Don’t Add to Patent Injunction Test, Supreme Court Says in ‘eBay’ Case

The 4-factor test for deciding injunctions has long been preempted in the Federal Circuit, set up to handle patent appeals, said the unanimous opinion by Justice Clarence Thomas. A plaintiff seeking an injunction must prove: (1) It has suffered “irreparable injury.” (2) Remedies at law, such as monetary damages, are insufficient. (3) The balance of hardships between plaintiff and defendant tips toward an equity remedy. (4) An injunction wouldn’t harm the public interest. The Federal Circuit has long held that “exceptional circumstances” alone, such as public health risks, justify the denial of a permanent injunction after a finding of patent infringement. But “nothing in the Patent Act indicates that Congress intended such a departure” from using equity principles to decide relief for patent infringement; the Act itself says judges “may” issue injunctions, the high court ruled. Simply because patents “have the same attributes of personal property,” including the right to exclude others from benefitting from the invention, doesn’t dictate what relief should be. Earlier courts have “consistently” rejected the opportunity to replace equity with automatic injunctions, the decision added.

But the trial court made its own goofs, adopting “certain expansive principles” that would prevent injunctions in cases where they may be warranted, the Supreme Court said. Plaintiffs’ willingness to license a patent and “lack of commercial activity in practicing” patents, which were held against MercExchange’s request for an injunction by the U.S. Dist. Court, Norfolk, Va., don’t preclude injunctions, the Supreme Court said. Some patent holders -- university researchers and “self-made inventors,” for example -- reasonably prefer to license their patents to save time and money they would otherwise spend bringing products to market. The landmark Continental Paper Bag decision of 1908 specifically said that declining to use a patent wasn’t a reason to preclude injunctive relief, the Court said. Nothing in the decision should be read as support for eBay or MercExchange in this case, the court added.

Justices debated the balance between injunctive relief’s history and patent litigation trends in 2 concurrences. Chief Justice John Roberts, joined by Antonin Scalia and Ruth Ginsburg, said that judges have granted injunctive relief following infringement decisions “in the vast majority of patent cases.” This has been necessary, “given the difficulty of protecting a right to exclude through monetary remedies that allow an infringer to use an invention against the patentee’s wishes,” which implicates the first 2 of the 4 tests. Judges using their discretion in considering injunction requests should not fashion “an entirely clean slate,” the concurrence said, but should consider similar cases in the past to make a decision.

Similar cases from the past are rare, given trends in patent litigation, countered a 2nd concurrence written by Anthony Kennedy and joined by John Stevens, David Souter and Stephen Breyer. “An industry has developed in which firms use patents… primarily for obtaining licensing fees,” and the fallout from threatened injunctions “can be employed as a bargaining tool to charge exorbitant fees” for firms seeking to license the patent, the concurrence said. This is especially true for tech patents, in which thousands of patents may be bundled into a single product: “Legal damages may well be sufficient,” and injunction may harm the public interest. Business-method patents like the MercExchange patent “were not of much economic and legal significance in earlier times,” and the “potential vagueness and suspect validity” of those patents could affect the 4-factor test, the concurrence said.

Court Divergence Possible, Hill Efforts Still Needed

Nary a critic of the court decision could be found. “We are confident than when the district court revisits this issue, particularly in light of the ongoing reexamination of the patents [at the Patent & Trademark Office], that the result” -- turning down an injunction -- “will be the same,” said eBay Deputy Gen. Counsel Jay Monahan. Days before oral argument at the court, the PTO confirmed its rejection of MercExchange’s patent: “It is unclear what, if any, additional arguments MercExchange could raise that would alter the Patent Office’s current view,” eBay said. MercExchange couldn’t be reached for comment and had no corporate statement on its website.

The ruling “clearly changes the rules, but it leaves a lot of working out to the lower courts for what the rules are going to be,” Stanford U. Law Prof. Mark Lemley told us. Academicians led by Lemley, siding with eBay, had asked the Court to grant cert in the case (WID Oct 7 p7). The decision “may actually encourage [defendants] to take more cases to trial,” confident that courts will be more reluctant than before to grant injunctions, or prod plaintiffs to settle on friendlier terms, he said. If the Federal Circuit sets clear standards for when to grant injunctions, the rules should trickle down to all courts, including patent-friendly forums like U.S. Dist. Court, Marshall, Tex., Lemley said. The 2 concurrences leave “enough room… for courts to kind of go either direction,” however, and “we still don’t know how often this discretion to deny injunctive relief is going to be used,” he added.

The Court provided a “clear statutory interpretation” for lower courts, Foley & Lardner Intellectual Property Chmn. Sharon Barner told us: “They will at least now have the understanding… that an injunction will not be automatic.” Those accused of infringement will have more leverage in negotiations after a few cases where injunctions aren’t granted, but damage awards may well rise as courts seek to compensate for the decline in injunctions granted, she said. “EBay can take cold comfort in this case,” though: MercExchange “didn’t really put [in] any evidence” that supported its position under the 4-factor test because it relied on the Federal Circuit’s general rule, and eBay may come up short on evidence that MercExchange fails the 4- factor test, Barner said.

The decision is “an important element of an overall need to rebalance the patent system,” Business Software Alliance (BSA) counsel Emery Simon said in a conference call. Congress still needs to revise how damages for infringement are calculated -- by infringed patent, not the entire product -- increase PTO resources to stop weak patents, revise the willfulness standard, and improve the “harmony” of U.S. patent law with the rest of the world, he said. But the Kennedy concurrence “establishes the proposition that the patent law is an evolving, dynamic law,” and the notion that courts must follow precedent “almost blindly” was rejected -- victories for the tech sector. Told that the decision didn’t achieve all of BSA’s goals, Simon replied: “Oh no, it absolutely did.” But he called himself a “cautious optimist” in response to our question about whether damage awards may rise following the decision: “I think this is a real danger,” which is why Congress needs to revise damage calculations.

Other legal experts foresaw higher litigation costs as a result of the ruling. Though the number of injunctions granted probably won’t change, “the need to meet the 4-factor test will probably drive up the cost of infringement litigation” because that test requires more details than the general rule, which simply relies on a finding of infringement,” attorney Michael Jacobs said. But the Kennedy concurrence might also make it harder for so-called patent trolls to get injunctions, and drive down the costs of a settlement, lawyer Beth Brinkman said.

House IP Subcommittee Chmn. Smith (R-Tex.), author of the leading patent reform bill (HR-2795) in Congress, didn’t have a statement by our deadline on the decision or its possible effect on legislation. “We're sort of just catching up” with the decision, a spokeswoman told us. -- Greg Piper

Supreme Court Notebook…

The Supreme Court Mon. denied cert in a federal obscenity case, upholding the indictment of adult website owners for online distribution and interstate shipping of porn. The owners of Extreme Assoc. were indicted for shipping obscenity after they sold postal inspectors videos by mail and download from their site’s public and members- only sections. The U.S. Dist. Court, Pittsburgh, overturned the indictment, saying U.S. obscenity laws violated the 5th Amendment’s due process protections by invading the privacy of Extreme customers. The judge cited the Court’s ruling against sodomy laws in Lawrence v. Texas. DoJ appealed (WID Feb 18/05 p7), persuading the 3rd U.S. Appeals Court, Philadelphia, to overturn the district court on grounds that it had ignored Supreme Court precedent upholding obscenity laws against 5th Amendment challenge. The appeals court also upheld such laws under the First Amendment after considering the matter at Extreme’s request.