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Good things do come in small packages. The U.S. Supreme Court’s recent decision in eBay Inc. v. MercExchange LLC, 126 S. Ct. 1837 (2006), may be a small opinion at just six pages, but it was a gift to big business and others accused of patent infringement. With brevity and clarity, like a parent admonishing a teen intent on living by his or her own rules, the Supreme Court did away with the U.S. Court of Appeals for the Federal Circuit’s new “general rule” holding that unless compelling circumstances exist, a permanent injunction should issue in cases where a defendant has infringed the patent of another. In an opinion written by Justice Clarence Thomas, the Supreme Court reinstated the previous, less presumptive rule of law that applies to almost all federal civil actions, including patent-infringement actions in which a permanent injunction is sought. A jury found that eBay and Half.com Inc., a wholly owned subsidiary of eBay, infringed MercExchange’s business method patent for an electronic market. The jury awarded monetary damages. MercExchange requested that the trial judge permanently enjoin the defendants from any further infringement, which is common in patent cases, given a patent owner’s express right to exclude others from using the invention. The trial court found that the defendants should not be permanently enjoined, however, after it applied the four-factor test historically used by federal courts: that the plaintiff has suffered an irreparable injury; that remedies available at law are inadequate to compensate for that injury; that, considering the balance of hardships between the plaintiff and the defendant, a remedy in equity is warranted; and that the public interest would not be disserved by a permanent injunction. The trial court suggested that an injunction was not appropriate in this case because of MercExchange’s willingness to license its patents and lack of commercial activity in practicing the inventions. MercExchange appealed. Federal Circuit set a general rule favoring injunctions The Federal Circuit reversed, but not based on an abuse of discretion by the trial court in its application of the four-factor test. Rather, the Federal Circuit announced a new “general rule” for determining when a permanent injunction should issue in cases where a defendant has been found to have infringed a patent. The rule required the trial court to start with the presumption that a permanent injunction should issue, absent exceptional circumstances or a need to protect the public interest. The Federal Circuit relied on the exclusionary rights granted to patent owners for its departure from the traditional four-factor test in other civil litigation. This general rule was a major departure from historical law in favor of the patent owner, which previously had to demonstrate not only irreparable harm and the unavailability of monetary damages, but also that the balance of hardships between the parties warranted the injunction and that the public interest would not be disserved by the issuing of an injunction. eBay sought the Supreme Court’s review. The Supreme Court struck down the general rule and remanded the case to the trial court. The Supreme Court based its decision on the long-recognized rule that “a major departure from the long tradition of equity practice should not be lightly implied.” Although the Supreme Court recognized that a patent by definition is the right to exclude another from practicing the invention, the Supreme Court distinguished the rights from remedies. Stating that a patent owner, like other civil litigants, has the opportunity to request an injunction, the court said the patent owner should not receive a presumption in favor of such a remedy. The Supreme Court also cited its recent decision that injunctive relief is not automatically available to a copyright owner whose copyright was infringed, despite the right of the copyright owner, like a patent owner, to exclude others from using his property. “Like the Patent Act, the Copyright Act provides that courts ‘may’ grant injunctive relief ‘on such terms as it may deem reasonable to prevent or restrain infringement of a copyright.’ ” Id. at 1840 (citing New York Times Co. v. Tasini, 533 U.S. 483 (2001)). The eBay decision diminishes a big stick often wielded by patent owners and other plaintiffs-the threat of a permanent injunction on the sale of the products accused of infringement. For example, it was the threat of a permanent injunction shutting down Research in Motion Ltd. (RIM)’s popular BlackBerry service, much more so than the monetary damages, that forced RIM to settle with NTP Inc. See NTP Inc. v. Research in Motion Ltd., 392 F.3d 1336 (E.D. Va. 2003). Businesses with popular, well-selling products can often absorb monetary damages, but the real threat of permanently stopping the future sales of the product is a stick that threatens market position, customer loyalty and complete product-suite offerings- things money cannot buy. This is especially true when the alleged infringement is of a small component of a larger invention. In that case, a company may be forced to stop making and selling a device, such as a computer, if the device contains a small component that infringes, such as a chip. But the opinion did not go all big business’s way. The Supreme Court also rejected the trial court’s suggestion that injunctive relief could not issue in cases when a plaintiff either has licensed its patents or has not exploited them commercially. Such a holding would have all but taken the stick from so-called “patent trolls.” The Supreme Court reasoned that allowing such a broad rule for the denial of injunctions harms entities such as universities and small inventors and would also conflict with the principles of Continental Paper Bag Co. v. Eastern Paper Bag. Co., 210 U.S. 405, 422-430 (1908), which held that a court could not categorically refuse to enter an injunction, even when the patentee had unreasonably declined to use his patent. In a concurrence, Chief Justice John G. Roberts Jr., joined by justices Antonin Scalia and Ruth Bader Ginsburg, pointed out that courts have traditionally granted injunctive relief upon a finding of infringement in the “vast majority” of patent cases. Roberts explained this unsurprising trend “given the difficulty of protecting a right to exclude through monetary remedies that allow an infringer to use an invention against the patentee’s wishes.” This does not make a presumption in favor of injunctions, reasoned Roberts, because the Patent Act does not mandate injunctions as a remedy; rather, it expressly states that injunctions “may” issue in accordance with principles of equity. The Supreme Court did not comment on whether a permanent injunction should issue in the instant case, but Justice Anthony M. Kennedy, in a concurrence, suggested that injunctions should not issue when litigation by “patent trolls” is instituted as a bargaining tool for a large settlement sum and when damages will likely be adequate to compensate for infringement. Kennedy’s concurrence also briefly discussed injunctive relief in the context of business method patents. Business methods, while not patentable in many countries, were held patentable in the United States in State St. Bank & Trust Co. v. Signature Fin. Group, 149 F.3d 1368 (Fed. Cir. 1998). Kennedy stated that such patents have the potential to be vague and of suspect validity, thus affecting an analysis of injunctive relief under the four-factor test. Time will tell whether Kennedy’s words reduce the number of permanent injunctions in business method patent cases. Decision makes obtaining injunctions slightly harder On its face, the eBay decision appears to be little more than the Supreme Court bringing both the Federal Circuit and the trial court back into line. However, the decision is broader than it first appears. On balance, the decision makes obtaining a permanent injunction slightly more difficult than even before the Federal Circuit adopted the now-defunct general rule. It is clear that at least some of the Supreme Court justices are wary of certain patents and the use of those patents by certain patent owners. That cloud will no doubt cast a shadow, to some extent, on all patent owners attempting to obtain injunctions. And that shadow will not be limited to permanent injunctions. Trial courts may well cite the eBay decision in orders denying the patent owner’s request for a preliminary injunction. Patent owners will certainly still threaten defendants with injunctions, but the defendants will have the eBay decision to “spin” in their favor. Although certain patent owners will find shelter in Thomas’ words about not categorically denying injunctions for self-made inventors and universities, those words will do little to overcome the Supreme Court’s position that, despite a patent owner’s express right to exclude others from practicing his invention, the remedy of an injunction is permissive and still within the discretion of the trial court. Just recently, a district court in the Eastern District of Texas, a favorite venue for “patent trolls,” issued what is believed to be the first application of the eBay decision. Surprising many who view the Eastern District of Texas as a pro-patent owner’s venue, the trial court denied the patent owner’s request for a permanent injunction despite the jury’s determination of willful infringement and damages. In z4 Technologies v. Microsoft Corp., No. 6:06-cv-142 (E.D. Texas June 14, 2006), the trial court relied heavily on the eBay decision in rejecting z4′s arguments for a permanent injunction. Kennedy’s words found their way into the decision as support for the trial court’s finding that the patented invention was “a very small component” of the infringing product. Anthony Zeuli is a partner at Minneapolis-based Merchant & Gould, where he specializes in patent and trademark litigation. He can be reached at [email protected]. Elizabeth Harrington, a law clerk at the firm, provided assistance with the preparation of this article.

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