eBay v. Mercexchange: The Debate Continues
on May 15, 2006 at 1:52 pm
Justin Nelson of Susman Godfrey, who filed an amicus brief on behalf of inventors and investors in the case, has these thoughts:
My view of the opinion is quite different from Kathleen’s. The Court’s opinion in eBay v. MercExchange essentially affirmed the status quo. It reprimanded the Federal Circuit for not applying the traditional four-factor test used to decide when to grant injunctive relief. Yet it also held that the District Court incorrectly applied this test. The Court, however, hardly elaborated on the factors a court should consider in applying the four factors. Indeed, all we know is what a court should not consider – and this analysis favors the MercExchange side much more than the eBay side.
This case was at the Supreme Court in the first instance because the District Court refused to grant MercExchange an injunction after a favorable jury verdict. The District Court said that MercExchange was not entitled to an injunction because of the company’s willingness to license and its lack of commercial activity. The Supreme Court specifically held that the District Court was wrong in considering these factors. It noted that many patent holders, including universities and self-made inventors, might want to license the patent instead of “secur[ing] the financing necessary to bring the works to market themselves.†Yet the Court did not elaborate much beyond this brief analysis.
In an important victory for the MercExchange side, the Court also re-affirmed the continued validity of Continental Bag. Continental Bag held that a patent holder does not have to use the patent in order to have the right to injunctive relief. When the Court granted certiorari, it added a question to address whether Continental Bag should be overruled. At the time, many observers thought the addition of this question did not bode well for the MercExchange position. But the Court’s opinion does not retreat from Continental Bag. Instead, it specifically allows a patent holder who does not practice the patent to have the right to an injunction. The Court’s reaffirmance of Continental Bag in the face a question presented that asked whether it should be overruled is a significant win for patent holders.
The decision, of course, also criticizes the Federal Circuit’s reasoning. The Court specifically rejects the Federal Circuit’s opinion to the extent that there is a “general rule†for granting an injunction after a favorable jury verdict. Because the Federal Circuit applied this general rule, and not the four-factor test, the Court vacated and remanded. This part of the decision, however, likely will have a fairly limited effect. Although the Federal Circuit stated a “general rule†in this case, the reality is that virtually everyone on both sides of this issue accepts that the four-factor test is applicable to this area. Indeed, both parties at the Federal Circuit briefed the 4-factor test, and the Federal Circuit regularly applies the four-factor test in examining patent injunctions. The Court vacated the Federal Circuit’s opinion for what is best described as loose language in the opinion.
The real question was not whether the 4-factor test applies. This case was supposed to answer how to apply the 4-factor test, and whether a different standard applies to those who merely seek to license the invention. What little the Court said on this issue does not favor the eBay position. eBay and many of its amici wanted a rule that prohibited, or at least severely hampered, those who do not use a patent from receiving injunctive relief. On this point, the Court ruled for patent holders.
The concurring opinions engage a bit on the larger issues in the case. Chief Justice Roberts’ concurrence, joined by Justice Scalia and Justice Ginsburg, essentially adopts the position that in applying the four-factor test, a court must consider the long history of courts granting injunctions in patent cases. He implies strongly that it will indeed be the rare case that a patent holder does not receive an injunction after a favorable verdict. Justice Kennedy’s concurrence, joined by Justices Stevens, Souter, and Breyer, would have limited the rights of patent holders who do not practice the patent. This concurrence was eBay’s main argument, but it got only four votes.
I think the practical effect of this opinion will be fairly limited. Importantly, those who do not practice a patent will still have the same rights as any other patent holders. Continental Bag is still valid, and courts will continue to apply a four-factor test. Because the opinion does not really change the landscape of when an injunction will be granted, it is a victory for patent holders. Not a complete victory, to be sure, because the Court makes clear that an injunction is not automatic. In reality, however, the simple addition of a four-factor gloss gives patent defendants very little room to argue that an injunction should not issue after a verdict of infringement. Especially because the Court said so little about how to apply these four factors, it is difficult to see how this opinion will effect a sea change in patent law. And those who wanted to limit the rights of patent holders are likely to be more disappointed than thrilled with the opinion.
