"The Injunction Factor," Feature Article, January 2007

the injunction factor

A power that patent holders once held over infringers isn't as certain these days.

by Jeff Woller

Sometimes a patent case rips through the news like a tsunami—you can't avoid it if you want to. Other times, far-reaching patent cases make a splash minded only by patent attorneys and a handful of others, but otherwise go largely unnoticed. Such are the situations with two recent cases—NTP Inc. v. Research In Motion Ltd., decided by the Federal Circuit on one hand, and eBay Inc. v. MercExchange LLC, decided by the Supreme Court on the other.

You probably remember NTP Inc.'s patent infringement suit against Research In Motion, where the wildly popular Blackberry devices were nearly pulled out of more than 3 million hands. You may also remember that NTP Inc. almost received an injunction which would have ordered RIM to stop making, selling, and supporting the Blackberry. Fortunately for millions of us, RIM agreed to pay NTP $612.5 million before the judge ruled on the injunction—and the Blackberry continues to send and receive e-mail.

The threat of an injunction that can shut down a company has been a strong, reliable component of a patent owner's settlement arsenal. Under previous Federal Circuit precedent, once a patent was determined to be valid and infringed, an injunction preventing the infringer from making, using, or selling the patented device or process followed almost automatically.

the four factors

The practice was unique to patent cases. The reasoning underlying this precedent stems from 35 U.S.C. § 154, which gives a patent owner the right to prevent others from making, using, or selling a patented invention.

When federal judges determine whether to issue an injunction in non-patent cases, they must weigh four factors: (1) Did the plaintiff suffer an irreparable injury? (2) Are legal remedies, such as monetary damages, inadequate to compensate for such injury? (3) Does the balance of hardship favor the plaintiff? (4) Would an injunction disserve the public interest?

Enter the Supreme Court and its decision in eBay Inc. v. MercExchange LLC. You may not have heard of this case, but it altered the patent law landscape in a significant manner. It made injunctions in patent cases more difficult to obtain.

The popular online auction company eBay started business in September 1995 and was approached by MercExchange in June 2000 to take a license under MercExchange's U.S. Pat. No. 5,845,265. MercExchange is a patent holding company and does not make any products. Its major focus is to license the patents it owns.

The two companies could not agree on licensing terms and in 2001 MercExchange sued eBay for infringing the '265 patent. The patent, which was filed in November 1995 and issued in December 1998, covers an electronic method for facilitating the sale of goods by establishing a central authority that takes possession of goods to promote trust among private buyers and sellers. Auctions on eBay were not alleged to infringe the patent, but fixed-price sales conducted over eBay's site were.

The online retailer denied MercExchange's infringement allegations, but a jury found the '265 patent to be valid and infringed by eBay. It awarded $10.5 million to MercExchange.

At the end of the trial, MercExchange moved for a permanent injunction that would prevent eBay from continuing to infringe the patent. The district court considered the equities of the case and decided that MercExchange's willingness to license its patents combined with the monetary damages awarded warranted denial of the injunction request. When eBay appealed the infringement finding, MercExchange appealed the injunction denial to the Court of Appeals for the Federal Circuit, the court that hears all appeals for patent cases.

The Federal Circuit upheld the jury's infringement finding and overturned the district court's injunction denial. Reversing the injunction denial, the Federal Circuit applied its "general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances."

Then eBay petitioned the Supreme Court to hear the case.
In its eBay decision, the Supreme Court held that injunctions in patent cases are no different from injunctions for any other type of case. The four factors cited above apply.

are patents weaker?

The Federal Circuit standard was applicable when NTP Inc. sued RIM. Now, after the Supreme Court's eBay ruling, an injunction preventing patent infringement must meet the four-factor test. Had NTP Inc. sued RIM after the Supreme Court's eBay decision, the case may have been settled for less, because of the decreased threat of an injunction that would have prevented RIM from making, selling, or supporting the Blackberry.

Does the Supreme Court's eBay decision make patents weaker? Arguably, yes. Without the threat of a nearly certain injunction, a patent owner's settlement bargaining position is not as strong as it used to be.

The Supreme Court handed down its decision in the eBay case on May 15, 2006. Three-and-a-half months later, at the end of August, nine district court cases had been heard where the patent owner sought an injunction. In five of those cases an injunction was granted. An injunction was denied in three cases, and one judge reserved ruling on an injunction until after a conference with the parties. As the cases demonstrate, the strength of the patent holder's ability to stop an infringer's activities is weakened, but not eliminated. The patent owner is not prevented from obtaining an injunction, but must now demonstrate the merit behind granting one.

Is decreasing the likelihood of issuing an injunction preventing patent infringement bad for businesses? Not necessarily. If it is found guilty of patent infringement, a company will have to pay damages, but now has grounds to argue that a court should not issue an injunction that will shut down its business.

A patent owner who makes and sells the protected product or process is likely to show that its business investment must be protected from infringement and that an injunction should be granted.

The eBay decision is expected to have the largest impact on patent owners who do not commercialize their patented technologies. Such patent owners are less likely to demonstrate the need for an injunction to protect a business investment. They will have to go to greater lengths to threaten infringers with a court-ordered shutdown of business, and that can weaken their bargaining position at the settlement table.

However, it should be noted that in its eBay decision, the Supreme Court stated that a patent owner's willingness to license a patent or lack of commercializing a patent are impermissible classifications on which to solely base denying an injunction.

Given these likely effects stemming from the eBay decision, it appears as if the Supreme Court took an important step toward harmonizing patent law with the needs of businesses large and small.