United States: Supreme Court Hears Arguments Regarding the Right to an Injunction in Patent Cases

Supreme Court Hears Arguments Regarding the Right to an Injunction in Patent Cases On March 29, 2006, the U.S. Supreme Court considered whether courts in patent cases should continue to issue permanent injunctions, absent exceptional circumstances, as a "general rule" after a finding of infringement. The case is eBay Inc. v. MercExchange, L.L.C., Case No. 05-130 (U.S. Sup. Ct. 2006). In addition to considering whether MercExchange was entitled to an injunction based on the specific facts of that case, the Supreme Court also directed the parties to brief and argue "[w]hether this Court should reconsider its precedents, including Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908), on when it is appropriate to grant an injunction against a patent infringer."

MercExchange holds a number of patents directed to online purchasing technology. The company was founded by the inventor of the patents following his unsuccessful efforts to build a business based on the technology. In 2000 eBay Inc. and MercExchange LLC began negotiating the sale of the MercExchange patents to eBay. When discussions broke down, MercExchange sued eBay for patent infringement in the U.S. District Court for the Eastern District of Virginia. A jury found eBay’s "Buy It Now" online auction feature infringed MercExchange’s patents and further found that eBay’s infringement was knowing and willful. MercExchange then asked the court to enter a permanent injunction against further infringement, but the court declined to do so. Both parties appealed aspects of the judgment to the U.S. Court of Appeals for the Federal Circuit, which upheld the jury verdict of infringement and overruled the district court’s denial of a permanent injunction against eBay.

With respect to the district court’s refusal to enter a permanent injunction, the Federal Circuit reiterated its long-standing precedent that after a patent is determined to be valid and infringed, the "general" (not absolute) rule is the court will enter a permanent injunction against the infringing party. The Federal Circuit acknowledged that in rare, exceptional circumstances a court may decline to enter an injunction. For example, a permanent injunction may be denied if "a patentee’s failure to practice the patented invention frustrates an important public need for the invention, such as the need to use an invention to protect public health."

The Federal Circuit held the eBay court failed to reasonably justify its denial of a permanent injunction. The district court based its decision on several factors and first stated the public interest favored the denial of a permanent injunction because of a growing concern about the U.S. Patent and Trademark Office (USPTO) issuing business-method patents. The district court also reasoned the defendants would attempt to design around the patent if a permanent injunction was issued, the design around would require additional litigation to determine if the design violated the injunction, and such ongoing litigation would require a substantial expenditure of judicial time and resources. Finally, the district court noted that MercExchange’s willingness to license its patents for money was justification for denying the permanent injunction.

The Federal Circuit rejected the district court’s reasoning on all three grounds. First, the Federal Circuit held that general concerns regarding business method patents and potential disputes over a design around were not persuasive arguments. Regarding MercExchange’s willingness to grant a license, the Federal Circuit stated that "injunctions are not reserved for patentees who intend to practice their patents, as opposed to those who choose to license." The Federal Circuit reasoned the statutory right of a permanent injunction is an adequate and appropriate remedy available to all patent holders and not merely those who choose to practice their patents.

eBay argues that 35 USC § 283, which provides that district courts "may grant injunctions in accordance with the principles of equity" gives district courts equitable discretion when deciding to grant or deny an injunction. eBay contends that the Federal Circuit’s "near automatic" injunction rule contradicts the plain language of § 283 and is not justified by a patent holder’s right to exclude others. Further, eBay asserts the district court was justified in its denial of the permanent injunction because there was no irreparable harm to MercExchange in the absence of an injunction. Because MercExchange primarily sought to license the patent, monetary damages were an adequate legal remedy. In addition, the balance of hardship weighed against a permanent injunction because of the subsequent additional litigation associated with a design around, and the public would benefit from the continued use of the of the invention.

eBay also argues that the Supreme Court’s 1908 decision in Continental Paper Bag, Co. v. Eastern Paper Bag Co. (commonly known as "Continental Bag" ) does not apply. There, the Supreme Court stated a patent holder’s unreasonable nonuse of the invention does not prevent a district court from granting an injunction. eBay argues this statement does not require district courts to almost always grant an injunction in favor of the patentee. Alternatively, if the Supreme Court finds Continental Bag requires a "near automatic" injunction rule, eBay requests that Continental Bag be overruled because of its inconsistency with § 283, developing federal case law and the changing landscape of the U.S. patent system.

In response, MercExchange argues the Federal Circuit recognized the district court’s discretion to grant or deny a permanent injunction and applied the correct legal standard when it evaluated and overturned the district court’s denial of the permanent injunction. MercExchange argues that the "general rule" of granting a permanent injunction following a determination of validity and infringement is well grounded in precedent, flows from case law and is an equitable enforcement of a patentee’s rights. MercExchange agrees with the Federal Circuit’s rejection of the district court’s reasoning, arguing there were no legitimate reasons that justified the denial of a permanent injunction against eBay based on the facts in this case.

MercExchange also contends the Court need not revisit Continental Bag or any of its precedents regarding the standard for issuing permanent injunctions against patent infringers. MercExchange believes the holding in Continental Bag is inapplicable to the present case. As a licensor, MercExchange reasons that if a permanent injunction is still available in the case of a patent holder’s complete non-use, it certainly should be available to MercExchange. Consequently, MercExchange asks the Court to uphold the Federal Circuit decision and reaffirm the holding of Continental Bag.

Numerous amicus curiae (friends of the court) briefs were filed in support of both parties’ positions. Of note, large pharmaceutical companies, colleges and universities, and solo inventors argued in favor of MercExchange. Large computer, semiconductor and software companies supported eBay. The U.S. government also submitted a brief essentially making the same arguments as MercExchange and asking the Supreme Court to affirm the Federal Circuit’s decision granting a permanent injunction.

The Supreme Court had a wide variety of concerns regarding the implementation of an injunction following a determination of patent infringement. eBay asked the Supreme Court to scale back the rebuttable presumption that an injunction should follow a determination of patent infringement. Based on the plain language of the statute, eBay asked the Supreme Court to require district courts to consider a four-part equitable test when issuing injunctions. eBay also contended the district court was correct in denying MercExchange equitable relief, stating that the monetary relief was adequate.

Justice Ginsberg expressed several concerns with eBay’s argument. She was concerned about potential inconsistency problems among district courts if they were given greater latitude in issuing injunctions. She reasoned that dispersing equitable discretion among the district courts would cause disparity between the district courts and encourage forum shopping—just the type of concerns that led to the creation of the Federal Circuit in 1982. Justice Ginsberg also stated that eBay’s position resembles compulsory licensing and pointed out that Congress has not provided for a general compulsory licensing scheme in patent cases.

Justice Scalia stated the issue was a patent holder’s right to exclude others, and what MercExchange asked for is "give me my property back." He posed the question: "why can’t we let the market take care of the problem?" Justice Scalia also debated eBay’s argument that a monetary remedy was sufficient; why should it matter whether a patent holder produces a product, chooses not to, or chooses to license the patent? In any case Justice Scalia noted that in filing a law suit the patent holder is asking the infringer to stop using his property, and an injunction is the rational way to accomplish this goal.

Chief Justice Roberts also expressed concern for the potential effect on the "guy in a garage" that patented his invention but does not have the means to practice his patent by producing a product. He posed several questions directed to patent holders who only license their inventions. Chief Justice Roberts questioned if a line should be drawn, designating between a patent holder who produces a product and a patent holder who uses a patent speculation firm to license a product. Chief Justice Roberts questioned why a party who chooses solely to license the patent should lose the leverage of an injunction. He also questioned eBay’s position on what it meant to "practice" an invention; for example, why did it not consider selling an idea as practicing an invention?

MercExchange steadfastly argued the Federal Circuit’s ruling was correct. MercExchange reasoned eBay’s willful infringement was irreparable by nature, and its continued trespass warranted the injunction. However, Chief Justice Roberts expressed concern over the USPTO’s initial office action in a pending re-examination rejecting all of the claims in the patent at issue and inquired whether the district court should have considered the preliminary USPTO determination before "putting eBay out of business." Chief Justice Roberts and Justice Stevens also expressed concern about the breadth of an injunction, and Chief Justice Roberts questioned if a district court should also take a patent’s vagueness into consideration when considering a injunction and defining its scope.

Interestingly, Justice Breyer stated he was concerned about "patent trolls" and the potential for abusing grants of injunctions. He cited an example of a patent holder who chooses not to produce or license his idea but rather waits until a potentially infringing product is in the marketplace to enforce his patent. Should an injunction ensue, Justice Breyer pointed out that the patent holder could extract more money from the infringer than what the invention is actually worth. He expressed to MercExchange a fear that issuing an injunction may result in relief that is out of proportion.

The U.S. government also presented arguments and asked the Court to provide guidance to district courts by further defining the equitable principles that should be weighed when considering an injunction.

There was little discussion of Continental Bag. It appeared that the Court did not find that case particularly applicable since, in this case, there was evidence MercExc hange had in fact licensed its patents to others such that the "complete non-use" scenario in Continental Bag does not apply.

Based on the questions from the Supreme Court and the arguments of the parties, we predict the Supreme Court will rule that the Federal Circuit correctly held that the district court should have granted a preliminary injunction. The facts show that eBay knew of the patent and willfully infringed it. Further, MercExchange has a responsibility to its licensees to enforce its patents against the licensees’ competitors who infringe the MercExchange patents. Based on these facts, the public interest weighs heavily in favor of upholding and enforcing valid patents and providing the patentee with its right to exclude others from using the patented technology without permission. The Constitution and the patent system encourage innovation, and such innovation may be stifled if inventors believe their inventions will be wantonly misappropriated without recourse.

With respect to the many policy arguments raised by eBay and its amici supporters, those arguments, valid or not, are more properly addressed by Congress. The Supreme Court interprets laws; it does not write them. As it currently stands the Constitution and the Patent Laws collectively provide the patentee with the exclusive right to its inventions; this law can only have teeth if the courts are empowered to grant injunctions following a finding of infringement. If Congress disagrees, it will need to consider one or mo re versions of the current "patent reform" initiatives pending on the Hill.

Notes: The Federal Circuit’s opinion is reported at MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1323 (Fed. Cir. 2005). The Supreme Court’s opinion in Continental Bag is reported at Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908).

Brian E. Ferguson is a partner in the law firm of McDermott Will & Emery LLP based in the Firm’s Washington, D.C. office. He is a member of the Intellectual Property, Media & Technology Department and his practice is dedicated entirely to intellectual property counseling and enforcement. He has assisted and acted as lead and co-trial counsel in numerous patent infringement and validity disputes before the district courts and Section 337 investigations before the U.S. International Trade Commission.

Kori Anne Bagrowski is an associate in the law firm of McDermott Will & Emery LLP based in the Washington, D.C. office. She is a member of the Intellectual Property, Media & Technology Department and focuses her practice on patent litigation before the district courts and the U.S. International Trade Commission.

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