... a page of history is worth a volume of logic.

May 17, 2006 12:01 AM

Injunctions in patent cases not automatic. The U.S. Supreme Court issued a unanimous decision (16 page pdf) on Monday in the dispute between eBay and MercExchange. The Court ruled in favor of eBay finding that the lower Appeals Court erred as a matter of law in creating a general rule that “courts will issue permanent injunctions against patent infringement absent exceptional circumstances.” In the concurring opinion written by Chief Justice Roberts, joined by Scalia and Ginsberg, Roberts citing Court precedent noted that: “[d]iscretion is not whim, and limiting discretion according to legal standards helps promote the basic principle of justice that like cases should be decided alike.”
posted by three blind mice (23 comments total)

Quick background:

MercExchange sued eBay for patent infringement in U.S. District Court. MercExchange won, the jury finding MercExchange's patent valid and infringed by eBay. The jury also awarded $25m in damages to MercExchange.

The District Court judge, however, refused to grant MercExchange a permanent injunction against eBay which would have given MercExchange a powerful bargaining tool in settlement discussions.

MercExchange appealed to the Court of Appeals for the Federal Circuit who reversed the District Court judge’s refusal, applying a “general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.”

This general rule was the matter before the Supreme Court. In a unanimous decision, the Court held there is no automatic injunction and that the traditional four-factor test applied by courts of equity also applies to disputes arising from under the Patent Act.

The traditional four-factor test applied by courts of equity when considering whether to award permanent injunctive relief to a prevailing plaintiff applies to disputes arising under the Patent Act. That test requires a plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balanceof 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. The decision to grant or deny such relief is an act of equitable discretion by the district court, reviewable on appeal for abuse of discretion. These principles apply with equal force to Patent Act disputes. “[A] major departure from the long tradition of equity practice should not be lightly implied.” Weinberger v. Romero-Barcelo, 456 U. S. 305, 320. Nothing in the Act indicates such a departure.

I see two things interesting about this:

1) Roberts is picking the low hanging fruit and clearing the docket of cases where there is an obvious consensus on the Court. By so doing he is building consensus and comraderie amongst his colleagues.

2) The loud emphasis on precedent: “A page of history is worth a volume of logic"; "departure from long tradition";

At least insofar as the first, Roberts appears to be a decent administrator of the Court’s Docket and, by this measure, a pretty good Chief Justice so far. We’ll see where the other one takes us.
posted by three blind mice at 12:06 AM on May 17, 2006

This seems way too sane to be true.
posted by Artw at 12:12 AM on May 17, 2006

"A page of history is worth a volume of logic."

I like the fact that Roberts is quoting Oliver Wendell Holmes, a Justice I've always liked (Buck v. Bell notwithstanding).
posted by Pontius Pilate at 12:47 AM on May 17, 2006

If I understood correctly, the Court was also slapping the hands of the U.S. District Court at the same time it was remanding the case to them.

The District court judge denied the permanent injunction, but mainly because he thought monetary damages were sufficient reparation, and that the stinkin' MercExchange had no intent to exercise the patent itself. Judge Thomas likened that line of thought to penalizing a university scientist for licensing a patent simply because he didn't want to go to the trouble of seeking out financing to go into business for himself. So the District court may have made the right decision (the Court's not saying that, I am), but it was based on a fairly whimsicle rationale and not in line with precedent.

Complicated topic for my wittle bwain, but excellent post. TBM, I noted the Holmes quote, too, and thought the nod to history throughout Roberts's concurring statement was a good sign. Too much of it seems to be long since forgotten in the other two branches of our gummint.
posted by Bixby23 at 12:50 AM on May 17, 2006

I am quite happy to see this one. Next, more important thing: stopping the patent office from issuing patents on ridiculously obvious ideas. Like "single click purchasing".
posted by antifuse at 2:02 AM on May 17, 2006

antifuse: Next, more important thing: stopping the patent office from issuing patents on ridiculously obvious ideas.

On that note, the USPTO recently announced they are trialling a patent peer-review process.
posted by Popular Ethics at 3:37 AM on May 17, 2006 [1 favorite]

The District court judge denied the permanent injunction, but mainly because he thought monetary damages were sufficient reparation, and that the stinkin' MercExchange had no intent to exercise the patent itself. Judge Thomas likened that line of thought to penalizing a university scientist for licensing a patent simply because he didn't want to go to the trouble of seeking out financing to go into business for himself. So the District court may have made the right decision (the Court's not saying that, I am), but it was based on a fairly whimsicle rationale and not in line with precedent.

That's my take too Bixby23. The District Court now has to reconsider its refusal to issue a permanent injunction based on the four-factors (listed earlier in the thread):

(1) that it has suffered an irreparable injury;

(2) that remedies available at law 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.

The fact that MercExchange had no intent to exercise the patent itself is not by itself enough reason to sustain the refusal, but it will certainly be a consideration when evaluating these four factors.
posted by three blind mice at 4:06 AM on May 17, 2006

The real question is whether the supreme court will hear my case against that bastard who stole my money on eBay and never sent me my comic books.
posted by i_am_a_Jedi at 5:39 AM on May 17, 2006

"The real question is whether the supreme court will hear my case against that bastard who stole my money on eBay and never sent me my comic books."

That would be the case of Nerd v. Geek.
posted by mr_crash_davis at 7:01 AM on May 17, 2006

My client Nerd in Nerd v. Geek has been harmed by not receiving his goods, and his leaving a rating of "BAD-----!!!!! STAY AWAY!!!!!!!" in no way ameliorates with the hardships he's suffered.
posted by keds at 8:08 AM on May 17, 2006

Your Honor, what Mr. Nerd's attorney has carefully failed to mention is that the goods in question were, in fact, the complete run of Frank Miller's "The Dark Knight Strikes Back." I contend that by not shipping these comics, my client, Mr. Geek, in fact protected Mr. Nerd from grievous pain and mental anguish. I move for immediate dismissal.
posted by Faint of Butt at 8:17 AM on May 17, 2006

I'll take your motion under advisement, counsel. Has counsel conferred on a reasonable schedule for pre-trial discovery related to the alleged comic material?
posted by monju_bosatsu at 8:20 AM on May 17, 2006

On topic, there's an interesting discussion of the Chief's citation patterns and what it means for the Court over at Orin Kerr's blog. Marty Lederman writes:

I, for one, have been extremely impressed by Roberts’s opinions in the Solomon Amendment case, Ayotte, the RFRA hoasca tea case, and today’s Article III standing case (especially his revisionist reading of the Establishment Clause cases). But it is striking that, in all three cases, his opinions assume that the right answers can be gleaned largely from a careful and intelligent parsing of prior precedents. Indeed, what’s most striking, and most impressive, about the FAIR opinion, Ayotte, and today’s Cuno opinion is that Roberts is able to bring some much needed coherence to very scattered, contradictory and contested areas of constitutional law. He is making very deliberate choices that certain constitutional theories lurking in prior cases should prevail, and that others should be discarded, trying to bring coherence and logic to very difficult bodies of doctrine — and doing so while holding a unanimous Court, at that! This is very impressive, and definitely has its distinct virtues, even if one disagrees with some of the choices that he makes.

posted by monju_bosatsu at 8:23 AM on May 17, 2006

Whether or not you agree with this opinion, it is a spectacularly awful example of Supreme Court jurisprudence. Thomas writes a two-page opinion which gives no guidance at all to the lower courts, essentially kicking back one of the two most important issues in current patent law because the court used a standard that was too predictable and not fuzzy enough. A whopping zero Justices actually join the opinion (though all join the result, so the case can be called "unanimous"). Three Justices (Roberts, Scalia and Ginsburg) join in a concurring in an opinion that says that the flexibility of the four factor test is important and all, but essentially the old rule should remain for almost all cases, because that has been the law for over 150 years, it's what people expect, it's the only way to protect a property right, "a page of history" etc. etc. Four Justices (Kennedy, Stevens, Souter, and Breyer) write a concurring opinion that is exactly the opposite of the other "concurring" opinion in which they essentially say "OMG PATENT TROLLS!!!!111!!ELEVEN!!" (Let me insert here that I am ideologically in the second group on almost all issues, but their concurrence is frankly absurd).

Faced with the problem of the its earlier ruling in Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U. S. 405 (1908), the Court simply punts and puts in one sentence claiming that Continental didn't endorse a bright-line rule. The problem with this treatment, of course, is that the Court itself, in granting cert in eBay took the extraordinary step of adding a question to the questions presented by the parties on appeal. That question was whether the Court should revisit its decision in Continental in light of modern patent practice.

So, here we have three opinions which say three different things and collectively take up less than four pages. There is no guidance to the lower courts on how to interpret the new "standard", what was once a clear and easy to understand rule has been replaced with an incomprehensible mess, we have no idea if Continental has been overruled or not and the Court has completely ignored the elephant in the room: If not injunctive relief, then what?

consider this: You have a patent. Someone infringes it. You sue and win -- a jury finds that your patent is valid and the defendant has infringed. The court looks at the new fuzzy test and decides you don't get an injunction. It awards you damages for the past infringement, but what about tomorrow? What about the next day? There is no injunction. Does defendant get a free pass? Or does the court (and this is the real horror show) have to make up its own license fee? Courts do this for past damages (it's called a "reasonable royalty") and the one thing everyone on all sides of the patent debate agrees on is that they are awful at it. The marketplace is much better at working out the right license fee than a Court can ever be, but now, with this new system, Court will not only have to figure out the license fee for back damages, but they will also create a compulsory licensing regime. You don't want Microsoft practicing your patent? Tough luck. The court now apparently has the right to order you to accept whatever license fee it feels is appropriate and let so-called "practicing" entities do what they want.

This is a fundamental change in the patent law. In writing about the issue (can you tell I write about the issue?) I and other patent attorneys have been able to find no case -- not a single case -- in which a court awarded a compulsory license based on a court-determined license fee. It is not entirely clear from the statute that courts even have the power to do that in patent cases. You might expect the Supremes to make some comment about this entirely new frontier they have created. But no. They're busy over there.
posted by The Bellman at 8:45 AM on May 17, 2006 [5 favorites]

The Bellman - wow, you wrote that in such a way that even I (totally a layman, and a Canadian one at that) could understand, and could see what the challenges are. Flagged as fantastic.
posted by raedyn at 8:51 AM on May 17, 2006

This is a fundamental change in the patent law. In writing about the issue (can you tell I write about the issue?) I and other patent attorneys have been able to find no case -- not a single case -- in which a court awarded a compulsory license based on a court-determined license fee. It is not entirely clear from the statute that courts even have the power to do that in patent cases. You might expect the Supremes to make some comment about this entirely new frontier they have created. But no. They're busy over there.

Well Bellman, I don't read it that way at all. The SCOTUS did not make any suggestion that the District Court should not award injunctive relief. They simply rejected the CAFC's "general rule" and criticized the District court's basis for refusing to award an injunction, noting that:

Neither the District Court nor the Court of Appeals below fairly applied these traditional equitable principles in deciding respondent’s motion for a permanent injunction.

It seems to me the fundamental change in patent law would be to have upheld the CAFC's general rule making the award of an injunction automatic upon the finding of infringement.
posted by three blind mice at 9:20 AM on May 17, 2006

Can someone explain this to me? I have a hard time digesting what exactly this means.

MercExchange has a patent that eBay violated. They are entitled to compensation for this, no? Usually such compensation is negotiated in settlements. The patent holder has the right not to license its intellectual property to the offender, in effect shutting them down.

If the patent holder is no longer allowed to shut down the offender, what motivation does the offender have to reach a fair settlement?
posted by b_thinky at 11:40 AM on May 17, 2006

b_thinky: This is precisely the problem, and the reason that, historically, and injunction has been all but automatic. In a few very rare cases there have been overwhelming public health or similar reasons not to grant the injunction -- most notably in the case of a cancer-testing kit -- and in those cases the court simply doesn't grant it. The infringer continues to infringe (usually under some limitation of scope imposed by the court in the interest of fairness) and the patent holder goes away empty handed. That is a classic "equity" outcome.

This is incredibly rare -- we're talking maybe three reported cases in the last 150 years -- but those cases are important because they set out what has always been the rule: injunctions are almost always the correct form of relief for prospective violations, but concerns of equity can, in limited cases, trump the general rule.

What the Supreme Court ignores here is that no one (not the district court, not the Federal Circuit, no one) suggested that there was a hard and fast rule requiring injunctions in every single case. When the Federal Circuit wrote its decision granting the MercExchange injunction, which the Supreme Court overruled, it looked at the equities of the situation and determined that there was no reason, under equity, to deviate from the usual practice of injunction. The Supreme Court failed to give any concrete reason why that decision was wrong, so the lower courts have little to go on.

So the problem now (three blind mice) is that the Court has fundamentally changed the landscape of patent law: it has taken away the "default" rule of injunctions that held in all but a tiny number of past cases. Apparently, it wants lower courts to grant fewer injunctions (because injunctions are no longer the default rule, absent equitable concerns to the contrary). If that's the case, though, as b_thinky points out, it should give some guidance about what a successful plaintiff gets instead of an injunction. There's no law on this because the old rule was so well established that no patent plaintiff ever asked for anything other than an injunction. The rule was: enjoin the ongoing infringement and let the market figure it out. If the new rule is that injunctions are rare, maybe the Supremes intend the lower courts to award prospective damages under a compulsory license -- as b_thinky said there has to be some compensation. If so, then that's a whole new can of worms and that system also screws up any incentive the offender might have had not to infringe. Some guidance might have been nice, though not really expected from Justice Thomas.
posted by The Bellman at 12:56 PM on May 17, 2006

it has taken away the "default" rule of injunctions that held in all but a tiny number of past cases

C'mon The Bellman, this was a very narrow ruling based on the fact that the CAFC erred as a matter of law by suplanting a "general rule" in the place of the four-factor test - a test that largely produces the same result as the "general rule." Under the four-factor test, it is only in exceptional cases where an injunction is not granted.

All the SCOTUS has done is to remind the CAFC of this and remand the case back to the District court where they have been instructed to apply the proper test to MercExchange's motion.

If you can point me to the section where the SCOTUS indicated that they want lower courts to grant fewer injunctions, I would be most grateful.
posted by three blind mice at 1:21 PM on May 17, 2006

We can take this offline if you like, tbm, I'm not sure it's of interest to the general community at this level of specificity, but to answer your question, I think the problematic language is the following:

The [CAFC] further indicated that injunctions should be denied only in the "unusual" case, under "exceptional circumstances" and "'in rare instances . . . to protect the public interest.'". Just as the District Court erred in its categorical denial of injunctive relief, the Court of Appeals erred in its categorical grant of such relief.

The fact is that the rule articulated by the CAFC is, in fact, the tractional rule and has been for over 150 years. Injunctions have almost always granted except in "unusual" or "exceptional" cases (two or three over 150 years, I think, counts as unusual or exceptional) in which equity demands otherwise. By calling out that particular passage, SCOTUS seems to be saying that injunctions should not be the "usual" practice and that they should be denied in some cases that are not "unusual" or "exceptional". That is a sea-change and it should -- if lower courts pay attention to it -- result in many more cases where injunctions are denied.

I wrote an Amicus Brief in this case supporting affirmation of the CAFC decision and I would love to think that you're right and injunctive relief is going to remain the usual remedy, but I doubt it. To put it another way, my experience is perhaps different from yours: in my experience the four factor test is very hard to satisfy. Litigants ask for injunctions frequently, but courts rarely grant them in the normal course of commercial litigation, primarily because of the "irreparable harm" and "adequacy of money damages" prongs, which are very hard to make out in commercial cases. The argument that I and others made as Amici was that these two factors ought to be (rebuttably) presumed once patent validity and infringement were found and that the availability of injunction ought to turn on the other two factors. That would be in keeping with historical practice and still provide flexibility and correct incentives. But even then, the net effect would be that injunctions would be less common.

So, if the Court really means what it said -- if the CAFC is wrong about the injunctions being available except in "unusual" or "exceptional" circumstances -- then there are going to be a lot fewer injunctions. Under the standard test, injunctions are rare, but even if you figure patents are a special case, you're still going to get more denials than one every 50 years if you really do a standard equity balancing act with no finger on the scales for the aggrieved patent holder. So in that sense I think eBay is right to trumpet this as a great victory -- the Court has, for better or worse, made it harder to get an injunction and has left us with the question of what comes next.
posted by The Bellman at 1:56 PM on May 17, 2006

For "tractional" please read "traditional". For "Injunctions have almost always granted" please read "Injunctions have almost always been granted". Also, please remind The Bellman that spell-checking is not enough.
posted by The Bellman at 1:58 PM on May 17, 2006

The fact is that the rule articulated by the CAFC is, in fact, the tractional rule and has been for over 150 years.

That's not really the fact The Bellman - and thanks for an excellent rebuttal, btw.

You say yourself that your research has found very few cases - we're talking maybe three reported cases in the last 150 years - where a "compulsory license" was ordered. This being the result under the traditional application of equity.

Certainly the CAFC was correct in summarizing the outcome of these traditional rules, but it was by no means correct in articulating a general rule based on this summary. That's the way, I think, the SCOTUS saw this. I see it as really a minor technicality and not a tidal change.

eBay is right to trumpet this as a victory for eBay - in this particular matter and at this moment. What will be interesting is, of course, the District court's reaction. I'll give you odds the judge grants the motion.
posted by three blind mice at 2:45 PM on May 17, 2006

Lawfilter!

Correct me if I am wrong, but presumably the right to appeal to the SCOTUS is not automatic, but needs to be granted by the court itself, and only if it is convinced that an argument has merit, or that a matter of law needs to be definitively settled.

Now, if the general rule v four-factor-test issue was the basis of the appeal, this would mean that the SCOTUS saw fit to definitively kill any suggestion in law from the lower court that anything but the four-factor-test should be applied. No great surprises there, as the highest court in the land should be expected to follow precedent.

Overall, though, I consider this case to be a storm in a teacup. Most likely, it was brought about by desperately clever lawyering, seeking any grounds at all to appeal the decision of the lower court, considering the vast amounts of money that would be at stake (including vast amounts of money for the law firm, naturally).

So, the appellant argues hard that the lower court erred in law due to a pedantic interpretation of what would otherwise appear to be a valid descriptive statement not intended to be a point-by-point enunciation of legal detail. The SCOTUS affirms this, just for the record, and the case gets kicked back to the lower court to be decided in exactly the same manner, but with the correct verbal formulation cut-n-pasted into the decision. Everybody wins & goes home happy, except for the non-lawyers.
posted by UbuRoivas at 5:14 PM on May 17, 2006