaging, its meaning is sufficiently elusive to permit application to any of an amorphous number of entities, without real concern that such designation might be proven untrue. 8. eBay, 126 S. Ct. at 1839, 1839–41 (quoting MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1323, 1339 (Fed. Cir. 2005), vacated, 126 S. Ct. 1837 (2006)). 9. Id. at 1842 (Kennedy, J., concurring). 10. Id. at 1840 (quotation marks omitted). 11. Id. 12. See Sundance, Inc. v. DeMonte Fabricating Ltd., No. 02-73543, 2007 WL 37742, at *2 (E.D. Mich. Jan. 4, 2007) (denying a permanent injunction where the patent owner “license[d] the ’109 patent to others, and offered to license it to DeMonte prior to filing suit against it”); Voda v. Cordis Corp., No. CIV-03-1512-L, 2006 WL 2570614, at *6 (W.D. Okla. Sept. 5, 2006) (denying a permanent injunction despite the patent owner’s argument that it had “granted [a third party] an exclusive license to his patented inventions and defendant’s continuing infringement will damage his relationship with [the exclusive licensee]”); Paice LLC v. Toyota Motor Corp., No. 2:04-CV- 211-DF, 2006 WL 2385139, at *5–6 (E.D. Tex. Aug. 16, 2006) (denying a permanent injunction where the claimed invention “form[ed] only a small aspect of the overall vehicles” and the plaintiff failed to prove that “only injunctive relief will lead to a successful licensing program”); Finisar Corp. v. DirecTV Group, Inc., No. 1:05-CV-264, 2006 U.S. Dist. LEXIS 76380, at *4 (E.D. Tex. July 7, 2006) (denying a permanent injunction and “grant[ing] a compulsory license”); z4 Techs., Inc. v. Microsoft Corp., 434 F. Supp. 2d 437, 440 (E.D. Tex. 2006) (denying a permanent injunction where “Microsoft only use[d] the infringing technology as a small component of its own software,” despite the patent owner’s “conten[tion] . . . that its failure to succeed [in commercializing its technology] was partly due to Microsoft’s infringement”); see also Complaint for Patent Infringement at ¶ 38, Finisar Corp. v. DirecTV Group, Inc., 424 F. Supp. 2d 896 (E.D. Tex. 2006) (No. 1:05-CV-264) (“Although Finisar did not ultimately commercialize the technology of the [’505] patent, it did seek to license the [’505] patent to potential technology partners.”). In the only case known to me where a district court has granted a permanent injunction to a noncompeting patent holder post-eBay, the defendant Autodesk, Inc. had “stipulated to entry of an agreed injunction if the Court . . . affirmed that at least one of the patents [in suit] is infringed by Autodesk, 2114 Texas Law Review [Vol. 85:2111 practice may be in some tension with the Supreme Court’s warning against the “categorical denial of injunctive relief” to broad classes of patent holders.13 This Commentary provides arguments against such a categorical rule. It does so in response not only to the district courts’ decisions, but also to an article by Mark Lemley and Carl Shapiro suggesting that as a matter of good economic policy, permanent injunctions should commonly be denied when they are sought by “noncompeting patent holders”—who are defined, for purposes here, to be patent holders who neither compete with an infringer nor exclusively license to someone who does.14 This Commentary does not contend that interest in reforming the patent system is fundamentally misdirected. It agrees that concerns about potential patent-law “overreach” can be welcome corrections to all-too-easy assump- tions that patent law is properly tuned to favor the development and dissemination of new technology.15 In this vein, Lemley and Shapiro’s arti- cle helpfully shows how more generally recognized concerns about holdout and injunction-oriented “property rules” can apply in the patent context.16 More specifically, Lemley and Shapiro successfully use a theoretical model for licensing negotiations to illustrate how a patent owner’s ability to obtain a permanent injunction can produce licensing fees that are driven not by any value specifically contributed by the patented invention, but instead by the cost of implementing a noninfringing “design-around”—an alteration in, or aspect of, a product or course of conduct that is designed to place the product or conduct beyond the reach of certain patent claims.17 not invalid and enforceable.” z4 Techs., Inc. v. Microsoft Corp., No. 6:06-CV-258, 2006 WL 2433444, at *1 (E.D. Tex. Aug. 18, 2006). 13. eBay, 126 S. Ct. at 1841, 1840–41. 14. Lemley & Shapiro, supra note 7, at 2035–39. 15. See generally id. at 2017–25. James Madison himself was guilty of overstating the naturally benign nature of patent law when he said of copyright and patents that “[t]he public good fully coincides in both cases with the claims of individuals.” THE FEDERALIST No. 43, at 240 (James Madison) (Clinton Rossiter ed., 1999). 16. See Lemley & Shapiro, supra note 7, at 1993 (stating that the threat of a permanent injunction can “enable a patent holder to negotiate royalties far in excess of the patent holder’s true economic contribution”). For a more general discussion of such problems, see Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 HARV. L. REV. 1089, 1106–07 (1972), which describes how owners can use property rules to demand socially undesirable rents. In Calabresi and Melamed’s classic article, they used somewhat less judgmental language to describe this phenomenon—“hold-out” (which primarily suggests a demand for a better deal), rather than Lemley and Shapiro’s “holdup” (which suggests both criminal conduct and a threat of immediate harm). See id. at 1106. Except when quoting Lemley and Shapiro, this Commentary uses the term holdout to describe a patent holder’s legal use of “the leverage of that monopoly” “to exact royalties as high as he can negotiate,” Brulotte v. Thys Co., 379 U.S. 29, 33 (1965). 17. See Lemley & Shapiro, supra note 7, at 2037 (stating that where design-around costs are relatively high, “empowering the patent holder to obtain an injunction is likely to lead to royalties well in excess of the inherent value of the patented technology”). For purposes of this Commentary, the cost of implementing a design-around is understood to include indirect costs, such as lost profits that might result from the need to interrupt production while developing or implementing the 2007] “Patent Trolls” and Patent Remedies 2115 This Commentary argues, however, that Lemley and Shapiro misstep in at least two respects: • their claim to have “demonstrate[d],” both theoretically and empirically, that certain patent holders “are systematically overcompensated” for their inventions;18 and • their apparent advocacy of a per se rule that would deny a presumption of injunctive relief for noncompeting patent holders while granting such a presumption for competing patent holders.19 The contents of subsequent portions of this Commentary may be de- scribed as follows. Part II presents some history regarding concerns with patents’ capacity to impede progress, particularly where patented inventions are embedded within, or otherwise constitute “mere” improvements to, multiple-element products or methods. A substantial purpose of Part II is to suggest that be- cause improvement and component-part patents have long had a significant role in United States patent law, and because United States science and tech- nology have nonetheless flourished, attempts to justify significant changes to patent remedies should be supported by more than an assertion that component-part patents “are much more common now than they were in the past.”20 Part III discusses considerations that patent holders or potential infringers will likely bring to any bargaining table. It suggests that concerns such as litigation costs, information asymmetries, and the typical length of patent litigation can play a substantial role in determining what licensing ne- gotiations are likely to produce. A combination of such factors could pressure a patent holder to settle for much less than a patent could theoreti- cally command. Further, litigation costs, not fear of an injunction, may dominate holdout concerns in situations where an infringement suit would be especially unlikely to succeed. Part III also criticizes Lemley and Shapiro’s theoretical approach to analyzing negotiated royalties. A primary concern is Lemley and Shapiro’s lack of a well-justified baseline for determining whether royalties are “excessive.” Without such a baseline, it is difficult to see how Lemley and Shapiro’s claim to have theoretically proven systematic overcompensation can succeed. Nonetheless, Lemley and Shapiro fail to justify their assertion design-around. The design-around cost is also understood to include expenses incurred in the development or licensing of technology that might be viewed as more tightly related to a patented invention’s more intrinsic worth. 18. Id. at 2044 (emphasis added). 19. See id. at 2036 (suggesting that injunctive relief should be granted only where the patentee “assigns or exclusively licenses its patent to someone who competes significantly against the infringing firm” or where there is otherwise no risk of holdup). 20. Lemley & Shapiro, supra note 7, at 1992 n.3. 2116 Texas Law Review [Vol. 85:2111 that a specific royalty “benchmark,” B×V ×θ,21 represents the socially opti- mal level of patent-holder compensation. Indeed, there are fundamental flaws in Lemley and Shapiro’s use of a “benchmark royalty rate” B×V ×θ that (1) goes to 0 as the patent holder’s relative “bargaining skill” B goes to 0 and (2) implicitly assumes that an invention’s marginal, per-unit value V is a well-defined quantity that is completely sacrificed by any potential design- around. Moreover, even if such baseline problems could be ignored, Lemley and Shapiro’s disregard of considerations relating to litigation costs, the ex- pected length of litigation, information asymmetries, and the limited length of the patent term produces a distorted picture of patent holders’ ability to use the threat of an injunction to obtain high rewards for invention. Part IV extends the critique of Lemley and Shapiro’s article to their empirical evidence, arguing that this data also fails to “demonstrate that under current law patentees whose inventions are only one component of a larger product are systematically overcompensated.”22 There are significant reasons to suspect that Lemley and Shapiro’s empirical data is unrepresentative. Further, such data cannot by itself indicate what the proper level of compensation is. Consequently, although this data may indicate that royalty rates are frequently uneven, it does not necessarily indicate that they are commonly excessive. Part V focuses on the question of what rules or standards should govern the issuance of permanent injunctions for patent infringement. The Supreme Court’s decision in eBay has made this a live issue, and early returns from the district courts suggest that trial courts may be, in effect, acting as if there is a presumption against injunctive relief for noncompeting patent holders. Such an approach substantially comports with one of Lemley and Shapiro’s apparent policy proposals—retaining a “presumptive right to a permanent injunction” for patent holders who compete with their infringers or who ex- clusively license to someone who does, but discarding such a presumption for noncompeting patent holders.23 Part V expresses skepticism about such a rule categorically discriminating among patent holders based on their business model. This Part suggests that determinations regarding the availability of injunctions should take into account traditional concerns about whether court-assessed damages or compulsory licensing fees are likely to do better than injunctions at producing appropriate rewards. Given courts’ difficulties with assessing reasonable royalties, there remains a strong argument for a rebuttable presumption of injunctive relief in all cases where infringement has been 21. Id. at 1996–99 (asserting that the royalty rate in the ideal patent system would be θ×B×V, where θ is the probability of the patent holder winning an infringement suit, B is a value from 0 to 1 reflecting the patent holder’s relative bargaining skill, and V is the value of the patented invention to the downstream firm relative to the best alternative). 22. Id. at 2044. 23. Id. at 2036. 2007] “Patent Trolls” and Patent Remedies 2117 proven and there is a significant threat that it will continue or resume. Proper allowance for stays of injunctions and proper application of traditional grounds for denying injunctions, such as concerns that an injunction will harm the public interest or will inflict undue hardship on an infringer, may substantially mitigate risks that such a presumption will provide patent hold- ers with excessive leverage. Further, reliance on such traditional grounds for denying injunctions could avoid dangers that a rule such as Lemley and Shapiro’s presents. A per se rule of discrimination based on a patent holder’s business model could act as an undesirable drag on the efficiency and competitiveness of markets for innovation. By discouraging innovation, and the ownership of rights in innovation, by independent inventors, universities, technology start-ups, research-oriented spin-offs, and patent holding companies, a categorically discriminatory market for patent rights may slow, rather than promote, progress. The Conclusion emphasizes this Commentary’s concern about an approach to postjudgment remedies that categorically discriminates between patent holders based on their business model. The Conclusion recognizes that Lemley and Shapiro’s article provides insights upon which ensuing work can build, but repeats that Lemley and Shapiro have not justified their claim to have proven “systemati[c] overcompensatio[n]”24 of any broad category of patent holders. Moreover, the Conclusion observes that a lack of “narrow tailoring” should be expected in a patent regime that primarily operates through the provision of property-like rights. Even a well-justified belief that patent rights may, in some instances, produce excessive rewards does not necessarily justify devaluing those rights whenever they are held by a broad class of patent owners. II. Historical Context It has long been recognized that proper design of United States patent law is a question of balance. In general, patents are believed to serve their constitutional purpose of “promot[ing] . . . Progress”25 by providing for an exchange: in exchange for public disclosure sufficient “to enable any person skilled in the art . . . to make and use”26 a novel, useful, and nonobvious invention,27 the public provides a limited-term “right to exclude” others from exploiting that invention.28 Once the patent rights expire, the public can 24. Id. at 2044. 25. U.S. CONST. art. I, § 8, cl. 8. 26. 35 U.S.C. § 112 (2000). 27. Id. § 103; see also Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 151 (1989) (“‘In consideration of [an invention’s] disclosure and the consequent benefit to the community, the patent is granted.’” (quoting United States v. Dubilier Condenser Corp., 289 U.S. 178, 186 (1933))). 28. 35 U.S.C. § 154(a). 2118 Texas Law Review [Vol. 85:2111 freely use the invention, and the patent’s description ensures that knowledge of the invention is readily available to potential users. Given the nature of patent law’s rights-for-disclosure bargain, one might follow substantially in the footsteps of Adam Smith and argue that it tends naturally to serve society’s long-term interests.29 If the invention is relatively worthless, delay in the ability to use it freely will not be very harmful; on the other hand, if the invention is of great value, who can begrudge the inventor a substantial reward?30 It has long been appreciated, however, that such a simplistic view of patents’ benefits and costs cannot be correct. Even if an invention is found to have been novel and nonobvious, the invention might have been invented, and might in fact be independently reinvented, without patent law’s stimulus. Further, a patent’s exclusive rights could discourage efforts by others to de- velop socially significant follow-on innovations.31 Indeed, patent law can make no claim to be narrowly tailored to serve its purpose. Substantially uniform rules regarding the scope and duration of patent rights pay relatively little heed to the worth of individual inventions or the technological and social contexts in which they are embedded. Further, patent rights are only “probabilistic.”32 As was notoriously the case under the early nineteenth century’s “registration system,” patent law produces an indefinite number of patents issued in error, thereby generating the undesired costs associated with improperly granted rights to exclude.33 In recognition 29. CHRISTINE MACLEOD, INVENTING THE INDUSTRIAL REVOLUTION: THE ENGLISH PATENT SYSTEM, 1660–1800, at 197 (1988) (“[Adam Smith argued that] it was unlikely that the legislature could give ‘pecuniary rewards . . . so precisely proportioned to the merit as [patents]. For here, if the invention be good and such as is profitable to mankind, he will probably make a fortune by it; but if it be of no value he will also reap no benefit.’”). 30. See Lowell v. Lewis, 15 F. Cas. 1018, 1019 (C.C.D. Mass. 1817) (No. 8,568) (Story, J.) (stating that whether an invention is useful “is a circumstance very material to the interests of the patentee, but of no importance to the public” because if the invention is “not extensively useful, it will silently sink into contempt and disregard”); Edmund W. Kitch, The Nature and Function of the Patent System, 20 J.L. & ECON. 265, 279 (1977) (arguing that “a patent system improves the structure of the returns to innovation” in part because it “provides a return based upon the economic value of the technology”). 31. See, e.g., Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 126 S. Ct. 2921, 2922 (2006) (Breyer, J., dissenting) (“Sometimes [patents] can discourage research by impeding the free exchange of information . . . .”); Robert P. Merges & Richard R. Nelson, On the Complex Economics of Patent Scope, 90 COLUM. L. REV. 839, 882, 916 (1990) (describing the potential for patents to impede improvements to the patented inventions). 32. See generally Mark A. Lemley & Carl Shapiro, Probabilistic Patents, 19 J. ECON. PERSP., Spring 2005, at 75. 33. Under the Patent Act of 1793, patents issued without a substantive examination of applications to determine whether a qualifying invention was disclosed. MARTIN J. ADELMAN ET AL., PATENT LAW: CASES AND MATERIALS § 1.3[b][2], at 12 (2d ed. 2003); EDWARD C. WALTERSCHEID, TO PROMOTE THE PROGRESS OF USEFUL ARTS: AMERICAN PATENT LAW AND ADMINISTRATION, 1798–1836, at 15–16 (1998); see also Patent Act of 1793, ch. 11, § 1, 1 Stat. 318, 318–21 (repealed 1836) (including no provision for a substantive examination of patentability prior to patent issuance). It is perhaps not surprising, therefore, that “a significant number of the almost 10,000 patents issued during the era of registration were invalid and not infrequently 2007] “Patent Trolls” and Patent Remedies 2119 of this fact, Congress has, since 1790, explicitly provided that courts may declare a patent invalid, even long after its issuance.34 The Jacksonian Era move to an “examination system”—in which the Patent Office addresses substantive questions of patentability before issuing a patent—failed to eliminate such concerns. The number of patents issued per year grew at unprecedented—and, to this day, unmatched—rates in the mid- nineteenth century,35 and courts continued to play a significant role in check- ing the validity of litigated patents.36 Courts mitigated the cost of such patents by recognizing a variety of potential reasons for denying preliminary injunctions, including hardship to the accused infringer and doubts as to a patent’s infringement or validity.37 But after a final judgment vindicating a patent owner’s rights and holding them to be infringed, courts generally fraudulently used.” WALTERSCHEID, supra, at 16. This fact helps explain “a rising chorus of complaint about fraudulent or worthless patents” during that period. Id. at 18; accord Robert P. Merges, As Many as Six Impossible Patents Before Breakfast: Property Rights for Business Concepts and Patent System Reform, 14 BERKELEY TECH. L.J. 577, 594–96 (1999) (considering the pros and cons of a registration system). 34. See, e.g., Patent Act of 1790, ch. 7, §§ 5–6, 1 Stat. 109, 111–12 (repealed 1793) (including provisions for challenges to issued patents). 35. The number of U.S. utility patents issued in the 1850s was more than 3.5 times the number issued in the 1840s, and the number issued in the 1860s was more than 3.6 times the number issued in the 1850s. See U.S. PATENT ACTIVITY, supra note 3, at 2 (listing the annual number of patents issued). The only comparable decade-to-decade increase in U.S. history (where, for purposes here, decades are defined to start with a year ending in “0”) is that from the 1790s to the first decade of the 1800s, when the number of issued patents multiplied by about 3.4. See id. at 1. More recent decade-to-decade increases in issued patents—such as the approximate factor of 1.6 growth from the 1980s to the 1990s and as crudely projected (based on multiplying the number of patents issued from 2000 through 2005 by 5/3), the approximate factor of 1.5 growth from the 1990s to the present decade, see id. at 4–5—are roughly comparable to those from the 1860s to the 1870s, when the number of issued patents multiplied by more than 1.7, and from the 1870s to the 1880s, when the number of issued patents multiplied by a further factor of about 1.6. See id. at 2. On the other hand, the rate of increase in patenting from the 1970s to the 1980s, which produced an increase in the number of patents issued per decade of only about 3%, see id. at 4, was unusually low and only “bettered” in this respect by two decade-to-decade decreases in patenting that have occurred in U.S. history—from the 1930s to the 1940s, when the number of issued patents dropped by over 30%, see id. at 3–4, and from the 1830s to 1840s, when the number of issued patents dropped by about 2%, see id. at 1–2. 36. See, e.g., Richards v. Chase Elevator Co., 158 U.S. 299, 303 (1895) (holding the “combination claimed” to be an unpatentable “pure aggregation”); Nat’l Cash-Register Co. v. Boston Cash Indicator & Recorder Co., 156 U.S. 502, 515–16 (1895) (listing various Supreme Court cases in which one or more patent claims were held invalid); Edward C. Walterscheid, The Hotchkiss Unobviousness Standard: Early Judicial Activism in the Patent Law, 13 J. INTELL. PROP. L. 103, 104 (2005) (arguing that during this period, “the Supreme Court set forth a new condition for patentability”—unobviousness). 37. See, e.g., Edison Elec. Light Co. v. Mt. Morris Elec. Light Co., 58 F. 572, 575–77 (2d Cir. 1893) (considering the likely level of “pecuniary injury” to an accused infringer in deciding whether to grant a preliminary injunction); 3 WILLIAM C. ROBINSON, THE LAW OF PATENTS FOR USEFUL INVENTIONS § 1170, at 557 (Boston, Little, Brown, and Company 1890) (“A preliminary injunction is not, like a perpetual injunction, a matter of course . . . .”); id. § 1173, at 560 (stating that a preliminary injunction “will be denied if reasonable doubt exists” regarding the patent’s validity, the plaintiff’s “legal or equitable interest,” or the defendant’s imminent infringement). 2120 Texas Law Review [Vol. 85:2111 issued permanent injunctions “as a matter of course.”38 Although patent law was understood to be only a rough means to achieve its constitutional end, it was also believed that refusal of a permanent injunction to enforce a patent could “deaden and destroy” the inventive “energy” that patent law was meant to inspire.39 Moreover, courts affirmed and reaffirmed the general availability of injunctive relief despite recognition that many patents were for relatively minor developments, including new components of, or improvements to, previously existing devices or processes.40 Lemley and Shapiro’s suggestion that component-part patents are foreign to patent law’s traditional “paradigm”—one asserted to envision “a new device or machine covered by 38. E.g., Elec. Smelting & Aluminum Co. v. Carborundum Co., 189 F. 710, 711 (C.C.W.D. Pa. 1900) (“Ordinarily such decree is for an accounting, and an injunction follows as matter of course, unless there are cogent reasons for departing from such course.”); Rumford Chem. Works v. Hecker, 20 F. Cas. 1347, 1348 (C.C.D.N.J. 1876) (No. 12,134) (“[T]he ordinary practice is for an injunction, as a matter of course, to follow a decree in favor of the complainant . . . .”); ROBINSON, supra note 37, § 1220, at 653 (“A perpetual injunction issues, as a matter of course, at the conclusion of a suit in equity, whenever the plaintiff has sustained the allegations of his bill, provided the patent has not then expired.”); WILLIAM EDGAR SIMONDS, A SUMMARY OF THE LAW OF PATENTS FOR USEFUL INVENTIONS WITH FORMS 250 (New York, L.K. Strouse & Co. 1883) (“When in the course of an equity suit, the court . . . finds that the patent is valid, and that it has been infringed, the court grants, as a matter of course, a perpetual injunction . . . .”). Issuance of permanent injunctions for patent infringement “as a matter of course” did not mean that courts believed that there were no equitable exceptions. Rumford Chem., 20 F. Cas. at 1348 (“Courts have the power to withhold [an injunction], and usually will do so, in those cases where . . . there seems to be more danger of producing an irreparable injury to the defendant, than of preventing it on the part of the complainant.”); see also Herbert F. Schwartz, Note, Injunctive Relief in Patent Infringement Suits, 112 U. PA. L. REV. 1025, 1042–44 (1964) (describing circumstances in which courts refused to grant permanent injunctions). 39. Crown Cork & Seal Co. v. Aluminum Stopper Co., 108 F. 845, 870 (4th Cir. 1901). 40. In 1901, the Court of Appeals for the Fourth Circuit provided something of a tempered paean to the value of patents even for supposedly “small inventions”: Painter’s invention is not one of those great epoch-marking discoveries like that of printing, or the steam engine, or the electric telegraph, which opened to their inventors the portals of the Pantheon of the immortals. For such as these the love of fame and the glory of being benefactors of human kind served alike as motive and reward, but to the patient laborer in workshop and factory the incentive of fame and glory is absent. For them the stimulus of the rewards offered by our patent laws is needed to encourage by the hope of profit that zealous eagerness to improve processes, to remedy defects in machinery, to invent new methods and appliances for saving labor and cheapening production in the numberless articles that are in daily use. It is this stimulus that has made the American mechanic the most alert, observant, and studious of any in the world, and it is the indefinite multiplication of these small inventions and improvements that has wrought an industrial revolution and brought his country to the forefront of the world’s commerce. It was the consciousness that in the knapsack of every private soldier there might be the baton of a marshal of France that inspired her soldiers to unparalleled achievements. In our unheroic, industrial age the central processes of a nation’s life lie in production and distribution. The protection and hope of profit held out by our patent laws inspires that stimulating energy which leads to experiment, invention, and all the resulting benefits; a refusal of that protection in a proper case will deaden and destroy it. Id.