*Associate Professor of Law at Boston University School of Law, meurer@bu.edu. I thank Tom Hemnes, Mark Lemley, Doug Lichtman, participants at the Boston College Law Review Symposium on Intellectual Property, e-Commerce, and the Internet and participants at the Financial Markets Conference 2003, sponsored by the Federal Reserve Bank of Atlanta and the University of North Carolina Law School, for their helpful comments. Special thanks to Bob Bone for valuable discussion and comments. I also thank Tariq Ashrati, Philip Ducker, and Peter Cuomo for able research assistance.
1 See Robert E. Evenson & Sunil Kanwar, Does Intellectual Property Protection Spur Technological Change? 3 (Econ. Growth Ctr., Yale Univ., Center Discussion Paper No. 831, June 2001), at http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=275322#Paper%20Download.
2 “[The patent] system . . . gives you a government grant which is little more than a right to litigate . . . .” Ronald Zibelli & Steven D. Glazer, An Interview with Circuit Judge S. Jay Plager, J. Proprietary Rts., Dec. 1993, at 6 (objecting to the weakness of patent rights).
3 See Expanding the Bounds of Intellectual Property, at x (Rochelle Cooper Dreyfuss et al. eds., 2001) (noting sui generis laws have been proposed or enacted to cover “products as diverse as semiconductor chips, databases, industrial design, artistic performances, computer programs, and genetic maps.”); Yochai Benkler, A Political Economy of the Public Domain: Markets in Information Versus the Marketplace of Ideas, in Expanding the Bounds of Intellectual Property, supra, at 270 (“[The belief] that more property rights necessarily lead to the production of more, and more diverse, information . . . has been used in varying degrees to justify a phenomenal expansion of intellectual property rights in sundry directions over the past few years.”); Robert P. Merges, One Hundred Years of Solicitude: Intellectual Property Law, 1900–2000, 88 Cal. L. Rev. 2187, 2239–40 (2000) (asserting that the belief that economic policy should be grounded in a competitive baseline is starting to give way to a notion that all sorts of intangibles deserve protection from some form of property law).
4 This Article catalogues a variety of control methods and conducts a preliminary analysis of the relative effectiveness of different methods. It does not assess the costs that might result from overbroad application of the methods, or possible harm to the productive incentives of IP owners.
5 See William J. Baumol & Januz A. Ordover, Use of Antitrust to Subvert Competition, 28 J.L. & Econ. 247, 250–51 (1985) (“the social costs of rent-seeking protectionism can be very high”).
6 Id. at 252–53 (asserting that treble damages encourage rent-seeking, though they also play a desirable deterrent role).
7 For example, Chrysler challenged a GM-Toyota joint venture. Chrysler’s incentives were exactly the opposite of the social welfare goals—Chrysler would oppose a joint venture that created socially desirable productive efficiency for GM and Toyota because that would hurt Chrysler, and Chrysler would favor a joint venture that caused a socially harmful output restriction because that would help Chrysler. Id. at 256–57.
8 Whether these responses were good policy is open to debate. Measures that control rent-seeking litigation sometimes discourage too much socially desirable litigation. See Lawrence A. Sullivan & Warren S. Grimes, The Law of Antitrust: An Integrated Handbook 910–13 (2000).
9 See Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 109–13 (1986); Joseph F. Brodley, Antitrust Standing in Private Merger Cases: Reconciling Private Incentives and Public Enforcement Goals, 94 Mich. L. Rev. 1, 2–10 (1995) (warning that the courts have gone too far in restricting private merger enforcement).
10 Cf. Baumol & Ordover, supra note 5, at 254. See generally Ronald A. Cass & Keith N. Hylton, Antitrust Intent, 74 S. Cal. L. Rev. 657 (2001).
11 See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585–88, 597 (1986).
12 See infra notes 16–102 and accompanying text.
13 See infra notes 103–197 and accompanying text.
14 See infra notes 198–219 and accompanying text.
15 See Merges, supra note 3, at 2190–91 (“There is a fine line . . . between a meritorious property right and an odious government enforced rent.”).
16 But see Robert G. Bone, Modeling Frivolous Suits, 145 U. Pa. L. Rev. 519, 533 (1997) (stating that a lawsuit is frivolous “(1) when a plaintiff files knowing facts that establish complete (or virtually complete) absence of merit as an objective matter on the legal theories alleged, or (2) when a plaintiff files without conducting a reasonable investigation which, if conducted, would place the lawsuit in prong (1).”).
17 One might consider every intellectual property lawsuit against a competitor to be anti-competitive because exclusionary remedies are available to successful plaintiffs. That would be simplistic because it ignores the incentive effect produced by the profit derived from the exclusionary power of intellectual property. Nevertheless, the label “anti-competitive” might be appropriate when applied to strong claims that are derived from an underlying IP law that is overly protective. Regardless of the appropriate label, those issues are outside the scope of this Article.
18 This Article does not address the problem of IP licenses designed to cartelize a market. One goal of this Article is to understand how to control anti-competitive litigation by structuring the law to reduce the credibility of weak IP lawsuits. Licenses that facilitate cartels do not depend on the credibility of the threat to sue; strong, weak, or sham rights can all be used to disguise collusion. Therefore, the control measures discussed in this Article are not targeted at the problem of collusion.
19 Lawyers and economists have devoted significant attention to the problem of opportunistic lawsuits; they have developed a variety of theories to explain such suits, and a variety of policy recommendations to control them. See generally Robert H. Gertner, Asymmetric Information, Uncertainty, and Selection Bias in Litigation, U. Chi. L. Sch. Roundtable 75 (1993); Bone, supra note 16; Chris Guthrie, Framing Frivolous Litigation: A Psychological Theory, 67 U. Chi. L. Rev. 163 (2000); Avery Katz, The Effect of Frivolous Lawsuits on the Settlement of Litigation, 10 Int’l Rev. L. & Econ. 3 (1990); Barry Nalebuff, Credible Pretrial Negotiation, 18 Rand J. Econ. 198 (1987); D. Rosenberg & S. Shavell, A Model in Which Suits Are Brought for Their Nuisance Value, 5 Int’l Rev. L. & Econ. 3 (1985); Steven Shavell, Sharing of Information Prior to Settlement or Litigation, 20 Rand J. Econ. 183 (1989). Most of the literature discusses opportunistic suits in the context of tort, civil rights, or shareholder derivative suits. See, e.g., Bone, supra note 16, at 529–33.
20 A lawsuit may also be credible when the plaintiff fails to investigate the defendant’s conduct adequately. See Bone, supra note 16, at 550–66. Weak patent and trade dress lawsuits arise when plaintiffs fail to examine defendants’ products to see if they are colorably infringing. See, e.g., Judin v. United States, 110 F.3d 780, 784 (Fed. Cir. 1997) (reversing the Court of Federal Claims and insisting that a Rule 11 sanction should be applied to a patent owner who only observed an allegedly infringing device from a distance); Loctite Corp. v. Fel-Pro, Inc., 667 F.2d 577, 584–85 (7th Cir. 1981) (requiring expert testing before filing a patent infringement lawsuit in a case involving a sophisticated technology); Ferraris Med., Inc., v. Azimuth Corp., No. 99-66-M, 2002 U.S. Dist. LEXIS 13589, at *6 (D.N.H. July 24, 2002) (concluding in a trade dress infringement case “that neither Ferraris nor its legal counsel adequately investigated the facts”). A relatively uninformed plaintiff can credibly prosecute a weak lawsuit until litigation has moved far enough along that the defendant has a chance to show that its action falls outside the broadest plausible scope of the plaintiff’s IP right.
21 A weak lawsuit is credible if the court is likely to err in favor of the plaintiff. Even though the defendant recognizes that she should win at trial, if the risk of error is high enough, then the plaintiff holds a credible threat. Risk of trial error is not a plausible explanation of weak lawsuits in some areas of the law because a defendant likely could win summary judgment and defeat the lawsuit early on at a relatively low cost. See Bone, supra note 16, at 534–37 (noting that nuisance suits based on trial error are uncommon). For example, if a tort defendant has proof that an opportunistic plaintiff was injured by some cause unrelated to the defendant, then the lawsuit is not credible because it would be easy to share that evidence with a court. See id.
22 Robert C. Nissen, The Art of the Counterclaim: Festo Won’t End Frivolous Infringement Cases, But It Does Make It Easier to Fight Back, Intell. Prop., May 7, 2001, at 64 (“Defending against frivolous infringement allegations can be a nightmare. At best, after spending hundreds of thousands or even millions of dollars, a defendant is restored to the position it held before the case was filed. At worst, a defendant is found liable because the jury was bewildered by the complex technologies at issue.”).
23 See Interactive Gift Express, Inc. v. CompuServe, Inc., 231 F.3d 859, 863–64, 877 (Fed. Cir. 2000) (allowing patent owner to try to show that pre-Internet claim language applies to Internet retail transactions); Brad King, Want Video on Demand? Press Pause, Wired News, Sep. 11, 2002, at http://www.wired.com/news/digiwood/0,1412,55026,00. html (explaining that a company owning a 1992 patent covering video on demand is seeking to license MovieLink, a joint venture of five movie studios that delivers movies over the Internet; the patent owner has broad claim language in the patent the might be construed to cover Internet delivery); Brenda Sandburg, Closely Watched Hyperlink Patent Case Tossed, The Recorder, Aug. 23, 2002, available at http://www.law.com (discussing British Telecommunications PLC v. Prodigy Communications Corp., where the district court judge ruled that a BT patent covering access to text-based information over a telephone network did not cover hyper-linking on the Internet; BT hoped to get hundreds of millions of dollars in royalties). These claims have some plausibility because the doctrine of equivalents has been used to expand patent rights beyond literal claim language in cases of later developed technology. For example, patent scope has been expanded in response to the unforeseen development of micro-computers.
24 For a model of patent litigation in which plaintiffs with weak claims can successfully bluff their way to a settlement payment, see generally Michael J. Meurer, The Settlement of Patent Litigation, 20 Rand J. Econ. 77 (1989). For a discussion of this type of model outside the IP context, see Bone, supra note 16, at 542–49; Guthrie, supra note 19, at 173 (“frivolous litigation is most likely to occur under conditions of asymmetric information”).
25 See 382 U.S. 172, 178 (1965).
26 Id. at 174.
27 Id.
28 See id.
29 See Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself 347 (1978) (expressing concern about the threat of predation through Walker Process-type fraud); Seth Shulman, Owning the Future 68 (1999) (“[a]n invalid patent is a dangerous weapon”) (quoting Richard Stallman disparaging the current state of software patents); Mark A. Lemley, Rational Ignorance at the Patent Office, 95 Nw. U. L. Rev. 1495, 1515 (2001) (describing social costs of “bad” patents); Gary Myers, Litigation as a Predatory Practice, 80 Ky. L.J. 565, 594 (1992) (noting that litigation can be used to prevent or delay a competitor’s entry into a market).
30 See, e.g., Lucian Arye Bebchuk, A New Theory Concerning the Credibility and Success of Threats to Sue, 25 J. Legal Stud. 371, 373 (1996); Rosenberg & Shavell, supra note 19, at 4–6. Bone argues this approach does not explain large nuisance settlement payments. The magnitude of the settlement payment in these models depends on the difference in litigation costs borne by the defendant compared to the plaintiff. Bone explains that most lawsuits do not feature large asymmetries in the costs borne by plaintiffs and defendants. See Bone, supra note 16, at 537–41. IP cases often do impose much higher litigation costs on defendants than plaintiffs. One source of asymmetry arises from disruption of the defendant’s business caused by preliminary injunctions and other factors. See infra notes 103–128 and accompanying text. Another asymmetry arises because some opportunistic plaintiffs sue multiple defendants and spread the cost of litigation across those cases.
31 See L. Batlin & Son, Inc. v. Snyder, 536 F.2d 486, 492 (2d Cir. 1976) (en banc) (“To extend copyrightability to minuscule variations would simply put a weapon for harassment in the hands of mischievous copiers intent on appropriating and monopolizing public domain work.”).
32 For a non-IP example of bad faith litigation deterring entry, see Otter Tail Power Co. v. United States, 410 U.S. 366, 368 (1973) (noting that power company maintained monopoly by using litigation to prevent rival’s entry).
33 See Patrick Bolton et al., Predatory Pricing: Strategic Theory and Legal Policy, 88 Geo. L.J. 2239, 2300–01 (2000) (describing reputation effect predation). A number of commentators have developed reputational models. See David M. Kreps & Robert Wilson, Reputation and Imperfect Information, 27 J. Econ. Theory 253 (1982); Paul Milgrom & John Roberts, Predation, Reputation and Entry Deterrence, 27 J. Econ. Theory 280 (1982); Garth Saloner, Predation, Mergers, and Incomplete Information, 18 Rand J. Econ. 165 (1987).
34 See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588–91 (1986). Even though courts are skeptical of predatory pricing claims there is a high level of antitrust enforcement directed against it. See Bolton et al., supra note 33, at 2266–67. Courts are also reluctant to impose liability for predatory product innovation because they fear they will unduly inhibit innovation. See Myers, supra note 29, at 580–86.
35 See Bolton et al., supra note 33, at 2244–49 (recounting ample empirical and experimental evidence of predatory pricing and concluding “present judicial skepticism about predatory pricing assumes that predation is extremely rare, but sound empirical and experimental studies, as well as modern economic theory, do not justify this assumption”).
36 See infra notes 65–99 and accompanying text; see also Myers, supra note 29, at 601. Predatory litigation is more difficult to detect, especially when the lawsuit has some merit. See generally Michael W. Bien, Litigation as an Antitrust Violation: Conflict Between the First Amendment and the Sherman Act, 16 U.S.F. L. Rev. 41 (1981).
37 See Myers, supra note 29, at 599.
38 Predatory pricing might place greater costs on the predator than the prey because the predator suffers a loss across a larger share of the market. Myers, supra note 29, at 597. In contrast, litigation favors the plaintiff because the plaintiff gets to choose the forum and the initial direction of the discovery. Id. at 598.
39 See Brenda Sandburg, Battling the Patent Trolls, The Recorder, July 30, 2001, available at http://www.law.com/jsp/statearchive.jsp?type=Article&oldid=ZZZ4DX7MSPC (noting that in 1999, patent claims against Intel totaled over $15 billion).
40 See Teresa Riordan, Trying to Cash In on Patents, June 10, 2002, N.Y. Times, at C2, available at http://www.nytimes.com/2002/06/10/technology/10PATE.html (reporting the average cost of patent litigation is $2 million); Sandburg, supra note 39.
41 See Shulman, supra note 29, at 55. Many defendants acquiesce rather than face the expense of fighting an infringement suit. See id.
42 See Julie E. Cohen, Reverse Engineering and the Rise of Electronic Vigilantism: Intellectual Property Implications of “Lock-Out” Programs, 68 S. Cal. L. Rev. 1091, 1178 (1995) (Compton’s multimedia patent).
43 See Mark A. Lemley, The Modern Lanham Act and the Death of Common Sense, 108 Yale L.J. 1687, 1696–97 (1999) (describing trademark claims based on the registered trademarks “Class of 2000” and the yellow smiley-face, and characterizing these claims as “frivolous” under “traditional trademark law”).
44 See Arnstein v. Porter, 154 F.2d 464, 468 (2d Cir. 1946); Lawrence Lessig, The Future of Ideas: The Fate of the Commons in a Connected World 4 (2001) (citing examples of hold-up of movies by owners of copyrights protecting works incidentally appearing in movie sets).
45 Troy Wolverton, Patent Lawsuit Could Sting eBay, CNET News.com, Sept. 5, 2002, at http://news.com.com/2100–1017–956638.html. Thomas Woolston, an inventor and patent attorney, has been awarded four patents related to online auctions and has ten others pending; he is suing eBay for infringement. Amazon.com, Priceline.com, Barnes&Noble.com, and Expedia have also all been targeted for lawsuits. Id.
46 See Shulman, supra note 29, at 78–80.
47 Id.
48 Id.
49 See Cohen, supra note 42, at 1178–80.
50 See supra note 23; see also Lynne McKenna Frazier, Small Candy Maker Fights E-commerce Patent “Extortion,” SiliconValley.com, Nov. 4, 2002, at http://www.siliconvalley.com/mld/ siliconvalley/news/4454889.htm (explaining that Patent No. 5,576,951 allegedly covers “automated sales and services system” and Patent No. 6,239,319 allegedly covers an “automatic business and financial transaction-processing system.”); Lemley, supra note 29, at 1517–19. On November 15, 2002, the House Small Business Committee cosponsored a conference on IP issues for small business that covered the problem of opportunistic IP suits.
51 See S Indus., Inc. v. Centra 2000, Inc., 249 F.3d 625, 629 (7th Cir. 2001) (affirming award of attorney’s fees to defendant because trademark claims were meritless and because of dilatory tactics).
52 Id. at 629. S Industries’s “actions here look to be part of a pattern of abusive and improper litigation with which the company and Lee Stoller, its sole shareholder, have burdened the courts of this circuit.” Id.
53 Id. at 627.
54 Id.
55 Id. “During 4 years of litigation . . . S Industries failed to produce evidence of a single sale of ‘Sentra’ brand computer software or hardware.” Id.
56 See, e.g., Litchfield v. Spielberg, 736 F.2d 1352 (9th Cir. 1984). The court held that the movie E.T. did not infringe the derivative rights of the creator of the screenplay Lokey from Maldemar because the screenplay was not substantially similar to the movie. See id. at 1358; see also Arnstein, 154 F.2d at 469.
57 See Litchfield, 736 F.2d at 1354.
58 See Snyder, 536 F.2d at 489–90.
59 See Shulman, supra note 29, at 9. A plaintiff is more likely to succeed by bringing a sequence of frivolous suits like those brought by E-Data, S Industries, and Brilliant than by bringing an isolated suit. The plaintiff can develop a reputation for imposing costs on defendants even if that also means costs to the plaintiff. The reputation for being tough makes the frivolous claim more credible and more valuable. See Reinhard Selten, The Chain Store Paradox, 9 Theory & Decision 127 (1978), and subsequent work by economists on reputation.
60 Transfer payments are usually not a source of social loss. Settlement payments to end frivolous lawsuits only cause a social loss to the extent that they distort the decision of a firm to enter a market protected by IP rights because of the fear of litigation.
61 Amy Harmon, Suddenly, “Idea Wars” Take on a New Global Urgency, N.Y. Times, Nov. 11, 2001, at 4A 30, available at http://www.nytimes.com/2001/11/11/business/11PROP.html (reporting that patent litigation cost American companies $4 billion in the year 2000); Del Jones, Businesses Battle Over Intellectual Property: Courts Choked with Lawsuits to Protect Ideas and Profits, USA Today, Aug. 2, 2000, at 1B, available at 2000 WL 5785645 (describing the flood of patent litigation). Large firms that fear frequent opportunistic suits might be able to develop an effective reputation as tough defendants. Thus, small firms might be relatively more vulnerable to opportunistic suits.
62 See Robert G. Bone, A New Look at Trade Secret Law: Doctrine in Search of Justification, 86 Cal. L. Rev. 241, 273–79 (1998) (noting the high social cost of trade secret litigation).
63 Julie Cohen et al., Copyright in a Global Information Economy 328 (2002) (“In the face of decisions like Ty and Bouchat, establishing procedures to document the creative process has become a matter of pressing concern for companies that create and commission copyrighted works.”).
64 See infra notes 72–99 and accompanying text.
65 See Kevin G. Rivette & David Kline, Discovering New Value in Intellectual Property, Harv. Bus. Rev., Jan.-Feb. 2000, at 57–58 (noting that IBM boosted its patent royalties from $30 million in 1990 to $1 billion in 2000); Sandburg, supra note 39 (reporting that from 1980 to 1999, royalties on patents in the United States grew from $3 billion to nearly $110 billion).
66 See Michael H. Dessent, Digital Handshakes In Cyberspace Under E-Sign: “There’s A New Sheriff In Town!”, 35 U. Rich. L. Rev. 943, 945 (2002); Harmon, supra note 61 (reporting that patent applications and copyright registrations are soaring); Lemley, supra note 29, at 1497–99; Glen E. Weston, Book Review, 54 Geo. Wash. L. Rev. 143, 143 (1985) (reviewing J. Thomas McCarthy, Trademarks and Unfair Competition (1984)).
67 See Graeme B. Dinwoodie, The Death of Ontology: A Teleological Approach to Trademark Law, 84 Iowa L. Rev. 611, 623 n.58 (1999) (accelerating frequency of federal trade dress lawsuits); Lemley, supra note 43, at 1700 (noting that product configuration cases have grown explosively in the last fifteen years); Brenda Sandburg, A New Industry Transforms the Patent System: Congress, Corporations Eye Reform as Power of Patent Enforcers Grows, The Recorder, July 30, 2001, at http://www.law.com (“With the growth in patent licensing, the number of patent suits has doubled in the past decade, from 1,171 in 1991 to 2,484 in 2000, according to data compiled by Paul Janicke, a professor at the University of Houston Law Center.”).
68 Brenda Sandburg, Patent Blockbuster Goes to High Court: IP attorneys looking to U.S. Supreme Court to clear up confusion over “Festo,” The Recorder, June 18, 2001, at http://www. law.com (“Matthew Powers, a partner at Weil, Gotshal & Manges [said that Festo] ‘eliminates a lot of slop out there.’ . . . [T]here are companies that buy a patent for $50,000 at a bankruptcy auction and then decide to sue the world for it. ‘They are counting on the slop factor of the doctrine of equivalents to give them leverage to get a big settlement.’. . .”).
69 See Linda Himelstein, Investors Wanted For Lawsuits, Bus. Wk., Nov. 15, 1993, at 78; Susan Lorde Martin, Financing Plaintiffs’ Lawsuits: An Increasingly Popular (and Legal) Business, 33 U. Mich. J.L. Reform 57, 58 (2000); Poonam Puri, Financing of Litigation by Third-Party Investors: A Share of Justice, 36 Osgoode Hall L.J. 515, 541 (1998); Sandburg, supra note 39 (“‘In the last three to five years, the business has been growing exponentially because everybody is getting into the act,’ said David Braunstein, vice president of the intellectual property consulting firm Fairfield Resources International Inc. of Stamford, Conn.”). A new corporation in Canada has been formed to take advantage of the relaxed standards in place in most states. This publicly traded corporation’s sole business is to finance large patent infringement lawsuits in the U.S. Martin, supra, at 82. Instead of simply providing the financial backing for the infringement lawsuit, the company buys an interest in the patent and then joins the first patent holder as a plaintiff in the case, receiving compensation for whatever reward the lawsuit brings. Id. at 82–83. As an alternative to an ownership stake, patent litigation is done on a contingency basis with percentages as high as 45%. Sandburg, supra note 39.
70 “Champerty is a practice in which one person, the champertor, agrees to support another in bringing a legal action, in exchange for part of the proceeds of the litigation. It is a form of maintenance, which is a general category that includes any agreement by which one person finances another’s legal action.” Martin, supra note 69, at 58. Champerty is prohibited throughout the U.S. based on fears that champertors will bring frivolous litigation, harass defendants, increase damages, and resist settlement. Id.
71 See Intex Plastic Sales Co. v. Hall, 20 U.S.P.Q.2d (BNA) 1367 (N.D. Cal. 1991), aff’d, 960 F.2d 155 (Fed. Cir. 1992) (holding patent infringement lawsuit valid after patent holder assigned 65% interest in his patent to WBX partners); Himelstein, supra note 69, at 78.
72 For a thorough discussion of anti-competitive litigation, see generally Myers, supra note 29.
73 Examples of firms being driven from a market by plaintiffs with strong claims are easy to find. See, e.g., Rivette & Kline, supra note 65, at 64–65 (describing how Polaroid won a $925 million patent judgment against Kodak and forced Kodak out of the instant photography business); Online Music Provider Now Has Second Bidder, N.Y. Times, Nov. 15, 2000, at C4 (describing movie file-sharing service pushed to bankruptcy by a copyright lawsuit brought by the MPAA); Matt Richtel, Web Company Will Sell Assets to Settle Suit on Music Files, N.Y. Times, Nov. 2, 2000, at C1.
74 In Grip-Pak, Inc. v. Illinois Tool Works, Inc., Judge Posner wrote that “litigation could be used for improper purposes even when there is probable cause for the litigation; and if the improper purpose is to use litigation as a tool for suppressing competition in its antitrust sense, it becomes a matter of antitrust concern.” 694 F.2d 466, 472 (7th Cir. 1982).
75 See id. (“[M]any claims not wholly groundless would never be sued on for their own sake; the stakes, discounted by the probability of winning, would be too low to repay the investment in litigation.”); see also Myers, supra note 29, at 602–04.
76 See Bayer AG v. Biovail Corp., No. 200-CV-128-WCO, 2001 U.S. Dist. LEXIS 23907, at *12 (N.D. Ga. Mar. 27, 2001) (addressing allegedly baseless patent infringement by Bayer to block competition from generic drug).
77 743 F.2d 1282 (9th Cir. 1984).
78 Id. at 1294.
79 Id. at 1288.
80 J. Thomas McCarthy, Lanham Act � 43(a): The Sleeping Giant is Now Wide Awake, 59 Law & Contemp. Probs., Spring 1996, 46, 64–67 (discussing potential anti-competitive effects caused by trade dress protection). McCarthy cites cases that upheld preliminary trade dress injunctions relating to subject matter that appears to be functional or a business method, and laments, “Judicial distaste for competitive imitation appears to often turn the scales in a case.” Id. at 65. In a recent trade dress infringement lawsuit, the trial court observed, “It seems reasonably evident that plaintiff’s motivation in pursuing these unsupported claims was rooted in an effort to deter competition by Azimuth.” Ferraris, 2002 U.S. Dist. LEXIS 13589, at *9.
81 2002 U.S. Dist. LEXIS 13589 (D. N.H. July 24, 2002).
82 The trial judge stated the plaintiff’s “goal seemed always to be acquisition of monopolistic control over the manufacture and sale of surgical harnesses with the features of those it sold, but it had no legal or factual basis to support a design or other patent claim.” Id. at *9–10.
83 Id. at *1–3.
84 Id.
85 Id.
86 When awarding attorney’s fees to the defendant, the court observed “the trial evidence revealed (and this was not a close or even arguable point) that Ferraris had no legal or factual basis upon which to claim that its harness design was either non-functional or had acquired secondary meaning, essential prerequisites to claiming unregistered trade dress protection.” Ferraris, 2002 U.S. Dist. LEXIS 13589, at *3–4.
87 “Ferraris had no legitimate legal or factual basis to assert ‘service mark’ protection in the photographic display used by Azimuth, and no basis whatever for claiming that Azimuth somehow appropriated a service mark belonging to Ferraris.” Id. at *3.
88 “Ferraris had no factual or legal basis upon which to claim copyright protection in the photographic display or depiction Azimuth used in its catalogue advertisements of its own SunMed harnesses—that depiction was plainly and unarguably in the public domain, as Ferraris knew or should well have known.” Id.
89 See id.; Yankee Candle Co. v. Bridgewater Candle Co., 140 F. Supp. 2d 111, 113–114, 116 (D. Mass. 2001) (noting that the goal of the trade dress suit was “to intimidate, discourage and financially damage an upstart competitor.” The plaintiff’s claims were objectively unreasonable and the plaintiff was motivated by “a desire to . . . financially damage a competitor by forcing it into costly litigation.” The court emphasized that the plaintiff was the industry leader and the defendant was a much smaller competitor, and that the plaintiff made no attempt to settle.). For a non-IP example, see Alexander v. Nat’l Farmers Org., where two dairy producers engaged in a pattern of abusive litigation against a small competitor, and defendants considered sponsoring third-party litigation in order to increase costs on plaintiff. 687 F.2d 1173 (8th Cir. 1982).
90 Established firms frequently sue departing employees, alleging that the start-up benefited from misappropriated trade secrets.
Indeed, the circumstances of trade secret cases and the uncertainty of trade secret law create incentives for frivolous litigation designed to harass competitors rather than to obtain relief for trade secret misappropriation. For example, a company might sue ex-employees who leave to start a competing firm in order to hinder their ability to raise capital during the start-up phase. Frivolous suits of this sort not only add to litigation costs, they also chill competition.
Bone, supra note 62, at 279. Start-ups are also vulnerable to predatory trademark claims based on the similarity of marketing practices of the established firm and the start-up. See PS Promotions, Inc. v. Stern, No. 97 C 3742, 2001 U.S. Dist. LEXIS 3096, at *2–3 (N.D. Ill. Mar. 22, 2001). In PS Promotions the plaintiff was required to pay attorney’s fees to defendant who was a former employee. See id. The plaintiff brought false advertising and false designation of origin claims based on the defendant’s use of promotional materials the defendant had created while working for the plaintiff. See id.
91 See Bolton et al., supra note 33, at 2248 (“[P]redatory pricing may pose a special threat in rapidly growing, high-technology industries, which often involve intellectual property and continuing innovation.”); Dawn Kawamoto, Lawsuits Dampen VCs’ File Sharing Enthusiasm, CNET News.com, Sept. 4, 2000, at http://news.com.com/2100-1023-24527. html?legacy=cnet (“The threat of vicarious liability has scared off many venture firms from the file-sharing arena.”).
92 See Bolton et al., supra note 33, at 2286; Troy Wolverton, PayPal, CertCo End Patent Spat, ZDNet News, Apr. 29, 2002, at http://zdnet.com.com/2110–1106–894679.html (explaining that the defendant complained that patent lawsuit was designed to delay defendant’s IPO; the defendant made a settlement payment but did not take a patent license).
93 See Handguards, Inc. v. Ethicon, Inc., 601 F.2d 986, 991 (9th Cir. 1979) (claiming that Ethicon, the defendant, “had generated adverse publicity regarding its infringement actions, . . . threatening potential customers of the plaintiff, with the result that vital corporate resources were committed to defense of the infringement actions, Handgards’ relations with potential customers were impaired, a proposed joint venture was aborted, and the company found itself unable to obtain outside financing necessary for it to remain competitive in the industry.”); Jean O. Lanjouw & Josh Lerner, Tilting the Table? The Use of Preliminary Injunctions, 44 J.L. & Econ. 573, 591 (2001) (stating that smaller firms have higher litigation costs and suffer greater indirect costs caused by the dilution of management’s equity ownership); Myers, supra note 29, at 590–91 (“A target firm may be forced to divulge proprietary information, such as trade secrets, new product developments, and marketing strategies in the course of discovery. While a suit is pending, the target firm may also be forced to disclose its contingent liability to creditors, accountants, and others. This revelation would hamper its ability to obtain the funds necessary to compete.”).
94 See Myers, supra note 29, at 590–91. Creditors are generally unwilling to extend credit while litigation is in process or without a legal opinion as to the merits of the claim. Id.
95 See id. at 600.
96 See Lanjouw & Lerner, supra note 93, at 574 (explaining that preliminary injunctions induce patent infringement defendants to settle); see also infra Section II.A.
97 See generally Brooke Group Ltd. v. Brown Williamson Tobacco Corp., 509 U.S. 209 (1993).
98 See Arti Rai, Addressing the Patent Gold Rush: The Role of Deference to PTO Patent Denials, 2 Wash. U. J.L. & Pol’y 199, 212 (2000).
99 The belief that deep pockets give a predator an advantage was emphasized by Telser. See L. G. Telser, Cutthroat Competition and the Long Purse, 9 J.L. & Econ. 259 (1966). Critics argued that a viable competitor would never succumb to predation because financial markets are so efficient. More recent theory offers a variety of reasons why prey cannot obtain access to capital markets on the same terms as predators and why financial distress may be an effective weapon. See Bolton et al., supra note 33, at 2285–90.
100 See Rivette & Kline, supra note 65, at 62.
101 Id. at 63.
102 See Bolton et al., supra note 33, at 2322–23. Reorganization in bankruptcy or transfer of the prey’s assets to another firm are not likely to be successful countermeasures to predation. Id. at 2289–90. The possibility that a successor firm will acquire the prey’s assets does not deter predatory pricing because (1) in some cases the prey’s assets are too small to achieve efficient operating scale, (2) the successor will lag far behind in gaining market share in a network industry, (3) fungible assets will sell at the market price not a discount, (4) customers may be shy to leave the predator, (5) the predator may obtain the prey’s assets, and (6) successor firms are apt to fear the predator. Id. at 2326–27.
103 See Charles Alan Wright et al., Federal Practice & Procedure � 2948, at 129 (1995) (“It is frequently observed that a preliminary injunction is an extraordinary and drastic remedy . . . .”).
104 See Robert P. Merges et al., Intellectual Property in the New Technological Age 554 (2000) (noting that preliminary injunctions are routine in copyright cases if the plaintiff can show likelihood of infringement); Lanjouw & Lerner, supra note 93, at 594 (preliminary injunctions reqested in 19% of patent cases).
105 See Am. Red Cross v. Palm Beach Blood Bank, Inc., 143 F.3d 1407, 1410 (11th Cir. 1998); New England Braiding Co., Inc. v. A.W. Chesterton Co., 970 F.2d 878, 882 (Fed. Cir. 1992). “The chief function of a preliminary injunction is to preserve the status quo until the merits of the controversy can be fully and fairly adjudicated.” Ass’n of Gen. Contractors of Am. v. City of Jacksonville, 896 F.2d 1283, 1284 (11th Cir. 1990).
106 See H.H. Robertson Co. v. United Steel Deck, Inc., 820 F.2d 384, 390 (Fed. Cir. 1987) (presumption of irreparable harm in patent cases); cf. Polaroid v. Eastman Kodak Co., No. 76-1634-Z, 1985 U.S. Dist. LEXIS 15003, at **5–9 (D. Mass. Oct. 11, 1985) (refusing to stay injunction pending appeal despite harm to employees and public); Merges et al., supra note 104, at 554 (stating that irreparable harm is easily found in copyright cases).
107 Lanjouw & Lerner, supra note 93, at 573–74 (reporting anecdotal evidence that firms seek preliminary injunctions in patent cases “to impose financial stress on their rivals”).
108 See id. at 575–76, 595 (reporting empirical evidence that the financial strength of the plaintiff is significantly correlated with the use of preliminary injunctions in patent cases).
109 Id. at 574.
110 Id. at 575.
111 See Random House, Inc. v. Rosetta Books LLC, 283 F.3d 490, 491 (2d Cir. 2002) (finding that the district court judge did not abuse discretion by refusing to grant a preliminary injunction, considering low probability of success by plaintiff and hardship to defendant); Amazon.com v. Barnesandnoble.com, 239 F.3d 1343, 1347 (Fed. Cir. 2001) (refusing preliminary injunction request because of low probability of patent validity).
Judges can also exert some control over preliminary injunctions by requiring bonds from plaintiffs and choosing appropriately narrow terms for the injunction. Rule 65(c) gives a federal district court judge discretion to determine what bond a plaintiff should post in support of a preliminary injunction. Fed. R. Civ. P. 65(c). Bonds are not always effective as a measure for controlling socially harmful litigation because the bonds are usually small or nominal if the plaintiff is small or capital-constrained. See Erin Connors Morton, Security for Interlocutory Injunctions Under Rule 65(c): Exceptions to the Rule Gone Awry, 46 Hastings L.J. 1863, 1895 (1995). Furthermore, the bonds only compensate defendants, not consumers who suffer from output restrictions made possible by the preliminary injunction. For a model showing that preliminary injunctions essentially implement a collusive market outcome, see John R. Boyce & Aidan Hollis, Preliminary Injunctions and Damage Rules in Patent Law (July 10, 2002) (unpublished manuscript, at http://econ. ucalgary.ca/fac-files/boyce/injunctions%20and%20damages.pdf).
Defendants have some measure of control through suits based on malicious prosecution against plaintiffs who obtain preliminary injunctions in bad faith. See Wright et al., supra note 103, � 2973, at 463–64.
112 See Laura W. Stein, The Court and the Community: Why Non-Party Interests Should Count in Preliminary Injunction Actions, 16 Rev. Litig. 27, 47 (1997) (“Preliminary injunction proceedings are fraught with the risk of error.”).
113 See Canon Computer Sys., Inc. v. Nu-Kote Int’l, Inc., 134 F.3d 1085, 1088 (Fed. Cir. 1998) (holding that patents are entitled to a presumption of validity at the preliminary injunction stage). The Federal Circuit made preliminary injunctions easier to obtain by weakening the irreparable harm standard. Regional Circuits used to require a showing of validity and infringement “beyond question.” The Federal Circuit now requires a “likelihood” of validity and infringement for a preliminary injunction. See John G. Mills & Louis S. Zarfas, The Developing Standard for Irreparable Harm in Preliminary Injunctions to Prevent Patent Infringement, 81 J. Pat. & Trademark Off. Soc’y 51, 55–56 (1999). The Federal Circuit possibly counterbalances the weakened irreparable harm standard by insisting on a strong showing of success on the merits. See e.g., Amazon.com, 239 F.3d at 1347.
114 Rule 65(a) gives judges discretion to grant a preliminary injunction. See Suntrust Bank v. Houghton Mifflin Co., 252 F.3d 1165, 1166 (11th Cir. 2001) (noting courts are free to deny both preliminary and permanent injunctive relief in copyright cases to serve the public interest); Vault Corp. v. Quaid Software Ltd., 655 F. Supp. 750, 757 (E.D. La. 1987), aff’d, 847 F.2d 255 (5th Cir. 1988). If the balance of harm to the plaintiff and defendant is about equal, then a trademark plaintiff must make a strong showing of likelihood of success to get a preliminary injunction. Microstrategy, Inc. v. Motorola, Inc., 245 F.3d 335, 340 (4th Cir. 2001).
115 See Jaeger v. Am. Int’l Pictures, Inc., 330 F. Supp. 274, 275 (S.D.N.Y. 1971) (copyright suit); cf. Va. Carolina Tools, Inc. v. Int’l Tool Supply, Inc., 984 F.2d 113, 115 (4th Cir. 1993) (denial of preliminary injunction that might drive defendant to bankruptcy in lawsuit involving sale of business).
116 “[Intel] is pushing for federal legislation that would prohibit companies from winning an injunction unless they are actively pursuing the patented technology or could fill a void if the defendant’s product were pulled off the market.” Sandburg, supra note 67.
117 See High Tech Med. Instrumentation, Inc. v. New Image Indus., Inc., 49 F.3d 1551, 1557 (Fed. Cir. 1995); cf. E.I. DuPont de Nemours & Co. v. Philips Petroleum Co., 835 F.2d 277, 278 (Fed. Cir. 1987) (staying a permanent injunction pending appeal because the patent owner was planning to exit the market and licensed all comers). The risk that a financially weak defendant is unable to pay damages can be reduced by requiring the defendant to post a bond. See Flo-Con Sys., Inc. v. Leco Corp., 845 F. Supp. 1576, 1583 (S.D. Ga. 1993). A similar practice is used when permanent injunctions are stayed on appeal. See Palm Ordered to Pay Bond in Patent Suit, CNET News.com, Feb. 25, 2002, at http://news. com.com/2100–1040–844863.html (explaining that district court judge declined to enjoin Palm from selling infringing PDAs because plaintiff Xerox would not suffer irreparable harm, but required Palm to post a bond to cover damages in case their appeal failed). Of course, the bond itself could impose a burden on the defendant.
118 See Diagnostic Unit Inmate Council v. Films Inc., 88 F.3d 651, 653 (8th Cir. 1996); Sherwood Med. Indus., Inc. v. Deknatel, Inc., 512 F.2d 724, 727 (8th Cir. 1975); Bryan Ashley Int’l, Inc. v. Shelby Williams Indus., 932 F. Supp. 290, 291–92 (S.D. Fla. 1996); Wright et al., supra note 103, �2761, at 597 (noting that the same principles apply to patent, trademark, and copyright declaratory judgment suits).
119 See Shell Oil Co. v. Amoco Corp., 970 F.2d 885, 887 (Fed. Cir. 1992).
120 See Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (stating district courts have a “unique breadth of . . . discretion to decline to enter a declaratory judgment”); EMC Corp. v. Norand Corp., 89 F.3d 807, 810 (Fed. Cir. 1996).
121 See Kimberly Pace Moore et al., Patent Litigation and Strategy 29 (1999).
122 The patent owner win rates at jury trials are 68% when the patent owner initiates the suit but only 38% when the alleged infringer initiates the suit. See Kimberly A. Moore, Judges, Juries and Patent Cases: An Empirical Peek Inside the Black Box, 99 Mich. L. Rev. 365, 368 (2000). Declaratory judgment suits are a useful tactic for blunting the threat of anti-competitive litigation by an exclusive patent licensee. The Wisconsin Alumni Research Foundation (WARF) holds patents on different types of human stem cells. WARF gave an exclusive license to Geron covering a subset of the patented stem cells. WARF sued Geron seeking a declaratory judgment that Geron failed to exercise its option under its exclusive license to include additional cell types within the license. WARF fears that Geron will interfere with future licenses between WARF and third parties. See Tim Adams, Stem Cell Lawsuit Heats Up, Biotechnology Newswatch 5, Oct. 1, 2001, available at 2001 WL 8787971; University Affiliate Sues Biotech Firm Over Licensing of New Stem Cell Types, Pharmaceutical L. & Pol’y Rep. (BNA) No. 7 (Aug. 23, 2001); US Patent 6.200.806 Could be Gatekeeper to Further Stem Cell Research, UVentures.com, Nov. 2, 2001, at http://www.uventures.com/servlets/UVTechNews/3071. For an example of a declaratory judgment suit used against an allegedly opportunistic patent suit, see Brenda Sandburg, Yahoo-NCR Patent Dispute Heats Up, The Recorder, Dec. 30, 2002, at http://www.law.com.
123 See Windmoller v. Laguerre, 284 F. Supp. 563, 565 (D.D.C. 1968) (stating that declaratory judgment serves “the public’s interest in certainty and prompt decision, particularly where potential competition may well be suppressed unnecessarily through the use of questionable patents”); Wright et al., supra note 103, � 2761, at 575. Delay by the IP owner is limited by the laches doctrine.
124 See W. Interactive Corp. v. First Data Res., Inc., 972 F.2d 1295, 1298 (Fed. Cir. 1992).
125 It is difficult to overcome collective action problems and organize private parties to share the cost of invalidating a patent, but it does happen. See Nat’l Hairdressers’ & Cosmetologists’ Ass’n v. Philad Co., 4 F.R.D. 106, 107 (D. Del. 1944) (addressing case where association sued for declaratory judgment of patent invalidity after patent owner sued or threatened to sue many of the association’s members); Shulman, supra note 29, at 55–57 (noting that a consortium of medical groups has offered to share the costs of the litigation with Kaiser-Permanente as Kaiser attempts to invalidate a gene patent); Frazier, supra note 50 (explaining that a small web-based merchant has organized similar merchants to fight a patent lawsuit he sees as an “extortion scam;” he set up a web site for defendants—www.youmaybenext.com—to organize the fight against the patent owner); John Markoff, Patent Claim Strikes an Electronics Nerve, N.Y. Times, July 29, 2002, at C4, available at http://www.nytimes.com/2002/07/29/technology/29JPEG.html (revealing that Members of the Joint Photographic Experts Group, creators of the JPEG standard for video compression, said they would were assembling information that would invalidate a patent that covers aspects of JPEG.); Brenda Sandburg, Netscape, Microsoft Team Up in Internet Suit, The Recorder, Apr. 2, 2002, at http://www.law.com (explaining that Microsoft and Netscape are working together to get a declaratory judgment of patent invalidity against a patent owner who contends his patents cover accessing information over the Internet).
126 Acceptance of licenses is a secondary consideration pointing toward nonobviousness and validity of a patent. See Stratoflex, Inc. v. Aeroquip Corp., 713 F.2d 1530, 1539 (Fed. Cir. 1983).
127 Even though the choice of forum is fairly restricted by venue considerations, declaratory judgment gives a substantial forum selection advantage to an accused infringer. See Kimberly A. Moore, Forum Shopping in Patent Cases: Does Geographic Choice Affect Innovation?, 79 N.C. L. Rev. 889, 907–20 (2001).
128 See Kimberly A. Moore, Jury Demands: Who’s Asking?, 17 Berkeley Tech. L.J. 847, 860–62 (2002) (attributing a portion of the improved win rates of plaintiffs in declaratory judgment actions to forum selection).
129 See generally Bone, supra note 16, at 520–22 (describing summary judgment and other procedural reforms motivated by worries about frivolous suits); Samuel Issacharoff & George Loewenstein, Second Thoughts About Summary Judgment, 100 Yale L.J. 73 (1990).
130 See 3 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition � 23:19 (1996).
131 See Bone, supra note 16, at 567 (“[P]laintiffs are often able to put off summary judgment by filing affidavits attesting to the need for discovery.”).
132 See Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 179 (7th Cir. 1991) (holding that “only in an extreme case can what is a ‘reasonable’ precaution be determined on a motion for summary judgment, because the answer depends on a balancing of costs and benefits that will vary from case to case”); McCarthy, supra note 130, � 32:120 (explaining that summary judgment for defendant on likelihood of confusion is difficult in trademark cases unless the defendant’s product is totally unrelated or the mark was totally dissimilar); Wright et al., supra note 103, � 2732.1, at 143.
133 See Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986) (“One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses, and we think it should be interpreted in a way that allows it to accomplish this purpose.”); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); Bone, supra note 16, at 593–96 (stating that judicial screening based on early summary judgment combined with targeted discovery is the best method of controlling frivolous litigation).
134 529 U.S. 205 (2000).
135 Id. at 207–08.
136 See id. at 209–11.
137 A trademark owner must show that a product design has been used in such a way that the public comes to recognize the design as an indicator of origin. See id. at 210–11. Secondary meaning can be proven with consumer surveys or by showing significant advertising and sales. See id.
138 See id. at 212. The Supreme Court considered a more fact-intensive standard of distinctiveness and rejected it, stating, “Such a test would rarely provide the basis for summary disposition of an anti-competitive strike suit.” See id. at 214. The Court also placed the burden on the plaintiff of showing that the trade dress is not functional. See id.
139 See Wal-Mart, 529 U.S. at 214.
140 Id.
141 259 F.3d 25 (1st Cir. 2001).
142 After Wal-Mart, intentional copying plays a minor role in establishing secondary meaning in design/configuration cases. Id. at 44–45.
143 Id. at 43–45. Similarly, the Kohler Co. was sued for trade dress infringement because it copied the unpatented design of a faucet. I.P. Lund Trading ApS v. Kohler Co., 118 F. Supp. 2d 92, 94 (D. Mass. 2000). Kohler won summary judgment because the plaintiff made no showing of secondary meaning in the faucet design. Id. at 100, 103.
144 Yankee Candle, 259 F.3d at 39–40.
145 Id. at 40. Following Wal-Mart, the First Circuit resolves uncertainty by placing trade dress in the design/configuration category. Id.
146 Id. at 32.
147 Id. at 32–33.
148 See Cohen et al., supra note 63, at 173 (“[S]ummary judgment in copyright cases has traditionally been discouraged. Nevertheless, courts are more frequently employing it as a means to weed out claims that lack merit.”).
149 154 F.2d 464, 475 (2d Cir. 1946) (refusing to grant summary judgment for a defendant even though the evidence of access and similarity were both weak).
150 Id. at 468. But see Selle v. Gibb, 741 F.2d 896, 905 (7th Cir. 1984) (affirming j.n.o.v. for the defendant, despite striking similarities, because the plaintiff did not make a threshold showing of access).
151 Arnstein, 154 F.2d at 468.
152 See supra note 123.
153 Arnstein, 154 F.2d at 469.
154 See id.
155 See id.
156 Id. at 468.
157 Id. at 475.
158 Arnstein, 154 F.2d at 475.
159 See id. at 471. The court also noted that a jury could possibly also find an unlawful appropriation because the similarities between the compositions were not merely trifling. See id. The dissent approved of summary judgment because the works lacked appreciable similarity. See id. at 476 (Clark, J., dissenting). The only similarity was small detached and insignificant portions. See id. (Clark, J., dissenting).
160 See Three Boys Music Corp. v. Bolton, 212 F.3d 477, 482 (9th Cir. 2000); Bright Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F. Supp. 177, 180 (D.C.N.Y. 1976) (George Harrison found to have subconsciously copied “He’s So Fine” in “My Sweet Lord”).
161 See Bouchat v. Baltimore Ravens, Inc., 241 F.3d 350, 355–56 (4th Cir. 2000) (finding that submission of a logo to the Ravens organization was enough to establish access and support an infringement verdict); Ty, Inc. v. GMA Accessories, Inc., 132 F.3d 1167, 1171 (7th Cir. 1997) (finding that access and copying may be inferred when two works resemble each other and nothing in the public domain).
162 536 F.2d 486, 488 (2d Cir. 1976) (en banc).
163 Id.
164 Many of the differences were not perceptible to the casual observer, and the work took less than two days to make. A smaller base was two inches shorter, the umbrella was pressed against his leg (to allow a one-piece mold for easier manufacturing), the eagle clutched leaves instead of arrows, and the shape and texture of the hat and the shape of the carpet bag was changed. See id.
165 See id. at 492. A similar outcome is found in Pickett v. Prince, 207 F.3d 402, 406 (7th Cir. 2000) (“Concentrating the right to make derivative works in the owner of the original work prevents what might otherwise be an endless series of infringement suits posing insoluble difficulties of proof.”), and Entertainment Research Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1221 (9th Cir. 1997) (affirming summary judgment for the defendant on the grounds that an inflatable Toucan Sam costume derived from a copyrighted image was not copyrightable because it did not have sufficient originality).
166 See Moore et al., supra note 121, at 192 (describing how some courts resolve patent claim construction on a summary judgment motion near the end of discovery).
167 See id.
168 The all-element rule allows a defendant to obtain summary judgment on patent infringement under the doctrine of equivalents if one of the claimed elements is missing from the alleged infringing device. See Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 29–30 (1997).
169 See 234 F.3d 558, 564–66 (Fed. Cir. 2000), rev’d 535 U.S. 722 (2002).
170 See Sandburg, supra note 67.
171 See id.
172 See Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722 (2002).
173 See Lawrence C. Marshall et al., The Use and Impact of Rule 11, 86 Nw. U. L. Rev. 943, 953 (1992) (reporting survey showing Rule 11 sanctions most often arise because of allegedly frivolous suits). For applications to patent cases, see generally Antonious v. Spalding & Evenflo Cos., Inc., 275 F.3d 1066 (Fed. Cir. 2002), and Special Devices, Inc. v. OEA, Inc., 269 F.3d 1340 (Fed. Cir. 2001).
174 15 U.S.C. � 1117(a) (2000) (Lanham Act �35(a)). Awarding attorney’s fees in trademark cases is governed by the Lanham Act. “Section 35(a) of the Lanham Act, which lists the remedies available for trademark violations, provides in pertinent part that ‘[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.’” Securacomm Consulting, Inc. v. Securacom, Inc., 224 F.3d 273, 279 (3d Cir. 2000) (citing 15 U.S.C. � 1117(a)).
175 See S Indus., Inc. v. Centra 2000, Inc., 249 F.3d 625, 629 (7th Cir. 2001) (affirming award of attorney’s fees to defendant because trademark claims were meritless and because of dilatory tactics); Beckman Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed. Cir. 1989) (citing 35 U.S.C.A. � 285).
176 17 U.S.C. � 505 (2000). Prevailing plaintiffs and prevailing defendants must be treated alike for purposes of awarding attorney’s fees under the Copyright Act, with attorney’s fees awarded to prevailing parties only as a matter of the court’s discretion. The Copyright Act attorney fee provision gives no hint that successful plaintiffs are to be treated differently than successful defendants. See Fogerty v. Fantasy Inc., 510 U.S. 517, 534 (1994) (citing 17 U.S.C. � 505).
177 See PS Promotions, Inc. v. Stern, No. 97 C 3742, 2001 U.S. Dist. LEXIS 3096, at *1–2 (N.D. Ill. Mar. 22, 2001) (denying attorney’s fees to defendant under the Lanham Act but allowing an award under 28 U.S.C. � 1927, which authorizes such an award against an attorney who “multiplies the proceedings in any case unreasonably and vexatiously”); Lemley, supra note 29, at 1530 (difficult for a patent defendant to win attorney’s fees).
178 Matthews v. Freedman, 157 F.3d 25, 29 (1st Cir. 1998) (citing Fogerty, 510 U.S. at 526–27, and Edwards v. Red Farm Studio Co., 109 F.3d 80, 82–83 (1st Cir. 1997)); see also Fogerty, 510 U.S. at 534–35 (reversing practice that limited the award of attorney’s fees to cases in which the plaintiff’s lawsuit was frivolous or brought in bad faith); Fantasy, Inc. v. Fogerty, 94 F.3d 553, 555 (9th Cir. 1996) (finding that an award of attorney’s fees to a copyright defendant is permissible even if the plaintiff brought the lawsuit in good faith; the award is justified if the defendant furthers the purpose of the Copyright Act).
179 Nonexclusive factors the court is to consider in determining whether to award prevailing party attorney fees under Copyright Act “include frivolousness, motivation, objective unreasonableness (both in factual and in legal components of case) and the need in particular circumstances to advance considerations of compensation and deterrence.” Lieb v. Topstone Indus., 788 F.2d 151, 156 (3d Cir. 1986).
180 See Lucian Arey Bebchuk & Howard F. Chang, An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11, 25 J. Legal Stud. 371, 372 (1996) (explaining that Rule 11 could be used to implement a scheme in which attorney’s fees would be rewarded when the margin of victory is sufficiently large); A. Mitchell Polinsky & Daniel L. Rubinfeld, Sanctioning Frivolous Suits: An Economic Analysis, 82 Geo. L.J. 397, 404–06 (1993). But see Meurer, supra note 24, at 87–89 (showing the British rule is not guaranteed to achieve a lower probability of patent litigation than the American rule). Two drawbacks to fee shifting are the risk of error and the cost of satellite litigation over fees. See Bone, supra note 16, at 589–90.
181See Brasseler, U.S.A. I, L.P. v. Stryker Sales Corp., 267 F.3d 1370, 1386 (Fed. Cir. 2001) (finding that the plaintiff was required to pay attorney’s fees to defendant in a patent infringement action because plaintiff’s attorneys failed to investigate after receiving notice of on-sale bar); Ferraris Med., Inc., v. Azimuth Corp., No. 99-66-M, 2002 U.S. Dist. LEXIS 13589, at *7 (D.N.H. July 24, 2002) (holding that trade dress infringement plaintiff was forced to pay the defendant’s attorney’s fees because of failure to investigate).
182 See supra notes 21–23 and accompanying text.
183 In the third type of opportunistic suit, plaintiffs with weak claims pretend to have strong claims but the strength of the claims is unknown to defendants without extensive discovery or perhaps trial. The credibility of these types of suits is sometimes weakened by fee shifting and sometimes unaffected, depending on the circumstances. See Meurer, supra note 24, at 84; Eric Talley, Liability Based Fee-Shifting Rules and Settlement Mechanisms Under Incomplete Information, 71 Chi.-Kent L. Rev. 461, 495 (1995) (stating British rule would not reduce litigation).
184 Nevertheless, a defendant that withstands predatory litigation should certainly be entitled to fee shifting. See Securacomm Consulting, 224 F.3d at 282. In Securacomm Consulting, the defendant’s vexatious litigation tactics, consisting of deliberate effort to “bury” the plaintiff financially and “take everything he had,” rendered the case sufficiently exceptional to support an award of attorney’s fees to the prevailing plaintiff in a trademark infringement suit, even though the infringement was not willful and the court could have chosen other avenues to sanction improper litigation behavior. Id.
185 See Ferraris, 2002 U.S. Dist. LEXIS 13589, at *11–12 (addressing frivolous copyright and trade dress infringement claims); Yankee Candle Co. v. Bridgewater Candle Co., 140 F. Supp. 2d 111, 119 (D. Mass. 2001) (stating, in a copyright and trade dress infringement case, that the $1 million fee “award should also serve to deter Yankee Candle and other market leaders from bringing overly aggressive and meritless suits against their smaller competitors.”).
186 For a helpful overview, see generally Myers, supra note 29.
187 The Section 2 requirements for monopolization are “(1) possession of monopoly in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” Myers, supra note 29, at 578.
188 “If the litigation involves concerted exclusionary behavior by two or more competitors, it may violate [S]ection 1 of the Sherman Act as well.” See Myers supra note 29, at 578. Predatory litigation can also violate Section 5 of the Federal Trade Commission Act for being unfair trade practice. Id.
189 382 U.S. 172 (1965).
190 Id. at 173. The nature of this fraud is not clear. Compare Nobelpharma AB v. Implant Innovations, 141 F.3d 1059, 1071 (Fed. Cir. 1998) (noting that conduct that gives rise to Walker Process fraud is more serious than conduct that give rise to inequitable conduct liability), with Mark D. Janis, Transitions in IP and Antitrust, 47 Antitrust Bull. 253, 274 (2002) (questioning whether the distinction between fraud on the PTO and inequitable conduct in Nobelpharma will have a significant impact).
191 See Handgards, Inc. v. Ethicon, Inc., 743 F.2d 1282, 1284 (9th Cir. 1984). Sham litigation antitrust suits have been filed against the party claiming infringement in many types of cases. See, e.g., CVD v. Raytheon Co., 769 F.2d 842 (1st Cir. 1985) (trade secret); Brunswick v. Riegel Textile Corp., 752 F.2d 261 (7th Cir. 1984) (patent); PrimeTime 24 Joint Venture v. NBC, Inc., 21 F. Supp. 2d 350, 359 (S.D.N.Y. 1998) (copyright); Letica Corp. v. Sweetheart Cup Co., 790 F. Supp. 702 (E.D. Mich. 1992) (trademark); Christianson v. Colt Indus. Operating Corp., 766 F. Supp. 670 (C.D. Ill. 1991) (trade secret); G. Heilman Brewing Co., Inc. v. Anheuser-Busch Inc., 676 F. Supp. 1436 (E.D. Wisc. 1987) (trademark).
192 See Prof. Real Estate Investors, Inc. v. Columbia Pictures, 508 U.S. 49, 51–52 (1993) (claiming that renting movies to hotel guests to watch in their rooms infringes the public performance right); id. at 64 (explaining that the lawsuit was not objectively baseless even though the copyright owner lost a summary judgment motion).
193 See supra notes 174–177. Attempts to monopolize are also actionable.
194 The Noerr-Pennington doctrine holds that petitioning the government to receive benefits at the expense of a competitor is protected speech and therefore immune from antitrust scrutiny. See United Mine Workers v. Pennington, 381 U.S. 657, 671–72 (1965); E. R.R. v. Noerr Motor Freight, 365 U.S. 127, 135–37, 145 (1961). In this context, petitioning includes litigation as well as lobbying. See Ca. Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 510 (1972). Noerr-Pennington antitrust immunity does not extend to sham litigation. Sham litigation is defined in terms of the objective of the litigation.
The “sham” exception to Noerr encompasses situations in which persons use the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon. A classic example is the filing of frivolous objections to the license application of a competitor, with no expectation of achieving denial of the license but simply in order to impose expense and delay.
City of Columbia v. Omni Outdoor Adver., 499 U.S. 365, 380 (1991); see Grip-Pak, Inc. v. Ill. Tool Works, 694 F.2d 466, 472 (7th Cir. 1982) (asking whether a lawsuit can be justified based on likely remedies rather than being profitable because of the cost of the lawsuit to a competitor); see also Herbert Hovenkamp et al., IP and Antitrust: An Analysis of Antitrust Principles Applied to Intellectual Property Law � 11.3, at 11–26 (2003) (“Some courts have held that Noerr immunity either does not apply or is easier to overcome where the intellectual property owner is accused of filing a pattern of suits, rather than just one.”).
195 See generally Walker Process, 382 U.S. 172.
196 See Hovenkamp et al., supra note 194, � 11.1, at 11–2 (anti-competitive litigation was the subject of more than 100 reported decisions from 1993 to 2000); Myers, supra note 29, at 565 (increased volume of sham litigation).
197 Section 2 liability requires clear and convincing evidence of a bad faith patent suit, specific intent to monopolize the relevant market, and a dangerous probability of success. See Handgards, 601 F.2d at 994–96. Ethicon was held liable for an antitrust violation for bringing the infringement claim in bad faith. Id. at 991; see also Hovenkamp et al., supra note 194, � 5.4, at 5–41 (explaining that courts carefully scrutinize antitrust claims based on sham IP litigation); id. � 11.2, at 11–14 (stating that both Walker Process and Handgards suits usually fail); Nissen, supra note 22, at 66 (“[T]he odds of prevailing on an antitrust claim [based on a frivolous patent infringement suit] are not good.”). Instead of a federal antitrust claim, victims of anti-competitive suits might prevail using a state law cause of action. See Nissen, supra note 22, at 66–67 (explaining the availability of a state unfair competition law cause of action against a party who brings a bad faith patent infringement claim).
198 See Lemley, supra note 29, at 1495 (noting criticism of PTO for failing to effectively examine business method patents); Michael J. Meurer, Business Method Patents and Patent Floods, 8 Wash. U. J.L. & Pol’y 309, 310 (2002); Rai, supra note 98, at 203 (claiming that there is a flood of low quality gene patents).
199 See Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 776 (1992) (finding infringement in case involving unregistered trade dress).
200 See Lemley, supra note 29, at 1500 (noting that applicants are not obliged to search for prior art).
201 See Shulman, supra note 29, at 59–60, 69 (noting that Compton won a controversial patent on search technology that is a basic feature of multimedia databases; the PTO reexamined the Compton patent on its own initiative and invalidated all of the claims); John R. Thomas, Collusion and Collective Action in the Patent System: A Proposal for Patent Bounties, 2001 U. Ill. L. Rev. 305, 313–15 (potential inequitable conduct liability is not sufficient to induce candid disclosure to the PTO).
202 See Rai, supra note 98, at 218.
203 See Lemley, supra note 29, at 1500.
204 See Julie E. Cohen & Mark A. Lemley, Patent Scope & Innovation in the Software Industry, 89 Cal. L. Rev. 1, 3 (2001); 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, 589–90 (1999); Meurer, supra note 198, at 311–14; John R. Thomas, The Patenting of the Liberal Professions, 40 B.C. L. Rev. 1139, 1139–40 (1999).
205 Merges, supra note 204, at 606–09 (suggesting improved incentives and training for examiners would increase patent quality).
206 See Lemley, supra note 29, at 1510–11 (asserting that limited patent examination is the best policy because improved “examination procedures will largely be wasted on examining the ninety-five percent of patents that will either never be used, or will be used in circumstances that don’t crucially rely on the determination of validity.”).
207 Of course, such restrictions sacrifice the social benefits associated with the IP rights discussed below.
208 The defense excuses from infringement those inventors who choose to practice their new business method as a trade secret instead of patenting it.
209 149 F.3d 1368 (Fed. Cir. 1998).
210 See Rochelle Cooper Dreyfuss, Are Business Method Patents Bad for Business?, 16 Santa Clara Computer & High Tech. L.J. 263, 277 (2000); Meurer, supra note 198, at 311–14; Thomas, supra note 204, at 1185.
211 See Merges, supra note 204, at 610–15.
212 See Meurer, supra note 198, at 311–14.
213 For trade dress to be protected under � 43(a) of the Lanham Act, a plaintiff must prove it is used in commerce, is non-functional, and is distinctive. 15 U.S.C. � 1125 (2000).
214 See TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 34–35 (2001); Wal-Mart v. Samara Bros., 529 U.S. 205, 216 (2000); McCarthy, supra note 80, at 46.
215 See Dinwoodie, supra note 67, at 663 n.205 (collecting citations to scholars and judges who would exclude trademark protection of product design).
216 See id. at 739 (favoring protection of functional and distinctive product design as long as informational labeling relieves the defendant of liability for copying the design); J.H. Reichman, Past and Current Trends in the Evoloution of Design Protection Law—A Comment, 4 Ford. Intell. Prop. Media & Ent. L.J. 387, 395 (1993) (explaining the value of labeling to avoid confusing trade dress).
217 Douglas Lichtman, Copyright as a Rule of Evidence 18 (Univ. of Chi., John M. Olin Law & Economics Working Paper Series No. 151, May 2002), at http://www.law. uchicago.edu/Lawecon/index.html (emphasizing evidentiary problems created by a weak originality standard).
218 Id. at 20.
219 See supra note 31; Lichtman, supra note 217, at 1 (stating that the originality requirement, as well as the fixation requirement and the merger doctrine, are “best understood as tools that exclude from the copyright regime cases for which the costs of litigation would be intolerably high.”).
220 See Dreyfuss, supra note 210, at 274 (“[B]usiness methods are not the only example of newly created or expanded intellectual property rights. There is also database protection, dilution, blurring, cybersquatting, and misappropriation. A strange aspect to many of these expansions is that they occur without any specific thought given to the need for protection.”).