The United States Supreme Court Rejects Federal Circuit’s General Rule That Permanent Injunctions Should Issue Following a Finding of Patent Infringement and Validity

                  

By: Bob Garrey and John Jackson

In eBay Inc. v. MercExchange, L.L.C., 126 S.Ct. 1837, 1841 (2006) (eBay), the United States Supreme Court rejected the Federal Circuit’s “general rule” that, in patent cases, district courts should issue a permanent injunction after a finding of infringement and validity absent special circumstances.  Instead, the Supreme Court held that a prevailing plaintiff in a patent case must satisfy the same four-factor test that courts of equity have historically applied when determining the propriety of injunctive relief. Id. at 1839.  Accordingly, to be entitled to a permanent injunction, “[a] plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.”  Id.  

             

In so holding, the Supreme Court admonished lower courts that categorical rules – either for or against granting injunctions – are improper.  Id. at 1840-41.  Accordingly, the Supreme Court reversed the district court’s determination that a prevailing plaintiff in a patent case would not suffer irreparable injury in cases where the plaintiff was willing to license its patents and lacked commercial activity in practicing the patents.  Id. at 1840.  The Court was equally critical of the Federal Circuit’s “general rule” of granting permanent injunctions once infringement and validity were established.  Id. at 1841.  As a result, district courts must now simply use their discretion and apply the traditional four-part test when determining whether or not to grant a permanent injunction.  Id. 

             

The two concurring opinions – filed by Chief Justice Roberts and Justice Kennedy – suggest that the Justices view the district court’s ability to exercise their discretion differently.  The concurring opinion prepared by Chief Justice Roberts, who was joined by Justice Scalia and Justice Ginsburg, suggests that district courts applying the four-factor test and exercising their discretion will generally issue injunctive relief based on the “historical practice” of granting injunctive relief after findings of patent infringement.  This is so because “there is a difference between exercising equitable discretion pursuant to the established four-factor test and writing on an entirely clean slate.”  Id. at 1841. 

             

On the other hand, Justice Kennedy, joined by Justices Stevens, Souter, and Breyer, agreed that historical practice was important to consider, but cautioned that such lessons are “most helpful and instructive when the circumstances of a case bear substantial parallels to litigation the courts have confronted before.”  Id. at 1842.  For example, Justice Kennedy seems concerned about cases involving plaintiffs that “use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.”  Id.  This situation becomes problematic because the threat of an injunction may be used “as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses.”  Id.  Consequently, in situations where the “patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient.”  Id.  According to Justice Kennedy, business methods patents are also a cause for concern because of their “potential vagueness and suspect validity.”  Id.  In light of these recent developments, when exercising equitable discretion, “district courts must determine whether past practice fits the circumstances of the case before them.”  Id.  at 1842-43.

The eBay decision will likely have broad ramifications for patent litigation.  Because plaintiffs that do not practice their patents will find it more difficult to obtain permanent injunctions, these plaintiffs will have reduced leverage during settlement negotiations. As a result, many defendants will likely be more willing to go to trial in patent cases and will not be as willing to pay large amounts to settle prior to trial.

If you have any questions or comments concerning this article, please contact  Bob Garrey at bgarrey@jw.com or 214.953.5974 or John Jackson at jjackson@jw.com or 214.953.6109.

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