eBay Inc v. MercExchange, L.L.C.
A
Patent Split Emerges in the High Court
On May 15, 2006, the Supreme Court issued its opinion in the widely
followed eBay Inc v. MercExchange, L.L.C. case. (A copy of
the opinion may be downloaded here.) In reversing the Federal Circuit,
the Supreme Court held that a patent holder who has demonstrated infringement
at trial is not axiomatically entitled to injunctive relief. The Court
held that injunctive relief in patent cases, like in any other case,
is discretionary and can only be granted if the traditional four-factor
test for equitable relief is satisfied. Reading the opinion between the
lines, the decision might be called an example of a deeply divided unanimous
court. Although the entire Court joined Justice Thomas’ opinion,
two concurring opinions signal a deep divide on the issue of injunctions
in patent cases that may be developed in future cases.
MercExchange, L.L.C., was the assignee of three business method patents
for online auction applications. The patents describe methods allowing
bidders to instantaneously purchase items that are listed on online auctions
for a fixed price without having to bid on the items. After unsuccessfully
offering to license the patents to eBay, MercExchange successfully sued
eBay for patent infringement and was awarded $35 million in damages.
After the trial MercExchange requested that a permanent injunction be
entered against eBay.
The District Court denied the request for an injunction after concluding
that MercExchange had not proven irreparable harm. This conclusion was
based, in large part, on the fact that MercExchange had openly been willing
to license the patents and had not itself commercialized the patents.
275 F. Supp. 2d 695, 712 (E.D.Va. 2003). The Federal Circuit reversed
stating that “[b]ecause the ‘right to exclude recognized
in a patent is but the essence of the concept of property,’ the
general rule is that a permanent injunction will issue once infringement
and validity have been adjudged.” 401 F. 3d 1323, 1338. The Supreme
Court granted certiorari “to determine the appropriateness of this
general rule.”
The Supreme Court reversed stating that neither the District Court nor
the Federal Circuit had properly applied the law in deciding MercExchange’s
request for a permanent injunction. The Court held that while the Patent
Act does grant the right to exclude others from the patentee’s
invention, nothing in the Act expressly exempted patent cases from the
traditional four-factor equitable test for adjudicating the appropriateness
of injunctive relief. The four-factor test requires a plaintiff to demonstrate:
(1) that it has suffered an irreparable injury; (2) that remedies available
at law are inadequate to compensate for that injury; (3) that considering
the balance of hardships between the plaintiff and defendant, a remedy
in equity is warranted; and (4) that the public interest would not be
disserved by a permanent injunction.
The Court took exception to the District Court’s determination
that the patent-holder’s failure to market the patented invention
meant that no irreparable harm was possible. On the other hand, the Court
found that the Federal Circuit erred in stating a “general rule” that
an injunction of patent infringement should issue in all but “exceptional
circumstances.” The unanimous opinion appears to be a compromise
between diverging views with regard to what circumstances are necessary
to enter injunctions in patent infringement cases.
In the first concurring opinion, Chief Justice Roberts, joined by Justices
Scalia and Ginsberg, remarked that “[f]rom at least the early 19th
century, courts have granted injunctive relief upon a finding of infringement
in the vast majority of patent cases.” Noting the “difficulty
of protecting the right to exclude” through money damages
alone, Roberts contended that even as the general rule enunciated by
the Federal Circuit was inappropriate, “there is a difference between
exercising equitable discretion pursuant to the established four-factor
test and writing on an entirely clean slate.” The Chief Justice’s
concurrence leans more heavily in favor of the traditional position --
that an injunction should in most cases be granted where a patent is
found to have been infringed.
In the second concurring opinion, Justice Kennedy, joined by Justices
Stevens, Souter and Breyer, advocated discarding historical practice
in light of the changing nature of patents, claiming “that in many
instances the nature of the patent being enforced and the economic function
of the patent holder present considerations quite unlike earlier cases.” Justice
Kennedy decried the practice of using patents “not as a basis for
producing and selling goods but, instead primarily for obtaining licensing
fees,” suggesting that those patentees were essentially extorting
infringers with the threat of injunctive relief. Justice Kennedy suggested
that the public would be better served if patent-holders were denied
the ability to use the threat of an injunction to gain “undue leverage
in negotiations” for licensing fees – particularly “[w]hen
the patented invention is but a small component of the product the companies
seek to produce.”
Justice Kennedy also expressed general skepticism of business method
patents over their perceived “vagueness and suspect validity” writing
(emphasis added):
[I]njunctive 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.”
One could argue, based on this language, that in the case of patents
Justice Kennedy calls for adding a fifth element to the traditional equitable
test “calculus.” This additional hurdle would require patent
holders to prove the general “worthiness” of their patents
in order to secure injunctive relief. It is clear, therefore, that Justices
Kennedy, Stevens, Souter and Breyer lean significantly towards stricter
scrutiny of injunctive relief requests in patent cases, particularly
where a business method patent is at issue.
It is notable that Justice Thomas did not join either concurring opinion
and that Justice Alito did not participate in the deliberations on this
case. The two Justices may provide the pivotal votes in future Supreme
Court opinions touching on this issue.
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