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The may ruling in favor of eBay Inc. by the U.S. Supreme Court just made it a lot harder to win a permanent injunction for infringement against major patent users and manufacturers. The unanimous decision was a major win for eBay and other large companies. These companies frequently face crippling litigation from parties that get injunctions to protect one of thousands of patents used in a complex product. Writing for the Court, Justice Clarence Thomas said district court judges have discretion, guided by traditional factors such as whether “irreparable harm” would result if an injunction were not issued, in deciding whether a party claiming infringement should win a permanent injunction against continued use of the product. The ruling in eBay Inc. v. MercExchange spells an end to the long-standing presumption in patent cases that an injunction should issue almost automatically when infringement is found. That presumption has been used as leverage against manufacturers that would rather settle with challengers than risk seeing a product halted in its tracks. The recent multimillion-dollar settlement between the makers of BlackBerry devices and a patent holder, NTP Inc., which narrowly averted a shutdown of the BlackBerry network, was often cited in debate over the issues in the eBay case. The ruling sends the dispute between eBay and MercExchange LLC, a Virginia company that sued eBay for infringement, back to the U.S. district court for the Eastern District of Virginia. A statement from MercExchange predicted it would win an injunction even under the new standards. Some analysts say that the ruling would not put an end to efforts by challengers to seek injunctions. “Patentees will continue to exploit the threat of an injunction, along with the always-present threat of an enormous judgment, in their negotiations with deep-pocket defendants,” says Erik Puknys of Finnegan, Henderson, Farabow, Garrett & Dunner in Palo Alto. In a concurring opinion, four justices also took note of the growth of what they described as an “industry” of small patent holders, known as patent trolls, who use patents not to manufacture products but as a “bargaining tool to charge exorbitant fees” from major companies to license their patents. But Thomas’s majority opinion did not take such a dim view of patent holders who do not manufacture their products, asserting that solo inventors and university researchers might have legitimate reasons for seeking licensing arrangements, and they could still win injunctions if they meet the traditional test for injunctive relief in civil cases. In a statement, Robert Holleyman of the Business Software Alliance, which supported eBay, called the decision a “clear victory for innovation and for consumers, and a defeat for patent trolls and others who are abusing the legal system. . . . By giving courts greater latitude on whether or not to issue an injunction, we are making progress towards restoring much-needed balance to the out-of-control patent litigation process.” The eBay dispute began in 2001, when MercExchange sued eBay for infringing its patent that enabled the “Buy it Now” feature used on the popular online auction site. A jury in the Eastern District of Virginia awarded MercExchange $35 million for infringement, and the company promptly sought a permanent injunction to prevent future infringement by eBay. MercExchange invoked the 1908 precedent, Continental Paper Bag Co. v. Eastern Paper Bag Co., that established the presumption in favor of an injunction against the infringer. But the judge denied MercExchange’s motion, finding that the company, which licenses but does not use its patents, would not suffer irreparable harm without an injunction. But the U.S. Court of Appeals for the Federal Circuit rejected the district court’s reasoning and said that nothing in the case justified deviating from the rule in favor of an injunction. “We are extremely gratified by the Supreme Court’s unanimous decision,” said Jay Monahan, deputy general counsel at eBay and the company’s primary intellectual property counsel, in a statement. “The trial judge originally found in this case that money was sufficient and denied an injunction. We are confident that when the district court revisits this issue . . . the result will be the same.” But other companies, joined by the Bush administration, argued that the precedent should be upheld to give needed protection to valid patents. The solicitor general argued that infringement alone amounts to irreparable harm and, therefore, should trigger an injunction against the infringer. A version of this story first appeared in Legal Times, a sibling publication of Corporate Counsel.

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