US Supreme Court reinforces permanent injunction principles in eBay v MercExchange

eBay Inc. et al v MercExchange, L.L.C. 547 US_(2006)

Copyright Tuesday, May 16, 2006 Duncan Bucknell Company

On 15 May 2006, the US Supreme Court handed down its much anticipated decision in eBay Inc. et al v MercExchange, L.L.C. 547 US_(2006).

Take home

The US Supreme Court agreed with eBay that the traditional four-factor equitable test (see below) to determine whether to grant a permanent injunction applies in patent cases. There is nothing special about patent disputes which would allow a departure from the principles of equity.

The Supreme Court has not decided whether a permanent injunction should be awarded in this case, but has remitted to the first instance court — the District Court for the Eastern District of Virginia to decide.

While this is a factual question, it appears unlikely that a permanent injunction will be issued by the District Court against eBay. Instead, they will be paying a royalty to MercExchange until expiry of US 5,845,265.

Comment

Intellectual Property Strategy

It is probably safe to say that it is harder to obtain an injunction in the US than in most other countries.

Depending on the economics (and whether there is a chance of willful infringement), patentees may wish to settle earlier for a reasonable royalty, as this may be all they will get in any event.

Defendants, however, may be happy to take their chances where they might not have otherwise, knowing that (depending on willfulness and the four-factor test), the worst case scenario is merely a reasonable royalty.

The CAFC’s ‘general rule’ — overruled

As a consequence of this decision, the judgment of the Court of Appeals of the Federal Circuit (‘CAFC’) was vacated. The CAFC has previously operated under its ‘general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances’.

This general rule applies in almost all other jurisdictions in relation to permanent injunctions.

The four-factor test

To obtain a permanent injunction, a patentee must prove:

(1) that it has suffered an irreparable injury;

(2) that remedies available at law, such as monetary damages, 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.

Four-factor test to be applied in light of modern circumstances

In an interesting signal to lower courts, the joint concurring judgment of Justice Kennedy (with Justices Stevens, Souter, and Breyer) highlighted recent developments which will affect whether permanent injunctions will be granted in future cases.

“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...”

“…For these reasons it should be recognized that district courts must determine whether past practice fits the circumstances of the cases before them.”

Interim injunctions

As an aside, slight variations of the four-factor test are applied in many jurisdictions in the context of interim (or interlocutory) injunctions — ie an injunction granted pending full resolution of infringement and validity by the court.

The Supreme Court’s reasoning

For those interested in US patent law jurisprudence, the judgment rewards a detailed consideration. For example, it explains the CAFC’s general rule (taken from ‘the right to exclude’ in 35 U.S.C. §261 and §154(a)(1)) but explains that (a) the creation of a right is distinct from the provision of remedies for violations of the right, (b) the attributes of personal property are subject to the provisions of the Patents Act (35 U.S.C.), and (c) the provision for injunction relief is permissive — ie it states that injunctive relief ‘may’ issue only ‘in accordance with the principles of equity’: 35 U.S.C. §283.

Background

For those who haven’t been tracking this case, MercExchange had first offered a license of US patent 5,845,265 to eBay and then sued for patent infringement in the District Court for the Eastern District of Virginia. A jury found that the patent was valid and infringed and that an award of damages was appropriate but denied MercExchange’s motion for a permanent injunction.

The Court of Appeals for the Federal Circuit reversed and applied its so called ‘general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances’.