Supreme Court holds traditional injunction test applies to patent casesMay 16, 2006

Use of technology by patent holder not a requirementThe Supreme Court, in eBay Inc. v. MercExchange, L.L.C., set forth the proper standard courts are to use when determining whether a patent infringer should be required by the court to cease infringing, or whether only monetary payment to the patent holder is required. The case was brought by MercExchange, who holds several patents, including a business method patent directed toward promoting the sale of goods between private individuals by establishing ‘a central authority to promote trust among participants.’ MercExcahnge sought to license this patent to eBay and Half.com, but the parties were unable to reach an agreement. As a result, MercExchange sued for patent infringement.MercExchange eventually prevailed at trial after a jury found eBay and Half.com liable for infringing MercExchange’s patent. After the verdict, MercExchange requested a permanent injunction to prevent further infringement of its patent by eBay and Half.com. The district court denied this request. On appeal, the Federal Circuit reversed the district court, stating that the ‘general rule’ in patent cases is that once infringement is found, an injunction should issue ‘absent exceptional circumstances.’The Supreme Court took issue with the Federal Circuit’s characterization of the ‘general rule.’ The Court held that there was no compelling reason to depart from the traditional four-factor test used in other types of cases to determine whether an injunction should issue. The factors typically considered are: (1) whether irreparable injury has been suffered; (2) whether monetary damages are inadequate compensation for the injury; (3) the balance of the hardships between the parties (i.e., which party would suffer greater hardship, the defendant if an injunction is issued or the plaintiff is one does not); and (4) the public interest. Because the Federal Circuit did not apply this test and the district court did not apply them correctly, the Court vacated the earlier decisions regarding the injunction and remanded the case to the district court for consideration in light of the four factors.While the opinion for the Court, written by Justice Thomas, was unanimous, seven justices joined in concurring opinions. Chief Justice Roberts, joined by Justices Scalia and Ginsburg, stated that from ‘at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases.’ However, this does not justify a ‘general rule,’ as stated by the Federal Circuit, but rather indicates that patent cases are historically more likely to be found to satisfy the four-factor test than other cases.Justice Kennedy also concurred in an opinion joined by Justices Stevens, Souter, and Breyer. These justices indicated their unease with companies that use patents ‘not for producing and selling goods but, instead, primarily for obtaining license fees.’ The threat of an injunction can be used by these companies ‘as a bargaining tool to charge exorbitant’ license fees to companies that want to use the patented technology. Therefore, according to these justices, in situations where ‘the patented invention is but a small component of the product’ 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.’ These justices also opined that the ‘potential vagueness and suspect validity’ of some business method patents may also affect the determination made under the four-factor test.Based on these opinions, it appears that three justices (Roberts, Scalia, and Ginsburg) are comfortable with injunctions issuing in most cases, no matter the type of patent, but are not willing to call this a ‘general rule.’ Four justices (Kennedy, Stevens, Souter, and Breyer) seem to seek a different standard for companies who use the threat of an injunction as ‘undue leverage’ in license negotiation or for business method patents, but appear to be comfortable with injunctions being the norm in other cases. Most importantly, the Court did not overturn its prior precedent in Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908), where the Court held that a patent holder is not prevented from obtaining an injunction against infringement simply because he or she does not practice the invention, although the justices joining in Justice Kennedy’s concurrence appear to at least be willing to consider such a rule in the context of business method patents. Time will tell whether such a rule emerges, although it appears likely that it will at least be a factor when district courts apply the four-factor test.For the complete decision, log on to http://www.supremecourtus.gov/opinions/05pdf/05-130.pdf.