eBay v. MercExchange: A Brief Analysis

I am not sure that one can ever describe a 10-page, unanimous opinion for the Supreme Court as badly fractured, but eBay v. MercExchange might be that case.

The simple version is that the Court unanimously holds, in an opinion by Justice Thomas, that the “well-established principles of equity” for granting a permanent injunction apply to disputes arising under the Patent Act. The Court won’t “lightly” imply exceptions to general equitable practice, and after wrestling briefly with a couple of sections in the Patent Act, concludes that the standard off-the-rack rules for permanent injunctions should apply to patent cases. Neither lower court did that, so reversed and remanded to the district court for a first crack at the problem.

Now for the fracturing.

The Chief Justice, joined by Justices Scalia and Ginsburg (can I put an exclamation point there?), wrote a concurring opinion. The Chief Justice notes that the historical practice has been to grant injunctive relief on a finding of patent infringement “in the vast majority of patent cases.” Why? The “difficulty of protecting a right to exclude through monetary remedies.”

Justice Kennedy wrote a separate concurring opinion, joined by Justices Stevens, Souter and Breyer. The opinion briefly suggests that we need to treat like cases alike: “the lesson of the historical practice, therefore, is most helpful and instructive when the circumstances of a case bear substantial parallels to litigation the courts have confronted before.”

But, says Justice Kennedy, this isn’t your father’s patent system (well, he doesn’t exactly that: “the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike other cases”). Justice Kennedy points to patent trolls (not using that phrase)—people who acquire patents to assert them—and to the rise of business method patents, which he criticizes for their “potential vagueness and suspect validity.”

So a unanimous opinion, but a 2-3-4 division (only Justice Alito didn’t join a concurring opinion). Gosh, we haven’t seen anything like that at least since ... since Grokster, which, as you will recall, was also a unanimous opinion on finding inducement liability but a 3-3-3 split on how Sony’s contributory infringement analysis should apply.

It appears that the Court is resolving IP cases before it—unanimously even for “hard” cases—but it is struggling to find agreement on the underlying issues.

Comments

[Michael Martin]

But this quote, from the Opinion of the Court, should be very helpful to the small entities (and Universities?!) that rely on the threat of injunction to get to the bargaining table with big corporations:

"For example, some patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves. Such patent holders may beable to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so."

[Henry Su]

Justice Kennedy's concurrence troubles me greatly as certain statements, if interpreted as guidance for the lower courts, invite mischief. First, the notion that certain (unsavory) patentees might leverage their statutory right to exclude and the threat of a permanent injunction in order "to charge exorbitant [license] fees" does not square with the long-held view in refusal to deal cases that a patentee is free to offer its invention for sale or license at any price it wishes, low or high. See, e.g., Schor v. Abbott Labs., 378 F. Supp. 2d 850, 860 (N.D. Ill. 2005) (holding no violation of the Sherman Act for increasing the price of a patented anti-retroviral drug, even if it raises the price in a secondary market for drug combinations involving the patented product).
Second, Justice Kennedy casts an askance view at so-called "business method" patents, even though the Court took a pass on that issue over seven years ago in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), cert. denied, 525 U.S. 1093 (1999).
Third, concerns of "potential vagueness and suspect validity," while clearly relevant to the likelihood of success on the merits prong of a preliminary injunction motion, should not have any place under the Court's four-factor test for permanent injunctions. In particular, if a jury has found that a patent is valid and infringed, then those findings of fact must control the trial court's disposition of the equitable claims for relief. It would contravene the Seventh Amendment guarantee for a trial court to revisit anew the validity of the patent-in-suit in deciding whether to enter a permanent injunction.

[Tim Wu]

Randy, you're kind to try and make something of it, but that opinion was such a nothing -- just a summary reversal. Don't you think?

And Mr. Su, with respect, that the supreme court denied cert on state street tells us nothing about the validity of business method patents in the Supreme Court's eyes.

In fact I'd be willing to bet that there're going to be casting a whole lot more doubt on what the Federal Circuit has done with subject matter, later this term. Patent watchers have been watching the wrong case.

TW

[ADR]

I cannot agree with those who are so dismissive of this case's importance (mostly those who were rooting for the status quo from what I can see).

Yesterday, an injunction came along with a successful patent suit like a toy with crackerjacks. Tomorrow, a plaintiff will have the burden of showing that monetary damages will be insufficient, and the other predicates to obtain an injunction. How that plays out in the real world, exactly, is to be seen, but this short opinion may have more profound consequences than those who were so adamantly advocating the existing rule are willing to acknowledge.

[TJ]

Randy, I'm not really surprised to see the Scalia-Ginsburg line-up, in the sense that they were advocating the traditionalist legalist position: patents are property, and applying the four factor equity test, you would eject a trespasser from you lawn the vast majority of the time. Read at the most extreme, the Roberts concurrence is slapping the Federal Circuit for nothing more than failing to recite the magic formulation.

It seems to me extremely plausible that the Fed. Cir. on remand will hold something like "trespass to property can be considered irreperable harm under the four factor test" which will effectively restore the status quo ante. The entire debate, though none of the opinions ever explictly says so, is whether trespass to intellectual property is adequately compensated by damages, and all the eBay opinion has done is pass the ball to the Federal Circuit with a clean slate (since the Supremes themselves obviously couldn't agree). We see Congress passing issues to the courts in such a manner all the time, but it is surprising to see the S.Ct. doing so.

[Henry Su]

Professor Wu, I agree that nothing prevents the Court from taking another look at what constitutes statutory subject matter; witness Laboratory Corp. v. Metabolite Laboratories, argued this Term. But it seems to me that Justice Kennedy went out of his way to find a bogey man to make his points, given that State Street squarely presented the issue seven years ago but got no takers then from the Court (not even a dissent from the denial of cert.). Apart from Justice Kennedy's concurrence, I agree with you that this case didn't deliver any fireworks.

[Lawrence B. Ebert]

Of --So a unanimous opinion, but a 2-3-4 division (only Justice Alito didn’t join a concurring opinion). -- what makes you think Justice Alito voted in the eBay case? And, only 7 justices were in the concurring opinions.

[Lawrence B. Ebert]

As a follow-up, Justice Alito did not vote in eBay v. MercExchange.

Separately, of --Yesterday, an injunction came along with a successful patent suit like a toy with crackerjacks. Tomorrow, a plaintiff will have the burden of showing that monetary damages will be insufficient, and the other predicates to obtain an injunction. How that plays out in the real world, exactly, is to be seen, but this short opinion may have more profound consequences than those who were so adamantly advocating the existing rule are willing to acknowledge.--

It is true that the CAFC will no longer be saying "a permanent injunction will issue absent exceptional circumstances." However, the CAFC analysis of the "4 factors" the first time around is good to go for the second time around, further bolstered by the Supreme Court's criticism of the district court's analysis. If the case doesn't settle, it's hard to see MercExchange not getting the permanent injunction. Of the re-exam, the USPTO is using the same prior art the CAFC already rejected (the '111 patent), so that issue won't get much traction.

At the end of the day, this case was more about incantation of magic words than about substance. In this area of equity, courts can't recite categorical rules (or likely outcomes), but if MercExchange does get the injunction at the end of the day, so will a lot of other patentees. All we have to do is wait and see.

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