Court Clarifies Role of Equity in Imposing Injunctions in Patent Cases
The United States Supreme Court, in one of its increasingly less rare cases involving patents, has ruled that whether or not an injunction is to be granted in a patent case must be decided under the traditional guide lines applicable to the granting of injunctions in general.
On May 15, 2006, the Court rendered a unanimous decision in eBay Inc. v. MercExchange LLC, 78 USPQ2d 1577 (Sup.Ct. 2006), in which the Court vacated a decision by the Court of Appeals for the Federal Circuit and remanded the case to the District Court for the Eastern District of Virginia. The facts are straight forward. MercExchange had brought an action against eBay and Half.com Inc., a wholly owned subsidiary of eBay, for infringement of several business method patents covering an electronic market designed to facilitate the sale of goods between private individuals by establishing a central authority to promote trust among the participants to the transactions. MercExchange had initially sought to license its patents to eBay and Half.com, but no agreement was reached. In the suit in the District Court, a jury found that the patent was both valid and infringed, and awarded damages. Following the jury verdict the District Court denied MercExchange’s motion for a permanent injunction. On appeal, the Federal Circuit reversed the denial of the permanent injunction. Specifically, the Federal Circuit held that, for patents, the “general rule [is] that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.” The Supreme Court granted certiorari to determine the appropriateness of this “general rule.”
According to well-established principles of equity as articulated by the Supreme Court, a plaintiff seeking an injunction must satisfy a four-factor test before a court may grant relief. The 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 an injunction. The Supreme Court held that the District Court had not applied those rules and needed to apply the grant or denial of the permanent injunction in accordance with this framework. Once properly applied, the Supreme Court held that the District Court’s decision was reviewable by the Federal Circuit to determine if the lower Court had abused its discretion.
The Supreme Court then took issue with the holding of the Federal Circuit in regards to the “general” rule, unique to patent disputes, “that a permanent injunction will issue once infringement and validity have been adjusted,” and that injunctions should be denied only in unusual cases, involving exception circumstances to protect the public interest. The language of the Supreme Court’s decision is telling: “Just as the District Court erred in its categorical
denial of injunctive relief, the Court of Appeals erred in its categorical grant of such relief.” The last two paragraphs of the Supreme Court’s decision speak eloquently for themselves:
Because we conclude that neither court below correctly applied the traditional four-factor framework that governs the award of injunctive relief, we vacate the judgment of the Court of Appeals, so that the District Court may apply that framework in the first instance. In doing so, we take no position on whether permanent injunctive relief should or should not issue in this particular case, or indeed in any number of other disputes arising under the Patent Act. We hold only that the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards. Accordingly, we vacate the judgment of the Court of Appeals, and remand for further proceedings consistent with this opinion.
It should be added that the decision was accompanied by two separate concurring opinions, one by the Chief Justices in which he was joined by two other Justices and the other by four Justices. Another noteworthy aspect of the matter is that a footnote to the opinion tells us that e-Bay and Half.com continue to challenge the validity of the patent in proceedings pending before the United States Patent and Trademark Office in a re-examination proceeding. It remains to be seen whether the outcome of that proceeding, whatever it may be, will be sufficiently timely to affect whatever action the District Court may take in view of the remand ordered by the Supreme Court.
Potential Impact on Patent Reform
The full impact of the Supreme Court’s decision has yet to be felt. However, immediately after the decision, the Eastern District of Texas denied a request for a permanent injunction against Microsoft based, in part, on the principles of equity set forth in the eBay decision. Of special interest to patent owners is that the injunction was denied, at least in part, because the patent owner was not a manufacturer of the invention such that monetary damages would be sufficient, the scope of the infringement was large, and Microsoft would be unable to avoid the infringement for existing copies such that the harm to the public would be large. z4 Technologies v. Microsoft, Case No. 6:06-CV-142 (E.D. Tex. June 14, 2006). The Court placed special emphasis on the status of z4 Technologies as only being a patent licensing company. This result was one of the more controversial elements of the Patent Reform Act of 2005. See James G. McEwen, Is the Cure Worse Than the Disease? An Overview of the Patent Reform Act of 2005, 5 J. MARSHALL REV. INTELL. PROP. L. 55 (2005) and Robert A. Armitage, The Conundrum Confronting Congress: The Patent System Must Be Left Untouched While Being Radically Reformed, 5 J. MARSHALL REV. INTELL. PROP. L. 268 (2006) outlining criticisms. As such, the Supreme Court’s decision likely blunts these criticisms to (and obviates the need for) potential legislative changes to require courts to consider principles of equity in granting permanent decisions.