Wednesday, October 2, 2013

Heald on Injunctions as Punitive Damages

The other day I received a copy of Professor Shyam Balganesh's newly-published edited volume, Intellectual Property and the Common Law (Cambridge Univ. Press 2013), to which I contributed a chapter titled Legal Pragmatism and Intellectual Property Law.  Altogether there are 24 papers by leading scholars, including Mark Lemley, Dan Burk, Wendy Gordon, Peter Menell, and many others.  If you can persuade your institution to purchase a copy, I recommend it.

One of the papers, by Paul Heald, is titled Permanent Injunctions as Punitive Damages in Patent Infringement Cases.  Professor Heald begins by asserting that "injunctions in patent cases can function like punitive damages at common law," due in part to the switching costs the defendant may incur to comply with an injunction.  Heald explores the various rationales for awarding punitive damages and concludes that these rationales would only occasionally apply in patent infringement cases, namely (1) when the infringement is intentional or difficult to detect, or (2) compensatory damages wouldn't really make the plaintiff whole, or (3) the remedy will induce pre-use bargaining.  Given the difficult to searching for relevant patents in many fields and the fact that unintentional infringement is common, Heald recommends, as a first approximation, that courts award injunctions only when (1) enforceability is imperfect (for example, because the infringer conceals the infringement); (2) "an incentive is necessary to encourage a consensual negotiation"; and (3) there is no risk of overdeterrence (for example, because "the infringer is a blatant counterfeiter and not a follow-on innovator").  He then modifies this to take into account the possibility of awarding up-to-treble damages under Patent Act section 284, and concludes that injunctions should issue only when (1) the risk of detection is less than one in three, (2) "the infringer's intentionally or recklessly saved costs of searching and negotiating are so high that the treble damages provision of section 284 is inadequate to impose offsetting costs," and (3) "the risk of overdeterrence is minimal."  Under this framework, injunctions would be awarded much less frequently than they are today.  Finally, Heald argues for bringing back awards of infringer's profits in cases in which both injunctions and treble damages would provide inadequate deterrence.

It's an interesting paper, and Heald makes some good points.  He may be right that injunctions are sometimes, in terms of the burden they impose on the defendant, similar to punitive damages--which makes it ironic that much of the world abhors punitive damages but awards permanent injunctions in patent infringement cases as a matter of course.  (Intent or negligence is often presumed, due to the fact that the defendant, in theory, could have discovered the patent before infringing.)  I also agree (and have argued myself) that, in deciding whether to award injunctions, courts should consider whether the infringement was intentional and whether patent hold-up is a risk.  In my view, though, Heald discounts the information and adjudication costs that would be attendant to (largely) doing away with permanent injunctions in patent cases (see my previous discussion of this issue, here), particularly if courts were to implement Heald's scheme in its entirety.  (I've made a similar critique of an earlier work of his on patent remedies in my paper Patent Holdup, Patent Remedies, and Antitrust Responses, 34 J. Corp. L. 1151, 1178 n.137 (2009).)  There also wouldn't be much of a reason to develop private responses to high transaction costs (e.g., better searching technology) if injunctions were rarely awarded, a point that Rob Merges made in his paper Contracting into Liability Rules:  Intellectual Property Rights and Collective Rights Organizations, 84 Cal. L. Rev. 1293 (1996).

But who knows?  Maybe we're on the brink of a paradigm shift, where switching costs and search costs become so high that injunctions really don't make any sense any more--the benefits no longer outweigh the costs.  I'm not persuaded that such a paradigm shift is desirable, and I still think there ought to be a rebuttable presumption in favor of injunctive relief.  But maybe I'm Ptolemy to Heald's Copernicus.  Time will tell.     

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