The United States Supreme Court on May 15, 2006, entered the controversy surrounding patent reform in eBay, Inc. v. MercExchange, L.L.C. As Congress continues to debate changes to the Patent Act, including permanent injunctions against patent infringers, the Court rejected the Federal Circuit’s "general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances." 401 F.3d 1323, 1339 (Fed. Cir. 2005). Instead, the Court applied the historical four-factor test for a permanent injunction, where a patentee must show that: 1) it suffered irreparable injury; 2) remedies available at law, such as monetary damages, are inadequate to compensate for that injury; 3) a remedy in equity is warranted considering the balance of the hardships between the plaintiff and defendant; and 4) a permanent injunction would not disserve the public interest.
The district court had denied MercExchange’s requested injunction after a jury found its patents valid and infringed, holding that certain categories of patent holders are not entitled to equitable relief. Because MercExchange had exhibited a willingness to license its patents and there was a dearth of commercial activity practicing the claimed inventions at issue, the district court held that MercExchange had failed to prove that it would suffer irreparable harm absent an injunction against the infringing acts. On appeal, the Federal Circuit reversed the district court and applied the general rule, which set the stage for Supreme Court review.
In vacating the injunction, the Court measured the appellate and lower court rulings against the traditional four factor test. The Court found that because the traditional principles of equity do not
permit a broad classification approach, it rejected the district court’s reasoning that a patentee who licenses its patents and has not shown sufficient commercial activity would not suffer irreparable harm absent an injunction. According to the Court, such an approach would be over-inclusive and deny injunctive relief to classes of patentees who may satisfy the four-factor test independently, such as university researchers and small patent holders who might prefer to license their patents rather than undertake the financing required to commercialize their inventions. The Court also found that the Federal Circuit’s general rule could potentially grant injunctions to patentees that did not otherwise satisfy the four-factor test, and remanded the case for further consideration.
Justice Kennedy’s concurring opinion is noteworthy because it focuses on the legal and economic realities of the patent holder and the patent being enforced, which in many instances give rise to considerations unlike earlier cases. Specifically, the calculus under the four factor test is affected by (1) a patentee that uses its patent only to obtain licensing fees and otherwise does not commercialize the claimed invention, and employs the threat of an injunction simply for undue leverage in negotiations and (2) the burgeoning number of patents on business methods, which were not of much economic and legal significance in earlier times.
Unfortunately for RIM, the Court’s decision came too late to avoid the necessity of having to settle with NTP after the district court had indicated in February 2006, that it was likely to grant a permanent injunction against RIM.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
