In eBay Inc. v. MercExchange L.L.C (“eBay”),1 the Supreme Court unanimously rejected the Federal Circuit Court of Appeal’s “general rule” that courts should “issue permanent injunctions against patent infringement absent exceptional circumstances.”2 At the same time, it criticized the federal district court’s suggestion that injunctive relief may be inappropriate where a patent holder does not itself practice the patent and is willing to license its patent to others.
The case arose when MercExchange offered eBay a license under certain patents. When the parties were unable to reach agreement on license terms, MercExchange sued eBay for patent infringement. A federal district court jury found that eBay willfully infringed certain of the patents. However, the district court judge denied MercExchange’s motion for permanent injunctive relief. After the Federal Circuit reversed the District Court’s ruling, enunciating its “general rule” in favor of injunctions, eBay appealed to the Supreme Court.
No Special Test For Injunctions in Patent Cases. In an opinion by Justice Clarence Thomas, the Supreme Court held that a district court’s decision to grant or deny a motion for a permanent injunction in a patent case must conform to the same “traditional principles of equity” that guide courts in non-patent cases. That four-factor test requires a patent owner to demonstrate that:
- it has suffered an irreparable injury;
- remedies available at law, such as monetary damages, are inadequate to compensate for that injury;
- considering the balance of hardships between the parties, a remedy in equity is warranted; and
- the public interest would not be disserved by a permanent injunction.
No Special Rule For Non-Practicing Patent Owners or Willing Licensees. While the Supreme Court rejected the Federal Circuit’s strong presumption in favor of injunctions, it was equally critical of the district court’s conclusion that the plaintiff’s “willingness to license its patents” and its “lack of commercial activity in practicing the patents” were sufficient reasons not to grant an injunction. The Court specifically acknowledged that “some patent holders, such as university researchers or self-made inventors” might be able to demonstrate the need for an injunction even though they would not be “bring[ing] their works to market themselves.” The Court found no basis for categorically denying non-practicing patent holders the opportunity to meet the traditional test for issuance of a permanent injunction.
Historical Tradition of Patent Injunctions . Chief Justice Roberts, joined by Justices Scalia and Ginsburg, filed a concurring opinion that highlighted the strong historical tradition of awarding injunctive relief in most patent cases. The opinion suggested that the tradition favoring injunctions should be honored, and that even when the four-factor test is applied, the result will very often be an injunction.
A New Patent Environment. A concurring opinion authored by Justice Kennedy and joined by Justices Stevens, Souter, and Breyer suggested essentially the opposite of the Chief Justice’s opinion. These justices pointed to three developments in the patent arena that, in their view, represented reasons to depart from the historical tradition favoring injunctions: (1) the patenting of business methods in addition to products and technology; (2) the importance of patent licensing for commercializing innovations; and (3) the fact that a patent may only cover a minor feature of a complex product or service.
The Value of Patents Post-eBay. While the value of a patent can depend to some extent on the threat that a court will permanently enjoin continued infringement, the Court’s ruling does not destroy the value of patents. The application of the four-factor test that is now required will likely lead to the issuance of injunctions in most cases. Even if district courts become less likely to issue injunctions, cases must still be appealed to the Federal Circuit, which is unlikely to change its view that injunctions are appropriate in most cases, regardless of the test that is applied. Moreover, there are significant deterrents to infringement even without injunctions. In particular, a party found to have willfully infringed a patent may be liable for up to treble damages, plus attorneys’ fees. Moreover, the royalty rates awarded in litigated cases can be extremely high and are often much higher than the rates that one would expect in a situation of a royalty negotiated in a non-litigation context.
Patentees that are commercializing their inventions either by themselves or through licensees will continue to have strong and likely winning arguments in favor of permanently shutting down an infringer. However, patent owners that are not commercializing their inventions may have a more difficult time. In particular, those who are not pursuing commercial development of a product, but are merely “trolling” for patent license fees, are likely to get a more skeptical response to injunction requests.