Supreme Court Clarifies Rules Governing Permanent Injunctions in Patent Cases

by Stanley J. Panikowski,  John Allcock, and Jim Halpert

The United States Supreme Court today issued a ruling that is likely to reduce the availability of permanent injunctions in patent cases.  In eBay Inc. v. MercExchange, L.L.C., the Court interpreted a section of the Patent Act, 35 U.S.C. § 283, providing that injunctions “may” be granted “in accordance with the principles of equity.” 

The Federal Circuit had long applied a “general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances."  The only recognized exception to this rule was a narrow “public interest” exception.

Decision Overturns Federal Circuit’s General Rule Favoring Patent Holders

In today’s decision, the Supreme Court overturned the Federal Circuit’s general rule.  The Supreme Court held that permanent injunctions in patent cases instead are governed by the traditional four-factor test applied in most non-patent cases.  From now on, a patent holder must show four things to get a permanent injunction:  (1) irreparable harm; (2) inadequacy of legal remedies, such as money damages; (3) the balance of hardships between the patent holder and the infringer warrants an injunction; and (4) a permanent injunction would not harm the public interest.  The Court also made clear that decisions granting or denying permanent injunctions are acts of equitable discretion by district courts and are reviewed on appeal only for abuse of discretion.

Ruling Also Rejects Notion of Categorical Rules that Favor Infringers

While rejecting the Federal Circuit’s categorical rule that favored patent holders, the Supreme Court also disapproved the notion of categorical rules that favor infringers.  The district court in the eBay case had ruled that a plaintiff’s “willingness to license its patents” and “lack of commercial activity in practicing the patents” would be enough to prevent a showing of irreparable harm.  The Supreme Court held that this overly restrictive rule, like the Federal Circuit’s overly generous one, was inconsistent with the case-by-case equitable analysis required by the statute.

The Supreme Court declined to give more specific guidance as to when a permanent injunction should and should not be granted in a patent case.  The case was then remanded so that the district court could apply the Supreme Court’s opinion to the eBay case in the first instance.

Decision Was Unanimous, But Concurring Opinions Reflect Differing Views

Justice Clarence Thomas wrote the opinion for a unanimous Court.  There were, however, two concurring opinions reflecting different views of how the Court’s opinion should be applied.  Chief Justice John G. Roberts, Jr., joined by Justices Antonin Scalia and Ruth Bader Ginsburg, wrote separately to suggest that, consistent with historical practice, courts should still issue injunctions in most cases where infringement is found.  By contrast, Justice Anthony M. Kennedy, joined by Justices John Paul Stevens, David H. Souter, and Stephen G. Breyer, wrote to suggest that, although the traditional practice has been to issue injunctions in patent cases, courts should consider “rapid technological and legal developments in the patent system” in applying the four-factor test. 

Justice Kennedy specifically identified three circumstances that may affect the application of the four-factor test in some cases:  (1) when the patent holder is a firm that uses patents “primarily for obtaining licensing fees”; (2) when the patent covers only a small component of the infringer’s product and the threat of an injunction is used “simply for undue leverage in negotiations”; and (3) when a business method patent that is potentially vague or of “suspect validity” is involved.

 

Published by DLA Piper Rudnick Gray Cary US LLP
Copyright © 2006 DLA Piper Rudnick Gray Cary US LLP

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