Patent cases have always been costly. Could they now be fatal too?
By Roger Parloff

(FORTUNE Magazine) – WHAT WOULD OSAMA BIN LADEN GIVE to be able to knock out every BlackBerry in America and achieve an instant, sweeping disruption of commerce? The good news is he can't do it. The weird and disconcerting news is that a company called NTP can and, unless it's paid off, probably will sometime before Christmas.

NTP has this remarkable power because it is nearing victory in its four-year-old patent litigation with Research in Motion, the maker of the BlackBerry. As FORTUNE went to press, RIM faced the real likelihood of a court-ordered BlackBerry blackout (government devices would be exempted) unless it agrees to pay essentially whatever sum NTP names, which some analysts think will approach ten figures.

However the endgame plays out, it vividly illustrates a recurring lightning-rod issue in patent debates--one that pits the information technology industry, which favors reform, against many others, such as the pharmaceutical industry, which don't. Should plaintiffs like NTP--which does not market a competing product, never has, and never will--be entitled to an automatic injunction shutting down a productive infringer such as RIM?

NTP was founded in 1991 by the late inventor Thomas Campana and his patent attorney, Donald Stout, of Arlington, Va. It has no employees and makes no products. Its main assets, Campana's patents, have spent most of the past decade in Stout's file drawer. But in 2002 a federal jury found that RIM had infringed five NTP patents that relate to integrating e-mail systems with wireless networks. An appellate court largely agreed in August 2005, and in late October the U.S. Supreme Court declined to issue a stay while it ponders whether to hear the case.

No one has claimed that RIM ever copied NTP's patents. But under the law--and this isn't even the controversial part--that doesn't matter. As long as NTP staked its claim first, if RIM later independently wandered into the same intellectual territory and managed, unlike NTP, to invent and produce a wildly popular product, it is an infringer.

Here's the controversial part: Should plaintiffs in NTP's position be entitled not merely to a reasonable royalty but also to an injunction shutting down the infringer? To elevate an already troubling situation to a surreal one, the U.S. Patent and Trademark Office began reexamining NTP's patents in 2003 and as of September 2005 had preliminarily invalidated all 1,921 claims in the eight pertinent NTP patents, including all those that form the basis for NTP's suit. But U.S. District Court Judge James Spencer of Richmond said at a Nov. 9 hearing that he probably won't wait for a final decision--thought to be two or three months off-- explaining, "I don't run their business, and they don't run mine." (RIM co-CEO James Balsillie has claimed that his company has a technical "work-around" that will enable it to continue its service legally even if an injunction is entered; NTP has promised to challenge any work-around in court.)

In nonpatent cases, courts grant permanent injunctions only when a plaintiff faces "irreparable harm" beyond what can be remedied by money damages. But the Court of Appeals for the Federal Circuit, which handles all patent appeals, has consistently held that almost any victorious patent plaintiff meets this standard, since a patent grants "exclusivity" over the invention, not just the right to a royalty. At presstime, the Supreme Court was deciding whether to hear a case in which a tiny patent holder has been given the theoretical power to shut down portions of eBay. (If the Supreme Court declines to take the case, eBay would have to use a work-around or settle.)

The Business Software Alliance, led by companies like Apple, Intel, and IBM, has argued before Congress that there is often no "irreparable harm" when the plaintiff isn't making any product, since a reasonable royalty will give that plaintiff everything to which it is entitled. "The patent troll"--the derogatory term for such plaintiffs--"has zero interest in killing the goose laying golden eggs," says Matt Powers, a patent litigator at Weil Gotshal & Manges who represents Intel and Microsoft. Though the troll wants to negotiate a license, he adds, his potential power to shut down the defendant's product line gives him an unfair advantage. The situation is exacerbated, he notes, when the product--a Pentium processor, for example--contains thousands of inventions.

But others see exclusivity as the core of the patent right and vehemently oppose trimming the ability to impose an injunction. "That's the seeds of disaster for the patent system," says Stout of NTP. Though that sounds self-serving, most industries agree with him. "It's like owning a piece of land," says Philip Johnson, the chief patent counsel of Johnson & Johnson, "and having somebody on your land." If you win your trespass case, he says, "the person on the land is supposed to get off it." Pharma companies, for example, fear--legitimately--that weakening exclusivity might be a step toward compulsory licensing. That could harm their bargaining stance with foreign nations that would love to infringe on pharma patents in exchange for whatever royalties they deem reasonable. Because of this opposition, a House subcommittee has removed language about injunctions from the latest version of a patent reform bill.

That leaves it up to the Supreme Court, which could wipe away the patent injunction problem with a simple step. The court would merely have to construe "irreparable injury" in a commonsense manner, rather than allowing the Federal Circuit to effectively define all injuries as irreparable. Such a reform wouldn't automatically deny an injunction to inventors who don't make products. There are many such inventors: universities, for instance; technology designers like QualComm; or independent inventors like Dean Kamen or, for that matter, Ben Franklin. Courts are good at weighing all the circumstances, and all they need here is the opportunity to do that--rather than being forced to issue an injunction automatically.

Defining a "patent troll" can be difficult, but courts are up to the task. As the late Justice Potter Stewart once said in another context, "I know it when I see it."