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May 23, 2006
Ebay patent ruling
I've been away from my computer (and the news, etc) for the past week and am just catching up. One of the more important events from last week that I missed was the Supreme Court's ruling on E-Bay vs. MercExchange. That case involves whether an injunction is mandatory. A unanimous (but split) Court ruled that judges have discretion as to whether they grant an injunction in a patent infringement case. As the ruling states:
Held: The traditional four factor test applied by courts of equity when considering whether to award permanent injunctive relief to a prevailing plaintiff applies to disputes arising under the Patent Act. That test requires a plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law 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 decision to grant or deny such relief is an act of equitable discretion by the district court, reviewable on appeal for abuse of discretion. These principles apply with equal force to Patent Act disputes.
The Wall Street Journal - "EBay Ruling Changes Dynamic In Patent-Infringement Cases" noted:
Justice Thomas likened the justices' opinion to a century of doctrine in the companion field of copyright, where "this court has consistently rejected invitations to replace traditional equitable considerations with a rule that an injunction automatically follows" a finding of infringement.
. . .
But two terse concurring opinions, one signed by three justices and another by four, seem to offer contrary guidance for trial judges.
An opinion by Chief Justice John Roberts, joined by Justices Antonin Scalia and Ruth Bader Ginsburg, suggests that venerable court precedents should limit the discretion of lower courts in denying injunctions. But a separate concurring opinion by Justice Anthony Kennedy, joined by Justices John Paul Stevens, David Souter and Stephen Breyer, seems to point to the future rather than the past. Justice Kennedy wrote that traditional "discretion is well suited to allow courts to adapt to the rapid technological and legal developments in the patent system." He also cited concerns raised by critics of the system, including those that "use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees."
I especially found the Kennedy/Stevens/Souter/Breyer concurring opinion of interest, as it began to take on the issue of patents as a stand-alone asset:
In cases now arising trial courts should bear in mind that in many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases. An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees. See FTC, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, ch. 3, pp. 38 39 (Oct. 2003), available at http:// www.ftc.gov/os/2003/10/innovationrpt.pdf (as visited May 11, 2006, and available in Clerk of Court's case file). For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. See ibid. When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four factor test.
The equitable discretion over injunctions, granted by the Patent Act, is well suited to allow courts to adapt to the rapid technological and legal developments in the patent system. For these reasons it should be recognized that district courts must determine whether past practice fits the circumstances of the cases before them. With these observations, I join the opinion of the Court.
This is the first of a number of patent cases before the Court. It is likely that before the Court recesses this summer, it will have significantly clarified the scope and operation of patent law. What that means for the on-going patent reform legislation is unclear.
Posted by Ken Jarboe at May 23, 2006 08:53 AM
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