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No More Injunctions for Patent Trolls?

The United States Supreme Court, in eBay Inc. v. MercExchange
has taken on the general rule in patent cases that courts will issue injunctions once validity and infringement have been proved. Turns out, this is not the general rule at all. The Supreme Court held that the test for issuing permanent injunctions in patent cases is the same test for issuing permanent injunctions in any other case: (1) has the plaintiff suffered an irreparable injury; (2) are remedies available at law, such as monetary damages, inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, is a remedy in equity warranted; and (4) would the a permanent injunction be in the public interest.

The case revolves around MercExchange, an L. L. C., which holds a number of patents, including business method patent number 5,845,265 for an electronic network of consignment stores facilitating sales between individuals by acting as an assuror of trust in the transaction. MercExchange tried to license the patent to eBay, but the parties could not agree to specific terms. MercExchange then sued eBay in the United States District Court for the Eastern District of Virginia. A jury eventually awarded MercExchange $35 million. A trial judge later reduced the jury award to $29.5 million and denied MercExchange’s motion for a permanent injunction. 275 F. Supp. 2d 695 (2003).

The District Court ruled that the “plaintiff’s willingness to license its patents” and “its lack of commercial activity in practicing the patents” would be sufficient to establish that the patent holder would not suffer irreparable harm if an injunction did not issue. Conversely, the Court of Appeals for the Federal Circuit later reversed the District Court, applying the “general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.” 401 F. 3d 1323, 1339 (2005).

The Supreme Court found that both courts were mistaken, eschewing any general rules other than the four-part test outlined above. Just as a court should not automatically deny an injunction in a case where a patent troll chooses to license, rather than manufacture a patented device, the court should also not issue injunctions as a matter of course in patent cases. Instead, courts must exercise their considerable discretion in applying the specific facts of the case to the standard four part test for injunctions.

Even though the Supreme Court remanded the case to the District Court to apply the four part test, this ruling is a boon to internet based companies and a strike against so called “patent trolls.” As injunctions no longer issue as a matter of course in patent infringement cases, patent trolls lose a very large “stick” they had previously been able to wield to threaten large settlements in otherwise mediocre cases. Many internet companies were not worried about paying large damage awards, but a permanent injunction could mean the end of their business.

Even if an internet company felt it had a fair shot at succeeding at trial, the risk of a permanent injunction saw many companies pay patent trolls exorbitant license fees rather than run the risk of a permanent injunction. With this new ruling, internet companies can breathe a little easier and fight a little harder, knowing that a patent trial loss may not necessarily mean the end of their business.

Posted in Patent Law. Tagged with , .