31 July 2006
Key Points:
In eBay v MercExchange the US Supreme Court has recently held that a permanent injunction is not automatic or mandatory when a patent is held infringed; the decision whether to grant such relief rests within the equitable discretion of the first instance court. That discretion is to be exercised by applying traditional principles of equity that govern the decision to grant a permanent injunction in all other aspects of US law. Under Australian law, a court "may" grant a permanent injunction if it finds a patent infringed – a permanent injunction is not automatic or mandatory.
For 20 years, United States courts have applied a general rule that a permanent injunction is to be granted if a patent is held to be infringed and not invalid, unless there are exceptional circumstances justifying the denial of such an injunction. This methodology fundamentally differs from the equitable four-factor test that governs the grant of permanent injunctions in all other aspects of US law, therefore making the grant of permanent injunctions where a patent is held infringed, and not invalid, virtually automatic.
On 15 May 2006, in eBay v MercExchange, the United States Supreme Court overruled this lower court precedent and held that patent disputes are not governed by a unique methodology that results in the grant of permanent injunctive relief being virtually automatic. Instead, the grant or denial of permanent injunctive relief in patent litigation is to be governed by the same equitable principles that govern the grant of such relief throughout US law.
Background
EBay owns and operates a website on the Internet that allows buyers and sellers to search for goods and to purchase them by participating in live auctions or by buying them at a fixed price.
MercExchange is the owner of a United States business method patent for an electronic market for the sale of goods between individuals. The MercExchange patent was filed in 1995, a few months before the start up of eBay. MercExchange is a patent holding company, often referred to as a "patent troll." It does not practise the invention claimed in its patent. Instead, it holds this and other patents for the purpose of generating licensing revenue from their licensing to market participants that wish to practise the patented invention. Litigation, and the threat of a permanent injunction, are often used by patent trolls to increase the royalty amount.
MercExchange commenced proceedings against eBay for patent infringement. At issue was the "Buy It Now" fixed-price purchasing feature of eBay’s website, which allows customers to purchase items that are listed on eBay’s website for a fixed, listed price.
The lower court found eBay liable for infringing the MercExchange patent and the jury subsequently awarded damages to MercExchange of US$25 million. However, the lower court declined to enter a permanent injunction. The court declined to apply the per se rule granting a permanent injunction upon a finding that the patent was infringed and not invalid. Instead, the court applied the traditional four factor test and held that each factor either favoured eBay or was neutral. The lower court’s analysis was heavily influenced by the roles of the litigants - eBay as a market participant and MercExchange as a "patent troll." The court held that MercExhange lost many of the equitable factors as there was "[s]ubstantial evidence ... that [MercExchange] does not practice its inventions and exists merely to license its patented technology to others."
On appeal, the Court of Appeal for the Federal Circuit reversed the lower courts denial of a permanent injunction. The Court held that the lower court failed to apply its "general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances."
The United States Supreme Court
EBay appealed the Federal Circuit’s decision to the Supreme Court of the United States. In an unanimous decision, the Supreme Court rejected the Federal Circuit's bright line rule that made the grant of a permanent injunction virtually automatic. The Supreme Court held that in deciding whether to grant permanent injunctions in patent cases, courts must apply the traditional four-factor test that governs the grant of this equitable remedy in other aspects of US law.
The Supreme Court remanded the case so the district court was to apply this test. Specifically, the Supreme Court remanded the case to the lower court to apply the traditional test, where the plaintiff must show:
The unanimous decision was joined by two separate concurrences. The concurrence of Chief Justice Roberts and Justices Scalia and Ginsburg states that in applying the four-factor test, the fact that courts have awarded permanent injunctions in the vast majority of patent cases upon a finding of infringement (since the early 19th century), should act as a guide for future courts to exercise their discretion. This suggests that injunctions should continue to be awarded in the vast majority of such cases. The concurrence of the other four Justices, Kennedy, Stevens, Souter and Breyer, indicates that they feel that times have changed. Thus, the tradition of granting injunctive relief in the vast majority of such cases might no longer be so compelling. This is particularly in the case of patent trolls and where the patent held infringed is a business method patent.
The Supreme Court’s decision has increased the level of discretion a court has in deciding whether to grant or deny a permanent injunction, in turn making the question of whether such an injunction will be granted less certain. However, the decision is likely to have a greater impact on methodology than result. For the majority of patent cases where the patent is held infringed and not invalid, or at least those whose circumstances echo the type of cases US courts have been dealing with for centuries, a permanent injunction is still likely to be granted in the vast majority of cases.
Permanent injunctions are thus likely to be granted to patent holders who are themselves practising their patented inventions. Along with universities and individual inventors who do not themselves practise their patented inventions but legitimately try to exploit those inventions through licensing. Permanent injunctions appear less likely where the patentee is a "patent troll" and perhaps in relation to business method patents.
The Supreme Court’s decision is thus likely to have a positive impact on those industries targeted by patent trolls. These currently include electrical engineering and information technology, universities and individual inventors. It is likely to have a neutral impact on the pharmaceutical and biotechnology industries (with permanent injunctions continuing to be granted in most cases), and a possible negative impact on business method patent holders and a likely negative impact on patent trolls.
Australia
The Australian Patents Act 1990 (Cth) expressly provides that the grant of a permanent injunction following a finding of patent infringement is discretionary, stating that a court "may" grant an injunction in such circumstances. It is generally accepted that equitable principles will guide the exercise of this discretion. Furthermore, it is understood that an injunction will almost invariably be granted following a finding that the patent is infringed and valid.
Australian courts have not yet been called on to address patent infringement proceedings commenced by a patent troll. It remains to be seen whether a patent troll’s failure to practise its patented invention itself, and its use of the threat of a permanent injunction to seek to extract excessive licensing fees, may cause an Australian court to conclude that damages are an adequate remedy, and that a permanent injunction should be denied.
For further information, please contact John Collins.
