US Supreme Court reinforces permanent injunction principles in eBay v MercExchange

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.


Property Strategy

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

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.

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

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

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.

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.”


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.


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’.

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