Intellectual Property Alert; Supreme Court Clarifies Injunctive Relief Standard in Patent Cases

    May 2006
    The United States Supreme Court issued a unanimous decision today in eBay Inc. v. MercExchange, L.L.C., putting an end to the Federal Circuit's "general rule" granting permanent injunctions upon a finding of patent infringement. In the vast majority of patent cases, federal courts have granted injunctive relief upon a finding of infringement. This history has resulted in the Federal Circuit's development of the "general rule" that a permanent injunction will be issued after a finding of patent infringement.

    In eBay, the Supreme Court rejected the Federal Circuit's "general rule" and held that "well established principles of equity" require a plaintiff seeking a permanent injunction to demonstrate (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 the defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction, before a permanent injunction can be issued after a finding of patent infringement. The Supreme Court held that the four-factor test must be applied on a case-by-case basis, and clearly indicated that broad classifications and expansive principles will not justify either granting or denying injunctive relief.

    The Supreme Court's decision rejecting a "general rule" in favor of the "well established principles of equity" was predicted by many legal scholars and does not itself indicate a substantial shift in the way injunctions are issued in patent cases. In a concurring opinion, Chief Justice Roberts, joined by Justices Scalia and Ginsburg, cautioned the district courts from applying the four factor test "on an entirely clean slate." According to the Chief Justice, the "long tradition" of granting injunctive relief in patent cases should be accorded substantial weight.

    Reflecting a possible split in the Court, however, Justice Kennedy, joined by Justices Stevens, Souter and Breyer, wrote a concurring opinion, in which he suggested that the historical practice of issuing injunctions in patent cases is no longer convincing precedent because of recent changes in the use of the patent system. On this point, Justice Kennedy observed that many companies now use patents "not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees." In such cases, Justice Kennedy opined that monetary damages may be sufficient to compensate for infringement. Justice Kennedy expressed concerns about situations in which "the patented invention is but a small component of the product the companies seek to produce. . ." He also indicated that business method patents may be viewed critically under the four-factor test because of their "vagueness" and "suspect validity," but declined to elaborate further. The historical practice is most helpful, according to Justice Kennedy, when the circumstances of a case "bear substantial parallels to litigation the courts have confronted before."

    The immediate effect of the eBay ruling may be two-fold. First, within the context of judicial proceedings, the Supreme Court has now made it unmistakably clear that courts must use the traditional four-factor test in determining whether to issue an injunction and not the "general rule" favoring injunctions. Second, within the context of licensing and settlement negotiations, patent owners and accused infringers can no longer assume that an injunction will be granted if a court finds infringement. This latter fact will tend to marginally weaken the negotiating position of patent holders who use the patent in their own operations, and may more dramatically weaken the negotiation position of patent holders who are mere licensing companies.

    If you have any questions regarding these issues, please do not hesitate to contact us.