The eBay earthquake Part 2
Top line thought: The presumption of irreparable harm, long a mainstay of the Federal Circuit’s preliminary injunction jurisprudence, is now highly questionable. Expect it to come under sustained attack in the lower courts.
Another top line thought: My estimate of the likelihood the Court will grant cert in the KSR case, which raises fundamental questions about the framework for analyzing whether an invention would have been obvious, has skyrocketed. It takes only four votes to grant cert, and four justices have just expressed fairly deep skepticism about the current health of the patent system. (About which, more below).
More detailed thoughts …
The opinions are concise, with three opinions in just nine pages.
Justice Thomas wrote the unanimous opinion for the Court. The Court rejects what it views as the improperly “categorical” approaches of both the trial court (too cold on permanent injunctions) and the Federal Circuit (too hot on permanent injunctions). A highly case-specific, fact-bound approach is just right:
A plaintiff 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 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. … These familiar principles apply with equal force to disputes arising under the Patent Act.
Slip op. at 2-3. The Court emphasizes the discretionary nature of the remedy: “the decision whether to grant or deny injunctive relief rests within the equitable discrection of the district courts,” and “such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.” Slip op. at 5.
The Court’s opinion is all we hear, at least so far as Justices Thomas and Alito are concerned. The remaining seven justices split 4 to 3 in two concurring opinions. One of them augurs more dramatic change in patent law standards. More below the fold.
The Chief Justice writes for himself and Justices Scalia and Ginsburg. This concurrence draws attention to the weight of history, which shows that permanent injunctions are usually proper in patent cases. According to Chief Justice Roberts, “[f]rom at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases.” Slip op. at 1. Further, this pattern “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.” Slip op. at 1 (emphasis in original). These three justices, then, appear quite comfortable with nearly all of established patent injunction practice.
The remaining four justices, however, are far more skeptical of established patent injunction practice. Indeed, Justice Kennedy’s opinion — for himself, and Justices Stevens, Souter, and Breyer — points away from reliance on historical practice. According to Justice Kennedy, “[t]o the extent earlier cases establish a pattern of granting an injunction against patent infringers almost as a matter of course, this pattern simply illustrates the result of the four-factor test in the contexts then prevalent.” Slip op. at 1. Those contexts have changed:
[I]n many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases. An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining license 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 the infringement and an injunction may not serve the public interest. In addition injunctive 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 of some of these patents may affect the calculus under the four-factor test.
Slip op. at 2. The skepticism of modern patent standards and licensing practices expressed here is, I think, quite intense. It’s not merely fees, it’s “exorbitant fees.” It’s not merely leverage, it’s “undue leverage.” This concurrence is just one vote shy of a majority. With all the major patent cases that are serious candidates for cert, the tenor of Justice Kennedy’s views will no doubt feature heavily in future cases.
Finally, I think this reaction from Dennis Crouch is absolutely right:
This decision may indicate a real shift in Patent Law and the strength of an individual patent. My general advice to litigators: The injunction is now a big issue — make sure that you focus on evidence of irreparable harm from the beginning — including your cease & desist letter or initial complaint.
I am interested in the fact that the Kennedy concurrence cites very specific examples where a doubt of irreperable harm may be present. First, the “patent troll” case of a company only seeking licensing from its patent. Second, the idea of a patented small component of a larger system. And finally, the doubtful validity of Business Method patents.
With the last example being held up by four Justices, I would not want to be banking on the Supreme Court to back up a Business method plaintiff-patentee in a validity challenge.
Comment by Jim Hilsenteger — May 15, 2006 @ 11:24 am
[…] The Supreme Court has vacated the Federal Circuit opinion and (re)established that the grant of injunctive relief in a patent infringement action (as in a copyright infringement action and many other disputes) “is an act of equitable discretion by the district court,” subject to “well-established principles of equity” (including the traditional 4-factor test) and “reviewable on appeal for abuse of discretion”. The Court emphasized that lower courts must apply the four-factor test on a case-by-case basis and should not develop categorical rules in favor of or against injunctive relief. After a rather quick read (it is only a 6 page opinion) and a few minutes of thought, I think the opinion strikes the right chord. The concurrences are also interesting, not so much for how they may impact injunctive relief, but, as Joe Miller and Randy Picker note, for how they reflect a divide among the Justices on their views of the patent system and how well it is working. The opinion and two short concurrences are available on Patently-O. […]
Pingback by madisonian.net » eBay and a thought on uncertainty — May 15, 2006 @ 11:34 am
I also agree that the eBay opinion most likely raises questions regarding the continued vitality of the presumption of irreparable harm for preliminary injunctions. Interestingly, in eBay the court cites to Amoco Prod. Co. v. Village of Gambell, Alaska, 480 U.S. 531 (1987), a decision regarding preliminary injunctions in which the court rejected a presumption of irreparable harm as applied to injury to the environment. This is a decsion that I have long thought could be argued to cast some doubt on the practice of presuming irreparable harm. See Robert A. Matthews, Jr, Annotated Patent Digest, § 32:64 Questions Regarding Legality of the Presumption. It also is one that the Federal Circuit has not yet appeared to consider. Given the cite to it in the eBay opinion, it likely will not be long before the court is asked to consider the impact of the Amoco and eBay on the practice of permitting a presumption of irreparable harm.
Comment by Bob Matthews — May 15, 2006 @ 12:27 pm
Do two wrongs make a right? It is wrong to grant permanent injunctions on patent claims that are of more or less untested (and therefore highly dubious) validity. But the cure is not to set up a system which disarms (castrates?) patent owners and divides them into castes. It is better to decide validity on the preponderance of evidence at the same time as trying infringement, like in common law England, before a tribunal competent to understand the validity issues. It goes without saying that, if the claim is valid and infringed, the patentee will get his injunction but that, in all other cases, he loses (and the loser pays).
The retort will be that this is unattainable, in the modern day environment of ever-increasing numbers of patent applns going to issue, but civil law Japan doesn’t think so. Its setting up of the Tokyo Patents Court is a move away from its German roots, and towards the English way of patent litigation. It is a move in the right direction.
Comment by MaxDrei — May 15, 2006 @ 11:52 pm
Max makes a good point. I don’t know much about English practice. However, if it entails using a preponderance standard for testing validity in court, I’m all for it. And, as Justice Kennedy’s concurrence indicates, a great deal of the discomfort with routine patent injunctions comes from discomfort with the routine grant of patents that don’t meet existing patentability standards (to say nothing of the fact that, in the case of the nonobviousness requirement, the current standard is set too low).
Comment by Joe — May 16, 2006 @ 6:33 am
[…] The first theme–the Federal Circuit is approaching the question at issue too rigidly–echoes the Supreme Court’s decision just the other day in eBay v. MercExchange, which I discussed here. (In eBay, the Supreme Court concluded that both the trial court and the Federal Circuit had erred in the case by using rigid, near per se rules (rather than sec 283’s flexible, case-specific four-factor test) to assess the propriety of injunctive relief.) The SG does not cite eBay in this brief. He hardly needs to; the echo is loud and clear. […]
Pingback by The Fire of Genius » Not your dad’s nonobviousness standard … — May 25, 2006 @ 8:34 pm
[…] William McGeveran follows up at Info/Law with his own great post, this one exploring the consequences of eBay for the continued vitality of the presumption in patent cases. My own sense is that the presumption of irreparable harm in patent infringement preliminary injunction cases can no longer be (if it ever was) anything more than a (weak) “bursting bubble” presumption that drops out of the case the moment the non-movant introduces any evidence suggesting the lack of irreparable harm. I thought so the moment I read the Supreme Court’s decision in eBay: Here’s the first paragraph of my first substantive post on eBay the morning of the decision (May 15): Top line thought: The presumption of irreparable harm, long a mainstay of the Federal Circuit’s preliminary injunction jurisprudence, is now highly questionable. Expect it to come under sustained attack in the lower courts. […]
Pingback by The Fire of Genius » eBay Echo - Presumption of irreparable harm — June 7, 2006 @ 9:06 am