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Archived updates for Tuesday, May 16, 2006

Supreme Court Overturns Predilection for Patent Infringement Injunctions

According to the U.S. Supreme Court in the EBay v. MercExchange, No. 05-130, (May 15, 2006) in order to obtain an injunction in a patent case, the patent owner must demontsrate, "according to well-established principles of equity,"

  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.

"These familiar principles apply with equal force to disputes arising under the Patent Act," wrote Justice Thomas in an unusually concise opinion vacating the judgment of the Federal Circuit:

Neither the District Court nor the Court of Appeals below fairly applied these traditional equitable principles in deciding respondent's motion for a permanent injunction. Although the District Court recited the traditional four-factor test, 275 F. Supp. 2d, at 711, it appeared to adopt certain expansive principles suggesting that
injunctive relief could not issue in a broad swath of cases. Most notably, it concluded that a "plaintiff's willingness to license its patents" and "its lack of commercial activity in practicing the patents" would be sufficient to establish that the patent holder would not suffer irreparable harm if an injunction did not issue. Id., at 712. But traditional equitable principles do not permit such broad classifications.
For example, some patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake
efforts to secure the financing necessary to bring their works to market themselves.
Such patent holders may be able to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so. To the extent that the District Court adopted such a categorical rule, then, its analysis cannot be squared with the principles of equity adopted by Congress. The court's categorical rule is also in tension with Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U. S. 405, 422, 430 (1908), which rejected the contention that a court of equity has
no jurisdiction to grant injunctive relief to a patent holder who has unreasonably declined to use the patent.

In reversing the District Court, the Court of Appeals departed in the opposite direction from the four-factor test. The court articulated a "general rule," unique to
patent disputes, "that a permanent injunction will issue once infringement and validity have been adjudged." 401 F. 3d, at 1338. The court further indicated
that injunctions should be denied only in the "unusual" case, under "exceptional circumstances" and "in rare instances . . . to protect the public interest." Id., at 1338, 1339. Just as the District Court erred in its categorical denial of injunctive
relief, the Court of Appeals erred in its categorical grant of such relief. Cf. Roche Products v. Bolar Pharmaceutical Co., 733 F. 2d 858, 865 (CAFed 1984) (recognizing
the "considerable discretion" district courts have "in determining whether the
facts of a situation require it to issue an injunction").

Because we conclude that neither court below correctly applied the traditional four-factor framework that governs the award of injunctive relief, we vacate the judgment of the Court of Appeals, so that the District Court may apply that framework in the first instance. In doing so, we take no position on whether permanent injunctive relief should or should not issue in this particular case, or indeed in any number of other disputes arising under the Patent Act. We hold only that the decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and that such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such

However, while the methodology of the Federal Circuit may have changed, the availability of injunctive relief is arguably not much different than it was before the decision. In a concurring opinion by Chief Justice Roberts, with whom Justices Scalia and Ginsburg joined, it was noted that even though historical practice does not justify a general rule that patent injunctions should issue, "there is a difference between exercising equitable discretion pursuant to the established four-factor test and writing on an entirely clean slate." When it comes to discerning and applying those standards, in this area as others, "a page of history is worth a volume of logic."

On the other hand, a separate concurring opinion by Justice Kennedy, with whom Justices Stevens, Breyer, and Souter joined, warns district courts to "determine whether past practice fits the circumstances of the cases before them," especially with regard to so-called "patent trolls" and "business method patents:"

An industry has developed in which firms use patents not as a basis for
producing and selling goods but, instead, primarily for obtaining licensing
fees. . . . When 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 to compensate for the infringement and an injunction may not serve
the public interest. In addition injunctive relief may have different
consequences for the burgeoning number of patents over business methods, which
were not of much economic and legal significance in earlier times. The potential
vagueness and suspect validity of some of these patents may affect the calculus
under the four-factor test.

To the extent earlier cases establish a pattern of granting an injunction
against patent infringers almost as a matter of course, this pattern simply
illustrates the result of the four-factor test in the contexts then prevalent.
The lesson of the historical practice, therefore, is most helpful and
instructive when the circumstances of a case bear substantial parallels to
litigation the courts have confronted before.
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