Supreme Court rules for eBay in patents case

In the closely watched case of eBay v MercExchange, which focused on whether a court must automatically issue a preliminary injunction on a patent infringement claim, the Supreme Court came down strongly on the side of high-tech companies accused of patent infringement. Click here for PDF of the decision

A jury had found that eBay infringed on MercExchange's patents when they created a "buy it now" feature that allows users to pay a set purchase price rather than participating in an auction. At issue was not the award but the whether the court must issue a preliminary injunction preventing eBay from continuing to use the technology. The District Court declined to issue a permanent injunction, but the Federal Appeals Court overruled, saying that injunctions should follow findings of infrigement as a matter of course.

It was this question, whether judges have leeway to decide whether to issue injunctions or whether injuctions should be automatic, that the Supreme Court decided today. In the opinion, Justice Clarence Thomas said that both the District Court and the Court of Appeals strayed from the established four-prong test for granting permanent injunctions: that the plaintiff has suffered (1) an irreparable harm; (2) that monetary damages are inadequate; (3) that an injunction is warranted, considering the positions of defendant and plaintiff; and (4) public interest would not be served by injunction.

In ruling that MercExchange wouldn't be harmed by lack of an injunction, the District Court noted "the plaintiff's willingness to license its patents" and "lack of commercial activity in practicing the patents." Essentially, the District Court seemed to say, the plaintiff is a patent troll. But Thomas wrote that these descriptions cold also apply to legitimate patent holders, such as university researchers or "self-made inventors." Thomas wrote: "Such patent holders may be able to satisfy the traditional four-factor test and we see no basis for categorically denying them the opportunity to do so."

But the Court of Appeals erred in the other direction, Thomas wrote. The appeals court's decision "that a permanent injunction will issue once infringement and validity have been adjudged" is also an error in that it is a "categorical grant of relief." The trial court does have discretion in these matters, the Supreme Court said, and the fact that it is a patent dispute doesn't change the basic rule of injunctions.

The issue of patent trolls was very much on the mind of Justice Kennedy, with whom Justices Souter, Stevens and Breyer joined in an occurring opinion. Kennedy wrote:

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. 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. When the patented invention is but a small component of the product 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.