Supreme Court Issues Decision in eBay v. MercExchange

On May 15, 2006, the Supreme Court issued its opinion in eBay Inc. v. MercExchange, L. L. C., 547 U.S. (2006), in which it clarified the appropriate test courts should apply when determining whether injunctive relief is appropriate for a dispute arising under the Patent Act. Although this is not an antitrust case, the issue is important to antitrust lawyers because many antitrust cases arise out of patent disputes.

The Supreme Court rejected the Federal Circuit's application of a "general" rule that "courts will issue permanent injunctions against patent infringement absent exceptional circumstances." In so rejecting, the Supreme Court held that "according to well-established principles of equity, a plaintiff seeking permanent injunction must satisfy a four-factor test before a court may grant such relief." Under the four-factor test, a plaintiff must show: "(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."

The Supreme Court stated that the equity principles of the four-factor test "apply with equal force to disputes arising under the Patent Act." In making this determination, the Supreme Court referenced the language in the Patent Act, which "expressly provides that injunctions 'may' issue in accordance with the principles of equity." Additionally, the Supreme Court noted that their approach to patents is similar to their approach to copyrights, since holders of both possess the right to exclude others from using their property.

In his concurring opinion, Chief Justice Roberts examined the history of injunctive relief in patent cases, noting that there is a "long tradition of equity practice." He agreed that a significant departure from this practice "should not be lightly implied."

Justice Kennedy also wrote a concurring opinion, examining the future of injunctive relief in patent cases. He advised trial courts to "bear in mind [that in current and future patent infringement cases] the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases." For instance, he noted that there is now an "industry" where firms use patents primarily to obtain licensing fees. Thus, such firms could use the prospect of violating an injunction as a "bargaining tool to charge exorbitant fees" to potential licensees. Justice Kennedy also indicated that business method patents, like the one at issue in the present case, may be of particular concern, as the "potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test."

This decision will help companies fight lawsuits filed by so-called "patent trolls" -- companies that own a portfolio of patents for the primary purpose of suing other companies in the hopes of forcing a lucrative settlement. MSN reports:

"This decision is a clear victory for innovation and for consumers and a defeat for patent trolls and others who are abusing the legal system," said Robert Holleyman, president of the Business Software Alliance, whose members include Microsoft, Intel and other large computer software and hardware companies. "By giving courts greater latitude on whether or not to issue an injunction, we are making progress towards restoring much-needed balance to the out-of-control patent litigation process."