Ebay Inc. v. Mercexchange, L. L. C.
547 U.S. 388 (2006)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The traditional four-factor test for granting permanent injunctive relief, historically used by courts of equity, applies to disputes arising under the Patent Act. A finding of patent infringement does not create a presumption of irreparable harm or automatically entitle the patent holder to a permanent injunction.
Facts:
- MercExchange, L.L.C. holds a business method patent for an electronic market designed to facilitate sales between private individuals.
- eBay Inc. and its subsidiary, Half.com, Inc., operate popular internet websites that allow private sellers to list and sell goods.
- MercExchange had previously licensed its patent to other companies.
- MercExchange attempted to license its patent to eBay and Half.com, but the parties failed to reach an agreement.
Procedural Posture:
- MercExchange sued eBay and Half.com for patent infringement in the U.S. District Court for the Eastern District of Virginia.
- A jury in the trial court found the patent valid and that eBay and Half.com had infringed it, awarding monetary damages.
- Following the verdict, MercExchange filed a motion for a permanent injunction in the same District Court.
- The District Court denied MercExchange's motion for a permanent injunction.
- MercExchange (as appellant) appealed the denial of the injunction to the U.S. Court of Appeals for the Federal Circuit, while eBay and Half.com (as appellees) defended the denial.
- The Court of Appeals for the Federal Circuit reversed the District Court's decision, holding that a permanent injunction should generally issue absent exceptional circumstances.
- eBay and Half.com (as petitioners) petitioned for, and the U.S. Supreme Court granted, a writ of certiorari to review the appellate court's decision.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the traditional four-factor test for granting a permanent injunction in equity apply to patent infringement cases, or should an injunction automatically issue absent exceptional circumstances?
Opinions:
Majority - Justice Thomas
Yes, the traditional four-factor test for granting a permanent injunction applies to patent infringement cases. Nothing in the Patent Act indicates a departure from the long tradition of equity practice. The Act's provision that injunctions 'may' issue 'in accordance with the principles of equity' (35 U.S.C. § 283) explicitly directs courts to use their discretion under this traditional framework. A patent owner's statutory right to exclude is distinct from the remedy for a violation of that right. Both the District Court's categorical rule against injunctions for patent holders who license their patents and the Court of Appeals' general rule in favor of injunctions were erroneous because they replaced the flexible, case-by-case equitable analysis with rigid classifications.
Concurring - Chief Justice Roberts
Agrees with the majority's holding and reasoning. The concurrence emphasizes that while there is no automatic entitlement to an injunction, the long history of courts granting injunctions in the vast majority of patent cases is instructive. This historical practice reflects the inherent difficulty of protecting a patent holder's right to exclude through monetary damages alone, a consideration which often satisfies the first two factors of the traditional test. This history should guide, but not replace, the district court's exercise of equitable discretion.
Concurring - Justice Kennedy
Agrees with the majority's holding that the four-factor test must be applied without categorical rules. This concurrence highlights that the nature of patent enforcement has evolved, particularly with the rise of entities that use patents primarily to obtain licensing fees rather than to produce goods. In such cases, where the patent may be a small component of a larger product and an injunction is used as leverage for exorbitant fees, legal damages may be a sufficient remedy and an injunction may not serve the public interest. The flexibility of the equitable test allows courts to adapt to these new economic realities.
Analysis:
This decision significantly altered patent litigation by rejecting the Federal Circuit's long-standing rule that favored the automatic grant of permanent injunctions upon a finding of infringement. It empowers district courts with greater discretion, making it more difficult for patent holders, particularly non-practicing entities (NPEs), to secure injunctions. The ruling increases the likelihood that a prevailing patent holder might receive only ongoing royalties or damages, effectively creating a compulsory license for the infringer, and shifts bargaining power toward accused infringers in settlement negotiations.
