eBay v MercExchange in the US Supreme Court: Injunctions in Patent Litigation Revisited

In a much anticipated decision, the US Supreme Court has held that injunctions should not necessarily issue as a matter of course in patent cases. In 2001, MercExchange LLC (MercExchange), a small Virginia-based company, commenced an action against eBay Inc (eBay) alleging eBay's online "Buy it Now" feature infringed three of its business method patents. A jury found that eBay had infringed two of the patents and awarded damages. The trial judge later lowered the damages awarded by the jury and denied MercExchange's motion for a permanent injunction finding that the company would suffer no irreparable harm since it did not actually practice the inventions claimed in either of the infringed patents. eBay appealed. The general rule in the US Court of Appeals for the Federal Circuit had been that a permanent injunction should issue against a defendant once infringement and validity had been adjudged. The rationale for this rule, as argued in this case by MercExchange, has been that the right to exclude unauthorized users recognized in a valid patent is the very essence of the concept of property. Nevertheless, the US Supreme Court unanimously held that injunctive relief is not a matter of right but is grounded in the equitable discretion of the courts, and should be exercised consistent with traditional principles of equity. The Court reiterated that the courts should follow the traditional "four-factor test" when determining whether to issue a permanent injunction. The four-factor test requires the patent owner to establish the following: Finding that the US Court of Appeals had not applied this four-factor test, the Court remanded the case to a court of first instance to decide whether, in the circumstances of this case, the issuance of a permanent injunction is appropriate. On an important ancillary policy issue, the Court split 4-3 on the way in which the four-factor test ought to be applied and therefore how readily permanent injunctions are to be granted. Three judges, Justices Roberts, Scalia and Ginsberg, held that while the four-factor test should apply, the long tradition of granting injunctive relief upon a finding of infringement in the vast majority of cases should be given great weight. However, the opinion of Justices Kennedy, Steven, Souter and Breyer represents a shift in patent law by recognizing that the tradition of injunctive relief might no longer be as compelling in the case of non-manufacturing patent-holding companies and businesses:

"When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test."

The result is that the US law regarding injunctive relief in patent cases has become more similar to the Canadian position in which injunctions are routinely, but not automatically, granted to a successful patentee following a trial. Permanent injunctions have been refused in exceptional circumstances, which have included the failure on the part of the patentee to make use of the patented invention. (See Unilever plc v Procter & Gamble Inc (1993), 47 CPR (3d) 479, aff'd without comment on this ground (1995), 61 CPR (3d) 499). For full text of the decision see: http://laws.findlaw.com/us/000/05-130.html For a news report of the decision, visit: http://makeashorterlink.com/?V2C33172D For other links, consult an earlier issue of e-tips® (Vol 4, No 15, February 1, 2006, "Important Question of Availability of Injunctions in Patent Cases will be heard by the US Supreme Court") Summary by: Lenni Carreiro and Katharine McGinnis