Availability of Injunctive Relief in Patent Cases: eBay, Inc. v. MercExchange, L.L.C.
CRS Report for Congress
Availability of Injunctive Relief in Patent Cases:
eBay, Inc. v. MercExchange, L.L.C.
May 19, 2006
Brian T. Yeh
American Law Division
Congressional Research Service ˜ The Library of Congress
Availability of Injunctive Relief in Patent Cases:
eBay, Inc. v. MercExchange, L.L.C.
The most significant legal right that patent law confers on the patent holder is
“the right to exclude others” from making, using, offering for sale, or selling the
patented invention throughout the United States, or importing the invention into the
United States. Injunctive relief is the usual remedy that courts authorize to prevent
violation of this patent right. However, as the recent BlackBerry patent litigation
demonstrated, the desirability of an injunction in patent cases could be questioned in
certain circumstances, such as when an injunction’s disruptive effects on the public
may outweigh the interest in enforcing the patent holder’s “right to exclude.”
In another closely watched patent case, eBay was accused of patent infringement
for its website’s “Buy It Now” fixed-price purchase feature. Although a jury had
found eBay liable for infringing a business method patent owned by MercExchange,
the district court refused to grant a permanent injunction against the Internet
company. However, the U.S. Court of Appeals for the Federal Circuit reversed the
denial, asserting that the “general rule” in patent disputes is that courts must issue
permanent injunctions against patent infringement, absent exceptional circumstances.
In eBay, Inc. v. MercExchange, L.L.C., the United States Supreme Court
unanimously vacated the appellate court’s judgment and remanded the case to the
district court. According to the opinion, district courts have equitable discretion to
award injunctive relief, and such decision is reviewable on appeal only for abuse of
that discretion. The Court explained that the four equitable considerations that
traditionally govern the grant of an injunction apply to the same degree in patent
cases as in other areas of law.
Despite the unanimity of the eBay Court, the two concurring opinions reveal an
apparent disagreement among the justices. One concurrence observes that courts
have granted injunctive relief to the patent holder in “the vast majority of patent
cases” and thus courts should respect this historical practice. The other concurrence
suggests that the recent emergence of patent holding companies and the “suspect
validity” of some business-method patents are appropriate considerations for a court
to “bear in mind” when applying the four-factor balancing test for injunctive relief.
The Patent Reform Act of 2005 (H.R. 2795), currently being considered by the
House Subcommittee on Courts, the Internet, and Intellectual Property, would,
among other things, amend the injunction provision in the Patent Act to require that
a court, in determining whether injunctive relief should or should not issue in a patent
infringement case, “consider the fairness of the remedy in light of all the facts and the
relevant interests of the parties associated with the invention.” As this amendment
was originally proposed in part to address concerns with the Federal Circuit’s
“general rule,” it remains to be seen whether the eBay decision affects the status of
this provision of the bill.
This report will be updated if events warrant such action.
In troduction ..................................................1
Patent Law Basic Principles......................................2
eBay, Inc. v. MercExchange, L.L.C................................3
The District Court’s Opinion.................................4
The Federal Circuit Court’s Opinion...........................5
The Supreme Court’s Opinion................................6
The Patent Reform Act of 2005 (H.R. 2795).........................8
Availability of Injunctive Relief in Patent
Cases: eBay, Inc. v. MercExchange, L.L.C.
On March 3, 2006, Research In Motion, Ltd. (RIM) and New Technologies
Products, Inc. (NTP) reached a settlement that ended a contentious legal dispute that
had endured for more than four years and sparked considerable public attention.1 At
issue was RIM’s BlackBerry handheld device and communication service, which
enables users to wirelessly receive and transmit electronic mail (e-mail) through radio
frequencies rather than through a traditional landline Internet connection. A jury had
found RIM guilty of willful infringement of NTP’s patents concerning wireless e-2
mail communication services, a judgment affirmed by the U.S. district court and
U.S. Court of Appeals for the Federal Circuit.3 Once the U.S. Supreme Court4
declined to grant RIM’s petition for writ of certiorari in late January 2006, many
BlackBerry subscribers faced the unsettling prospect of an imminent cessation of
service pursuant to a court-ordered injunction to enforce NTP’s patent rights.
However, prior to the district court’s decision on issuing a permanent injunction,
NTP and RIM signed a $612.5 million licensing and settlement agreement, leading
to the court’s dismissal of the litigation and ensuring uninterrupted operation of the
BlackBerry service.5 Although RIM avoided an injunction by reaching this
agreement with the patent holder, its strength in the settlement negotiations was
potentially compromised by the Federal Circuit’s then-applicable “general rule” that
obliged courts to issue a permanent injunction upon a finding of patent infringement,
except in rare instances when an important public need is involved.6
In a patent infringement case decided shortly after the BlackBerry litigation
concluded, the United States Supreme Court unanimously held in eBay, Inc. v.
MercExchange, L.L.C. that district courts have equitable discretion to award
1 See, e.g., Jane Spencer & Jessica E. Vascallaro, Imagining a Day Without BlackBerrys,
WALL ST. JOURNAL, Jan. 25, 2006, at D1.
2 NTP, Inc. v. Research In Motion, Ltd., 261 F. Supp. 2d 423 (E.D. Va. 2002).
3 NTP, Inc. v. Research In Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005).
4 Research In Motion, Ltd. v. NTP, Ltd., 126 S. Ct. 1174, 2006 U.S. LEXIS 1053 (2006).
5 Research In Motion, BlackBerry Press Releases, Research In Motion and NTP Sign
Definitive Settlement Agreement to End Litigation, available on May 18, 2006 at
6 MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1323, 1338 (Fed. Cir. 2005).
injunctive relief in patent infringement cases.7 In so ruling, the Court invalidated the
“general rule” that the Federal Circuit had adopted for patent cases. The Supreme
Court explained that the familiar principles of equity that traditionally govern the
grant of an injunction apply to the same degree in patent disputes as in other cases
governed by such standards. As the question was not before them, the Court
expressly did not decide whether eBay should be permanently enjoined for its
infringement of MercExchange’s patent; instead, the Court vacated the Federal
Circuit’s judgment that had approved a permanent injunction and remanded the case
to the district court to reconsider MercExchange’s motion for injunctive relief in light
of the Court’s opinion.
Patent Law Basic Principles
One of the primary purposes of patent law is to provide individuals and
institutions with economic incentives to engage in research and development that
lead to new products or processes. The U.S. Constitution empowers Congress to
confer on “inventors the exclusive right to their ... discoveries.”8 By enjoying this
limited monopoly9 over their inventions, patent holders may be able to receive a
return on investment from their creations. Without such patent protection,
competitors could “free ride” on the inventor’s research and development efforts and
easily duplicate or otherwise practice the new inventions without having incurred the
costs to develop them.10
Under U.S. patent laws, patents have the attributes of personal property.11 A
patent holder has the right to exclude others from making, using, offering for sale, or
selling the invention throughout the United States, or importing the invention into the
United States.12 Whoever performs any one of these five acts during the term of the
invention’s patent, without the patent holder’s authorization, is liable for
7 To the disadvantage of RIM, the Supreme Court’s opinion in eBay was delivered just a few
months too late to affect the course of the BlackBerry litigation and its eventual settlement
agreement with NTP. Prior to the Court’s decision in eBay, the Federal Circuit’s “general
rule” precedent loomed over the district court judge in the BlackBerry case, and an
injunction order was thus likely imminent in the aftermath of the injunctive relief hearing.
The eBay decision is unlikely to change the RIM-NTP agreement, which stated that the
$612.5 million payment was “in full and final settlement of all claims against RIM, as well
as for a perpetual, fully-paid up license going forward.” BlackBerry Press Releases, supra
8 U.S. CONST. art. I, §8, cl. 8.
9 This time period is generally 20 years from the date of filing the patent application for
most inventions. 35 U.S.C. § 154(a)(2).
10 ROGER SCHECHTER & JOHN THOMAS, PRINCIPLES OF PATENT LAW 9-13 (2d ed. 2004).
11 35 U.S.C. § 261.
12 35 U.S.C. § 154(a)(1). However, there is no statutory requirement that a patentee make,
use, or sell its invention. Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1547 (Fed. Cir.
infringement.13 To prevent the violation of any right secured by a patent, the Patent
Act provides that a federal court “may grant injunctions in accordance with the
principles of equity.”14 Without the right to obtain injunctive relief, “the right to
exclude granted to the patentee would have only a fraction of the value it was
intended to have, and would no longer be as great an incentive to engage in the toils
of scientific and technological research.”15
Each application for a patent consists of two primary parts: (1) a “specification,”
which is a written description of the invention enabling those skilled in the art to
practice the invention, and (2) one or more claims that define the scope of the subject
matter which the applicant regards as his invention.16 Therefore, these claims define
the scope of the patentee’s rights under the patent.17 Careful scrutiny of the claims
is crucial to any infringement lawsuit, as patent infringement will not be adjudged
unless the alleged infringer’s actions have been determined to fall within the patent
claims. Every patent infringement case thus involves a “two-step” analysis18 of each
asserted patent claim: first, an interpretation and construction of the patent claim,
which is a matter of law within the province of the court,19 and second, whether the
claimed invention is being made, used, offered for sale, sold, or imported by the
alleged infringer, which is a question of fact.20
eBay, Inc. v. MercExchange, L.L.C.
The patent at issue in the eBay case “pertains to a system for selling goods
through an ‘electronic network of consignment stores.’”21 According to the district
court in the case, the holder of the patent, Great Falls, Virginia-based MercExchange,
L.L.C., is an entity that “does not practice its inventions and exists merely to license
its patented technology to others.”22 The defendant eBay, based in San Jose,
California, operates a website that allows sellers to list products for sale and buyers
to purchase those goods either through an auction system or at a fixed price.
MercExchange alleged that eBay’s “Buy It Now” functionality on its website, which
permits users to buy items at fixed prices rather than bid for them, comes within the
13 35 U.S.C. § 271(a).
14 35 U.S.C. § 283.
15 Smith Int’l, Inc. v. Hughes Tool Co., 718 F.2d 1573, 1578 (Fed. Cir. 1983) (citation
16 35 U.S.C. § 112.
17 3-8 DONALD S. CHISUM, CHISUM ON PATENTS § 8.01 (2006).
18 Std. Oil Co. v. Am. Cyanamid Co., 774 F.2d 448, 452 (Fed. Cir. 1985).
19 Markman v. Westview Instruments, 517 U.S. 370 (1996).
20 Bai v. L&L Wings, Inc., 160 F.3d 1350, 1353 (Fed. Cir. 1998).
21 MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1323, 1327 (Fed. Cir. 2005). The patent
is U.S. Patent No. 5,845,265.
22 MercExchange, L.L.C. v. eBay, Inc, 275 F. Supp. 2d 695, 712 (E.D. Va. 2003).
claims of its patent, and filed a lawsuit against eBay and its subsidiary Half.com23 in
The District Court’s Opinion. On May 27, 2003, a jury returned a verdict
finding that eBay had willfully infringed MercExchange’s patent and holding eBay
liable for $10.5 million in damages.24 The district court reduced the damages to $5.5
million but upheld the jury’s finding of willful infringement. However, the court
refused to issue an injunction against the Internet auctioneer.25 In making this
decision to deny injunctive relief to the patent holder, the district court considered
four factors consistent with traditional equitable principles:
(1) whether the plaintiff will suffer irreparable harm if an injunction does not
(2) whether the plaintiff has an adequate remedy at law,
(3) whether the balance of hardships tips in the plaintiff’s favor, and 26
(4) whether an injunction is in the public interest.
First, the court believed that MercExchange would not be irreparably harmed
because of evidence of its willingness to license its patents, its lack of commercial
activity in practicing the patents, and its comments to the media that it desired to
obtain royalties rather than an injunction. Second, the court noted that monetary
damages served as an adequate remedy at law in this case. Third, the balance of
hardships tipped “slightly” in eBay’s favor because, in part, “the plaintiff exists
solely to license its patents or sue to enforce its patents, and not to develop or
commercialize them. Any harm suffered by the plaintiff by the defendant[‘s]
infringement of the patents can be recovered by way of damages.”27 The court also
noted that since eBay would probably attempt to “design around” the patent claims,
any injunction would “be opening a Pandora’s box of new problems” at considerable
litigation cost to the parties, as well as a strain on judicial resources. Finally, the
court stated that the public interest factor equally supports both parties. The court
identified “a growing concern over the issuance of business-method patents” within
the Congress and the U.S. Patent and Trademark Office that have called into question
the validity of such patents. Although the court acknowledged that this fourth factor
usually favors the patentee out of an interest in maintaining the integrity of the patent
system, this public interest would not necessarily be furthered in this case, “where the
patentee does not practice its patents.”28
23 Half.com is a wholly owned subsidiary of eBay and operates a website “that allows users
to search for goods posted on other Internet websites and to purchase those goods.” eBay,
24 eBay, 275 F. Supp. 2d at 698.
25 Id. at 715.
26 Weinberger v. Romero-Barcelo, 456 U.S. 305, 311-313 (1982).
27 eBay, 275 F. Supp. 2d at 714.
The Federal Circuit Court’s Opinion. On appeal and cross-appeal of the
case, the U.S. Court of Appeals for the Federal Circuit29 unanimously affirmed the30
jury’s verdict on the finding of infringement. However, the appellate court ruled
that MercExchange was entitled to an injunction to prevent further infringement by
eBay, finding inadequate the district court’s reasons for refusing to issue an
According to the Federal Circuit court, “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 been32
adjudged.” Although the appellate court recognized a rare exception to that “general
rule,” such as “when a patentee’s failure to practice the patented invention frustrates33
an important public need for the invention,” it stated that the district court had
failed to offer “any persuasive reason to believe this case is sufficiently exceptional34
to justify the denial of a permanent injunction.”
The Federal Circuit court deemed irrelevant the district court’s general concern
for the validity of business-method patents or the likelihood of continuing litigation.
The appellate court also viewed as inappropriate the district court’s several references
to MercExchange as an entity that only exists to license its patents, because such a
business strategy does not diminish patent rights:
Injunctions are not reserved for patentees who intend to practice their patents, as
opposed to those who choose to license. The statutory right to exclude is equally
available to both groups, and the right to an adequate remedy to enforce that right35
should be equally available to both as well.
On November 28, 2005, the U.S. Supreme Court granted certiorari to determine
the appropriateness of the Federal Circuit’s “general rule.”36
29 Under 28 U.S.C. §1295, the United States Court of Appeals for the Federal Circuit has
exclusive jurisdiction to hear an appeal from a district court case relating to patents.
30 eBay, 401 F.3d at 1329.
31 Id. at 1339.
32 Id. at 1338 (citation and internal quotations omitted).
33 Although courts usually grant injunctions against patent infringers, one noted exception
is the 1934 decision of City of Milwaukee v. Activated Sludge, 69 F.2d 577 (7th Cir. 1934).
The court in this case refused to issue an injunction against the city of Milwaukee for its
infringement of a patented method for sewage treatment. Had injunctive relief been granted,
Milwaukee would have been forced to dump raw sewage into Lake Michigan, thereby
potentially endangering “the health and the lives of more than half a million people.” Id.
34 eBay, 401 F.3d at 1338-39.
35 Id. at 1339.
36 eBay, Inc. v. MercExchange, L.L.C., 126 S. Ct. 733, 2005 U.S. LEXIS 8572 (2005).
The Supreme Court’s Opinion. On May 15, 2006, the Court unanimously
vacated the appellate court’s judgment and remanded the case to the district court.37
Although the Court noted that “we take no position on whether permanent injunctive
relief should or should not issue in this particular case,”38 the Court clarified that the
traditional principles of equity that govern issuance of injunctive relief “apply with
equal force to disputes arising under the Patent Act,”39 thus dispelling any notion that
patent disputes are subject to different standards than those applicable to cases arising
under other areas of law. A district court’s decision to grant or deny injunctive relief40
is reviewable on appeal under an abuse of discretion standard, the Court stated.
However, according to Justice Clarence Thomas, the author of the opinion of
the Court, neither of the lower courts had “fairly” applied the traditional equitable
principles in determining whether injunctive relief should or should not issue in this
case.41 The district court had erred by improperly suggesting that injunctive relief
was categorically unavailable in cases where patent holders only license their patents
rather than commercialize the invention themselves:
[S]ome 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 be able to satisfy the traditional four-factor test, and we see42
no basis for categorically denying them the opportunity to do so.
On the other hand, the appellate court was incorrect in pronouncing a rule,
unique to patent cases, that strongly favored injunctions when infringement has been
adjudged, the Court explained. While acknowledging that the Patent Act grants the
patent holder the right to exclude others from performing the five acts that constitute
patent infringement, Justice Thomas observed that “the creation of a right is distinct43
from the provision of remedies for violations of that right.” In elaboration of this
point, Justice Anthony Kennedy in a concurring opinion wrote, “the existence of a44
right to exclude does not dictate the remedy for a violation of that right.”
Therefore, the Federal Circuit’s “general rule” is unjustifiable, Justice Thomas said,
37 eBay, Inc. v. MercExchange, L.L.C., No. 05-130, slip op. (U.S. May 15, 2006), available
on May 18, 2006 at [http://www.supremecourtus.gov/opinions/05pdf/05-130.pdf].
38 Id. at 5.
39 Id. at 3. Justice Thomas noted that this observation finds express statutory support in the
Patent Act, which states that district courts “may” issue injunctions “in accordance with the
principles of equity.” 35 U.S.C. § 283.
40 eBay, No. 05-130, slip op. at 2.
41 Id. at 4.
44 eBay, No. 05-130, slip op. at 1 (Kennedy, J., concurring).
as it replaced traditional equitable considerations with a rule that almost categorically
mandated injunctive relief following a determination of infringement.45
The Court explained that its treatment of injunctive relief for patent cases is
consistent with its approach towards injunctions in copyright infringement cases. For
example, the Court cited New York Times Co. v. Tasini, a copyright case in which the
Court refused to adopt a rule that injunctions must automatically issue upon a finding
of copyright infringement.46
The Concurrences. Two concurring opinions, written by Chief Justice John
Roberts, Jr., and Justice Anthony Kennedy, were filed in eBay and reveal an apparent
disagreement among the justices. Chief Justice Roberts’ concurring opinion, joined
by Justices Antonin Scalia and Ruth Bader Ginsburg, noted that
From at least the early 19th century, courts have granted injunctive relief upon
a finding of infringement in the vast majority of patent cases. This “long
tradition of equity practice” is not surprising, given the difficulty of protecting
a right to exclude through monetary remedies that allow an infringer to use an
invention against the patentee’s wishes — a difficulty that often implicates the
first two factors of the traditional four-factor test. This historical practice, as the
Court holds, does not entitle a patentee to a permanent injunction or justify a
general rule that such injunctions should issue.... At the same time, there is a
difference between exercising equitable discretion pursuant to the established47
four-factor test and writing on an entirely clean slate.
The implication of this concurrence is that Chief Justice Roberts and the two
justices joining him would likely expect injunctive relief to be the usual remedy for
patent infringement, consistent with the “long tradition of equity practice.” A district
court’s equitable discretion in granting or denying an injunction in patent cases,
therefore, is not unfettered, in the view of these three justices.
While agreeing with Chief Justice Robert’s concurrence that “history may be
instructive” in applying the four-factor test when the circumstances of a patent case
are similar to those of earlier cases, Justice Kennedy’s concurring opinion, joined by
Justices John Paul Stevens, David Souter, and Stephen Breyer, suggested that
historical practice might not necessarily be helpful for courts to follow when dealing
with some patent infringement suits in the current business environment: “[T]rial
courts should bear in mind that in many instances the nature of the patent being
enforced and the economic function of the patent holder present considerations quite
unlike earlier cases.”48
45 eBay, No. 05-130, slip op. at 3-4.
46 533 U.S. 483, 505 (2001)(stating “it hardly follows from today’s decision that an
injunction against [copyright infringement] must issue. ... [W]e leave remedial issues open
for initial airing and decision in the District Court.”).
47 eBay, No. 05-130, slip op. at 1-2 (Roberts, C.J., concurring) (emphasis in original).
48 eBay, No. 05-130, slip op. at 2 (Kennedy, J., concurring).
Concerning the “economic function” of the patent holder, Justice Kennedy
acknowledged the emergence of patent holding companies and their impact on patent
An industry has developed in which firms use patents not as a basis for
producing and selling goods but, instead, primarily for obtaining licensing fees....
For these firms, an injunction, and the potentially serious sanctions arising from
its violation, can be employed as a bargaining tool to charge exorbitant fees to
companies that seek to buy licenses to practice the patent.... When the patented
invention is but a small component of the product the companies seek to produce
and the threat of an injunction is employed simply for undue leverage in
negotiations, legal damages may well be sufficient to compensate for the49
infringement and an injunction may not serve the public interest.
In elaborating his point regarding “the nature of the patent being enforced,”
Justice Kennedy stated:
[I]njunctive relief may have different consequences for the burgeoning number
of patents over business methods, which were not of much economic and legal
significance in earlier times. The potential vagueness and suspect validity of50
some of these patents may affect the calculus under the four-factor test.
The Patent Reform Act of 2005 (H.R. 2795)
35 U.S.C. § 283 permits a court to “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.” The Patent Reform Act of 2005 (H.R. 2795),
currently being considered by the House Subcommittee on Courts, the Internet, and
Intellectual Property, would, among other matters,51 amend this injunction provision
to require that a court, in determining equity, “consider the fairness of the remedy in
light of all the facts and the relevant interests of the parties associated with the
invention.” Although such express language is supported by the information
technology industry, the pharmaceutical industry favors the status quo.52
Pharmaceutical companies consider injunctions to be critical to stopping
infringement and encouraging investment in new drug research and development.
However, typically only one or two patents cover a drug, whereas a computer chip
or other advanced technology products often incorporate hundreds or thousands of
patented inventions. A technological product in which one “relatively insignificant
component” is found to be infringing on a patent may be withdrawn from the market,
or the company that supports the product may be compelled to pay an expensive
50 eBay, No. 05-130, slip op. at 2 (Kennedy, J., concurring).
51 For a detailed analysis of many of the reforms proposed by H.R. 2795, see CRS Report
RL32996, Patent Reform: Innovation Issues, by Wendy H. Schacht and John R. Thomas.
52 For a comparison of patent protection in the these two industries, see CRS Report
RL33367, Patent Reform: Issues in the Biomedical and Software Industries, by Wendy H.
settlement to preserve its business.53 During any legislative consideration of H.R.
2795, Congress may face these divergent opinions over injunctive relief held by
interested parties in different sectors of the economy. In addition, because this
amendment was originally proposed in part to address concerns with the Federal
Circuit’s “general rule,” it remains to be seen whether the eBay decision affects the
status of this provision of H.R. 2795.
It is worth keeping in mind that Justice Thomas’ opinion was the opinion of the
Court in eBay and was joined by all of its members, including Justice Samuel Alito,
who did not join either of the concurrences. While Justice Kennedy’s concurrence
raises skepticism over the validity of some business-method patents and implies
patent holding companies may not be irreparably harmed in the absence of an
injunction, this view did not receive the support of a majority of the Court’s members
and thus lacks the precedential value of the Court’s opinion. Similarly, Justice
Roberts’ concurrence, which appears to favor injunctive relief except in rare
instances, received the endorsement of only two other justices. Therefore, despite the
unanimity of the eBay Court in invalidating the Federal Circuit’s “general rule,” the
division among the justices as evidenced by the concurrences may contribute to
uncertainty among the lower courts regarding whether to apply “historical practice”
or to consider technological, legal, and business developments that may “affect the
calculus” of equity when determining whether to award injunctive relief in patent
53 Brief of Business Software Alliance et al., at 4, eBay, Inc. v. MercExchange, L.L.C., No.