Center for Advanced Study & Research on Intellectual Property

 

CASRIP Newsletter - Spring/Summer 2006, Volume 13, Issue 2

Courts Must Apply 4-Part Equitable Test for Permanent Injunctions:
eBay Inc. v. MercExchange LLC

By Signe H. Naeve []

I.          Introduction

In eBay Inc. v. MercExchange LLC,[1] the Supreme Court unanimously rejected the Federal Circuit's general rule that a permanent injunction should issue whenever a valid patent has been infringed.[2]  In its May 15, 2006 ruling, the Court determined that both the District Court for the Eastern District of Virginia and the Federal Circuit had failed to adequately evaluate the 4-part equitable test for issuing an injunction in a patent infringement case.  The Court vacated and remanded the case for further proceedings.

II.        Case Background

MercExchange sued eBay Inc. and its subsidiary, Half.com, for the alleged infringement of MercExchange's e-commerce patents: U.S. Patent Nos. 6,202,051; 5,845,265; and 6,085,176.  MercExchange claimed that eBay's "Buy It Now" feature, which permits buyers to bypass the auction and skip ahead to purchasing an item for a pre-set price, infringed MercExchange's patents.[3]

A jury found that eBay had directly and willfully infringed the '265 and '176 patents.[4]  The court awarded $35 million to MercExchange, which was later reduced to $29.5, million, but refused to issue a permanent injunction against eBay.[5]  The Federal Circuit reversed the District Court, holding that the District Court's denial to issue a permanent injunction was an abuse of discretion.[6]  eBay then petitioned the Supreme Court to determine the appropriateness of a general rule for issuing permanent injunctions absent exceptional circumstances.  The Supreme Court granted certiorari to decide whether it should "reconsider its precedents, including Continental Paper Bag Co. v. Easter Paper Bag Co., 210 U.S. 405 (1908), on when it is appropriate to grant an injunction against a patent infringer."[7]

III.       4-Part Equitable Test for Issuing Injunctions

In determining whether to issue an injunction, the District Court considered the Supreme Court's four-part test articulated in the 1982 decision, Weinberger v. Romero-Barcelo.[8]  To satisfy the four-factor test, the party seeking a permanent injunction "must demonstrate: (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 the 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.[9]  The Federal Circuit skipped this test, however, and instead applied, "its general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances."[10]

IV.       Supreme Court Rejects General Rule

In accordance with 35 U.S.C. § 283,[11] the Supreme Court concluded that application of the 4-part test comports with the traditional discretionary and equitable issuance of permanent injunctions.  The Court reasoned: "[A] major departure from the long tradition of equity practice should not be lightly implied.  Nothing in the Patent Act indicates that Congress intended such a departure.  To the contrary, the Patent Act expressly provides that injunctions 'may' issue 'in accordance with the principles of equity.'"[12]

In addition to its reliance upon section 283 of the Patent Act, the Court reasoned that patents have the attributes of personal property, but that the permissive language in the Patent Act limits the automatic application of permanent injunctions.[13] 

Furthermore, the Court analogized the situation to copyright injunctions wherein the Court had previously recognized the permissive, not mandatory, nature of issuing injunctions to protect an individual's property rights.[14]  The Court stated, "this Court has consistently rejected invitations to replace traditional equitable considerations with a rule that an injunction automatically follows a determination that a copyright has been infringed."[15]

Applying the foregoing reasoning, the Court criticized both the District Court's application of the 4-part equitable test and the Federal Circuit's adoption of a general rule.

V.        Future of Permanent Injunctions

Although eBay appears to simply articulate longstanding precedent, it signifies a shift away from a rote award of permanent injunctions following findings of validity and infringement, a trend apparent in the Federal Circuit's ruling.  To reach this end, the Supreme Court rejects the general assumption applied by the Federal Circuit that permanent injunctions will issue absent exceptional circumstances.  In so holding, the Court seeks to return to the equitable principles of injunctive relief applicable in all cases involving property rights and to the permissive nature of injunctive relief articulated in the Patent Act.  Accordingly the Court states, "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 standards."[16] 

The Supreme Court has thus tightened the reins on the issuance of permanent injunctions, although not beyond the bounds of equity as established in Continental Bag, which first granted the right to obtain a permanent injunction in a patent case and Weinberger, which articulated the four equitable considerations.  Thus, prevailing parties in the future will face a heavier burden of demonstrating the four-factor equitable test and will not be able to rely upon the general presumption that winning a case includes issuance of a permanent injunction.


[] Signe Naeve is the Assistant Director for CASRIP and a Part-time Lecturer at the University of Washington School of Law where she teaches Intellectual Property Litigation and Comparative Legal Analysis.

[1] eBay Inc. v. MercExchange LLC, 126 S.Ct. 1837 (2006).

[2] Id. at 1840.

[3] Anandashankar Mazumdar, High Court Dirests Lower Courts to Apply 4-Part Equitable Test for Issuing Injunctions, Patent, Trademark & Copyright Daily, May 16, 2006.

[4] The court had previously ruled that the '051 patent was invalid.  Id.

[5] See MercExchange LLC v. eBay, Inc., 401 F.3d 1323, 1326 (2005) (discussing District Court ruling).

[6] Id. at 1339

[7] eBay Inc. v. MercExchange LLC, 126 S.Ct. 733 (2005).

[8] Weinberger v. Romero-Barcelo, 456 U.S. 305, 311-313 (1982).

[9] eBay, 126 S.Ct at 1839 (citing Weinberger, 456 U.S. at 311-313).

[10] MercExchange, 401 F.3d at 1339.

[11] Section 283 states, "[t]he several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable."

[12] eBay, 126 S.Ct. at 1839 (internal citations omitted).

[13] Id. at 1840 (referencing 35 U.S.C. § 261).

[14] Id. at 1840 (citing Fox Film Corp. v. Doyal, 286 U.S. 123, 127 (1932) and 17 U.S.C. § 502(a)).

[15] Id. at 1840 (internal citations omitted).

[16] Id. at 1841.

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