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Supreme Court to Hear eBay Patent Case

The U.S. Supreme Court has agreed to review a ruling in a patent case involving online auctioneer eBay that could affect the way courts around the country determine when to issue permanent injunctions.

The U.S. Court of Appeals for the Federal Circuit had ruled that once patent validity and infringement have been proven, trial courts should issue a permanent injunction against the infringer, unless there are extraordinary reasons not to do so.

That decision was a "real departure" from legal precedent and could influence how courts in other types of cases decide to impose permanent injunctions, said attorney John L. Dauer Jr. , a patent counsel at Brown Raysman Millstein Felder & Steiner in New York, who specializes in strategic patent enforcement counseling.

"It's easy to understand why they took it," Dauer said of the high court's decision to review the case. "The Federal Circuit really went out on a limb."

The Federal Circuit is the only appellate court in the country that hears patent cases.

When deciding whether to grant injunctions, the other federal appellate courts use a four-part test, said attorney David L. Schwartz, a shareholder of Wallenstein, Wagner & Rockey in Chicago, where he is a patent litigator. Neither Dauer nor Schwartz is involved in the eBay case.

Under that test, courts consider whether the plaintiff will be irreparably harmed if an injunction is not issued, whether the plaintiff has some other adequate legal remedy, whether an injunction is in the public interest, and whether an injunction (or lack of one) would pose an undue hardship to the plaintiff or defendant.

Although no one can say with certainty why the high court accepts a particular case for review, Schwartz said he did not think the Supreme Court would have taken this one if it agreed completely with the Federal Circuit's ruling.

He said the high court could simply affirm the Federal Circuit, order it to use the same four-part test the other appeals courts use, or order it to use a slightly modified version of the four-part test, with the first two factors — irreparable harm and availability of other adequate remedies — presumptively favoring the patent holder.

According to Schwartz, a patent's most important value is exclusivity — the right to prevent others from making or selling the protected invention.

"You need an injunction to do that," he said.

In this case eBay's petition asked "whether the Federal Circuit erred in setting forth a general rule in patent cases that a district court must, absent exceptional circumstances, issue a permanent injunction after a finding of infringement."

In addition to this question, the Supreme Court ordered the parties to brief and argue the question of whether the high court should revisit its decision in Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908). That ruling held that a patent owner who did not use the patent for commercial gain could still obtain a permanent injunction against an infringer.

The Federal Circuit issued its opinion in a dispute between eBay and MercExchange regarding three of MercExchange's patents. In its court filings, the company says that at one time it tried to commercialize its patents but was unsuccessful.

MercExchange filed suit in the U.S. District Court for the Eastern District of Virginia, alleging that the fixed-price purchasing feature of eBay's Web site and that of its subsidiary, Half.com, infringed U.S. Patent Nos. 5,845,265; 6,085,176; and 6,202,051. Although eBay is most widely known as an auction site, it also allows people to purchase items at a set price, without bidding.

At the time of trial, only the '265 and '176 patents were still at issue. A jury concluded that eBay and Half.com had willfully infringed the patents and awarded MercExchange $35 million in damages.

The court rejected MercExchange's request for a permanent injunction and attorney fees.

Both parties appealed to the Federal Circuit.

The court said the '176 patent was invalid and set aside the jury award with respect to that patent. It upheld the verdict with respect to the '265 patent.

It also reversed the District Court's denial of a permanent injunction, saying the general rule is that a permanent injunction should issue once infringement and validity have been determined.

In its petition for a writ of certiorari to the U.S. Supreme Court, eBay said the Federal Circuit's "sweeping holding" regarding injunctions does not find support in federal patent law.

To the contrary, Section 283 of the Patent Act provides that an injunction "may" issue, eBay said, and Congress has expressly authorized District Courts to exercise their discretion.

The Federal Circuit's interpretation will have dire consequences, eBay claimed.

"The consequences will issue even when, as in this case, the District Court has decided that the balance of equities requires otherwise. Indeed, the Federal Circuit's rule compels the grant of an injunction even if a trial court determines that an injunction would cause more harm to the defendant than the plaintiff," eBay said.

MercExchange argued that review should be denied because there is no split within the Federal Circuit on the question of permanent injunctions in patent infringement cases.