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Ebay Inc., et al. v. MercExchange, LLC

126 S.Ct. 1837, No. 05-130 (May 15, 2006)

Patent Holder Not Automatically Entitled To Enjoin Infringing Use

Supreme Court holds that the traditional four factor test governing the issuance of injunctive relief generally also applies when a prevailing patent holder seeks injunctive relief to prevent an infringing party from continuing to use the patented invention.  In reaching this result, the Supreme Court rejected categorical rules that dictate either that such injunctive relief will issue "absent exceptional circumstances" or conversely, will not issue if the patent holder fails to make commercial use of the patent, or has evidenced a willingness to license the patented invention or process.

eBay Found To Infringe Patent

Ebay operates a website at which private sellers list and sell goods at auction or through fixed prices.  One of the hallmarks of eBay's site is its rating system, in which sellers receive ratings from those with whom they interact concerning the parties' transaction, which 'ratings' are available to, and instill confidence or distrust in, other potential customers.  Merc Exchange holds a number of patents, including "a business method patent for an electronic market designed to facilitate the sale of goods between private individuals by establishing a central authority to promote trust among participants."

After a jury trial, eBay was found to have infringed Merc Exchange's valid patent.  The question before the Court was the proper standard to apply to determine Merc Exchange's entitlement to permanent injunctive relief, enjoining eBay from continuing its infringing activities.

Traditional Injunction Standards Apply

The Court concluded that this question must be answered by application of the traditional four factor test applied generally by courts in determining entitlement to injunctive relief.  That test requires a plaintiff to "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 be disserved by a permanent injunction."

The Court found support for this approach in cases seeking to enjoin violations of the Copyright Act.  In such cases, as in the case at bar, the right holder has the right to exclude others from using his property.  Nonetheless, injunctive relief prohibiting such use is not automatic.  Rather, the party seeking such relief must satisfy the requirements of the traditional four factor test to obtain such relief.

In reaching this result the Court rejected the approaches taken by both the District and Circuit Courts below.  The Circuit Court had improperly awarded injunctive relief by applying its "general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances."  Similarly, the District Court held improperly denied injunctive relief, holding that a patent holder could not establish the presence of the requisite irreparable injury if it had either indicated a willingness to license the patent, or had failed to use the patented invention or process in its own commercial activities.  Because neither court had applied the correct standard, the case was remanded to the District Court for further consideration as to the propriety of an award of injunctive relief.

Two Concurring Opinions Offer Differing Views Of Past Precedents

While the Court unanimously agreed as to the propriety of the application of the traditional four part test to the resolution of this question, the Court's decision was nonetheless accompanied by two concurrences.  The first, joined by three Justices, held that in applying this four part test, courts should be guided by past precedent, in which injunctive relief was awarded in the "vast majority" of cases.  These jurists urged courts to be mindful of "the difficulty of protecting a right to exclude through monetary remedies that allow an infringer to use an invention against the patentee's wishes - a difficulty [these jurists advised] that often implicates the first two factors of the traditional four-factor test."  In a second concurrence, joined by four justices, the lower courts were reminded to apply precedent properly but not blindly.  Where the situation resembled those faced previously, past precedent was an instructive guide.  However, cautioned these jurists, the present day often "present(s) considerations quite unlike earlier cases."  In situations where the patented inventions are not used "as a basis for producing and selling goods, but instead primarily for obtaining licensing fees" "legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest."

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