Supreme Court to Consider Availability of Injunctive Relief in Patent Cases
November 28, 2005. The Supreme Court granted certiorari in eBay v. Mercexchange, a patent infringement case against eBay involving the fixed-price purchasing feature of eBay's website. The main issue is the standard to be followed by courts in granting injunctions against infringement.
The relevant statute, which is codified at 35 U.S.C. § 283, provides that "The 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."
eBay and its amicus curiae supporters argue that Federal Circuit opinions do not follow Section 283. Rather, they all but ignore the "principles of equity" language, and require District Courts to accord patent holders an irrebuttable presumption of entitlement to injunctive relief. Moreover, they argue that these automatic injunctions have dire consequences for the information technology sector.
Proponents of injunctive relief argue that patents are a form of property, and that the essential attributes of property are the owner's right to use the property, and the owner's right to exclude others from using the property. However, patent law confers no right to use upon the owner -- only a right to exclude. Moreover, since patents by nature are conceptual, and publicly disclosed, the owner has no means of excluding, other than by judicial injunction. If deprived of injunctive relief, the character of the right is substantially degraded, and the patent is of much less value. And hence, the incentive to invest, research, develop, and disclose is substantially lessened.
This is also one of the main issues involved in current debates in the Congress regarding patent law reform. While some internet based companies, such as eBay, support legislation that would raise the standard for issuance injunctions, many patent holders oppose such efforts. There have been numerous House and Senate hearings in 2005, and considerable lobbying and negotiations; however, no consensus has been obtained, and no bill has yet been reported by either the House Judiciary Committee or Senate Judiciary Committee.
The Supreme Court may provide eBay some of the relief that it has been unable to obtain from the Congress.
The Supreme Court wrote in its November 28 Order List [20 pages in PDF] that "The petition for a writ of certiorari is granted. In addition to the Question presented by the petition, the parties are directed to brief and argue the following Question: "Whether this Court should reconsider its precedents, including Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908), on when it is appropriate to grant an injunction against a patent infringer."
While the Supreme Court's order references its 1908 opinion in Continental Paper Bag, it is a series of recent opinions issued by the U.S. Court of Appeals (FedCir) that is guiding District Court Judges' decisions regarding the issuance of injunctions.
Continental Paper Bag? Continental Paper Bag has not heretofore been at the center of debates regarding the issuance of injunctions in patent cases. It is a nearly 100 year old case involving paper bags, not information technology. The parties and amici all but ignored Continental Paper Bag in their pleadings. eBay cites it only once, late in its brief. The Court of Appeals did not cite it.
The Supreme Court's opinion in Continental Paper Bag acknowledges both the importance of granting injunctive relief to patent holders to maintain exclusivity, and of applying principles of equity. But, it does not provide lower courts clear guidance on standards for issuing injunctive relief.
The Court wrote that "The right which a patentee receives does not need much further explanation. We have seen that it has been the judgment of Congress from the beginning that the sciences and the useful arts could be best advanced by giving an exclusive right to an inventor."
It continued that "From the character of the right of the patentee we may judge of his remedies. It hardly needs to be pointed out that the right can only retain its attribute of exclusiveness by a prevention of its violation. Anything but prevention takes away the privilege which the law confers upon the patentee."
However, the Court added the following language, which eBay cites in its petition: "If the conception of the law that a judgment in an action at law is reparation for the trespass, it is only for the particular trespass that is the ground of the action. There may be other trespasses and continuing wrongs and the vexation of many actions. These are well-recognized grounds of equity jurisdiction, especially in patent cases, and a citation of cases is unnecessary. Whether, however, as case cannot arise where, regarding the situation of the parties in view of the public interest, a court of equity might be justified in withholding relief by injunction, we do not decide."
Proceedings Below. Mercexchange is the holder of U.S. Patent No. 5,845,265, tilted "Consignment Nodes", U.S. Patent No. 6,085,176, titled "Method and apparatus for using search agents to search plurality of markets for items", and U.S. Patent No. 6,202,051, titled "Facilitating internet commerce through internetworked auctions".
Mercexchange filed a complaint in U.S. District Court (EDVa) against eBay and two other companies alleging infringement of three patents.
To greatly oversimplify this proceeding, the District Court found willful infringement of some claims, and awarded damages, but not injunctive relief. District Court's opinion is reported at 275 F.Supp. 2d 695. Both eBay and Mercexchange appealed on various issues.
The Court of Appeals issued its opinion [31 pages in PDF] on March 16, 2005, and an errata [1 page in PDF] on March 22, 2005. This opinion is also reported at 401 F.3d 1323.
Again, to greatly oversimplify this proceeding, the Court of Appeals reversed the denial of injunctive relief. It wrote that there is "no reason to depart from the general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances."
The Court, quoting from its 1989 opinion in Richardson v. Suzuki Motor Co., 868 F.2d 1226, wrote that "Because the ``right to exclude recognized in a patent is but the essence of the concept of property,´´ the general rule is that a permanent injunction will issue once infringement and validity have been adjudged."
eBay petitioned the Supreme Court for writ of certiorari.
eBay's Petition. eBay argued in its petition for writ of certiorari [PDF, long download] that "This case presents an important question of federal patent law with significant implications for the Nation's economy. A permanent injunction in the context of patent law is a potent remedy. The enjoined defendant is faced with tough choices: redesign its product or the product's functionality to eliminate reliance on the patent, negotiate a license on possibly onerous terms, or cease production or use altogether. Recognizing that this powerful and coercive remedy is not always appropriate, Congress has expressly authorized district courts to use the equitable discretion in granting injunction in patent cases. In particular, § 283 of the Patent Act provides that an injunction may issue to prevent future violations only when the relief comports with the principles of equity. ..."
eBay argued that "The Federal Circuit has decided to ignore this rule. And in its place, the court of appeals has authored its own variant of § 283, replacing equitable discretion with a virtually irrebuttable presumption that permanent injunctions will issue absent the exceptional circumstance where injunctive relief would pose a harm to the public interest by endangering the public health."
"The consequences of this rule are clear. Injunctions will issue even when, as in this case, the district court has decided that the balance of the equities requires otherwise. Plaintiffs who will suffer no irreparable injury, because their future losses are fully compensable by ordinary money damages, nevertheless would receive a patent injunction", wrote eBay.
Amicus Curiae Support for eBay. This case has attracted some amicus curiae briefs.
The Computer and Communications Industry Association (CCIA), a Washington DC based interest group that represents some information technology companies, submitted a brief [PDF] in which it urged the Supreme Court to grant certiorari.
It wrote that "The Federal Circuit’s standard of automatic injunctive relief is fundamentally hostile towards complex products, especially today’s extremely complex, systems-based digital information technology. The value of a deeply embedded patented function or component may be miniscule in relation to the value of the finished product and the costs of bringing it to market. Under such conditions, the extraordinary leverage accorded by automatic injunctive relief enables the patentee to extract settlements that approach the costs of shutting down an entire product line, far in excess of what a reasonable royalty is likely to be."
A group of 35 law professors submitted a brief [16 pages in PDF] urging the Supreme Court to grant certiorari. Their counsel of record is Mark Lemley (Stanford). The others include Lawrence Lessig (Stanford), Howard Shelanski (UC Berkeley, and former Chief Economist at the FCC), and Dan Burk (University of Minnesota)
They wrote that the Federal Circuit "has effectively read the terms ``may´´ and ``in accordance with principles of equity´´ out of the statute. In no case in the last twenty years has the Federal Circuit permitted a district court to apply its equitable powers to refuse a permanent injunction after a finding of infringement. Indeed, the court’s grant of permanent injunctive relief is so automatic that it rarely even recites the equitable factors any longer, relying instead on an all-but-conclusive presumption that injunctive relief is appropriate."
They want the Supreme Court "to confirm the applicability of traditional principles of equity to patent law."
The Electronic Frontier Foundation (EFF), a California based interest group that advocates the weakening of all forms of intellectual property rights, submitted a brief [23 pages in PDF] in which it urged the Supreme Court to grant certiorari.
It wrote that "The Federal Circuit Court of Appeals has overstepped its bounds and, in the process, tied the hands of federal judges around the nation. Flagrantly rejecting the plain language of the United States Patent Code and the clear discretionary powers it grants, not to mention longstanding common-law remedies doctrines, the Federal Circuit has imposed an ``automatic injunction´´ rule in patent cases that ignores important equitable considerations -- including those affecting free speech and other activities protected by the First Amendment."
The EFF elaborated on its First Amendment concerns. It argued that the courts, in determining whether to grant an injunction, must balance the interests of the patent holder with the public's interest in free expression. "Such balance is particularly necessary in Internet-related patent actions. Tools such as websites and ``blogging´´ have become increasingly popular means of expression. Video and audio streaming technology is ubiquitous. Email and Instant Messaging are essential communications media. As more and more people use software and Internet technology to express themselves online, more and more speech is potentially subject to regulation by intellectual property laws that govern the use of these technologies."
"Patent owners who claim control over Internet publishing mechanisms are in a position to threaten anyone who uses them, even for personal noncommercial purposes. Thus, forcing courts to grant mandatory injunctive relief to patent owners gives those owners the right to control who can speak on the Internet. The Federal Circuit’s rule denies judges the discretion they will need to address this problem."
The EFF brief lists some patents on internet technologies. However, it does not identify any instances in which a patent holder has engaged in a content based assertion of patent rights. That is, it has not cited any example in which a patent holder has sought or obtained an injunction for the purpose of suppressing any particular speaker with whom the patent holder disagrees.
More Information. eBay is represented by Carter Philips of the Washington DC office of the law firm of Sidley Austin. Mercexchange is represented by Scott Robertson of the Washington DC office of the law firm of Hunton & Williams.
The Business Software Alliance (BSA), America Online (AOL), and Qualcomm also submitted amicus briefs.
This case is eBay Inc., et al. v. Mercexchange, LLC, Sup. Ct. No.
05-130, a petition for writ of certiorari to the U.S. Court of Appeals for the
Federal Circuit, App. Ct. Nos. 03-1600 and 03-1616. Judge Bryson wrote the
opinion of the Court of Appeals, in which Judges Michel and Clevenger joined.
The Court of Appeals case is an appeal from the U.S. District Court for the
Eastern District of Virginia, Judge Jerome Friedman presiding. See also, Supreme Court