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Attorneys Weigh In On eBay vs. MercExchange Verdict
[May 16, 2006]

Attorneys Weigh In On eBay vs. MercExchange Verdict


TMCnet Contributing Editor
 
The United States Supreme Court ruled unanimously Monday that plaintiffs in patent lawsuits must be able to meet a four-factor test in order to receive a permanent injunction against an infringer when it ruled in favor of ebay in ebay v. MercExchange.


 
Michael Jacobs, intellectual property partner at Morrison & Foerster LLP emphasized that while this ruling may benefit companies fighting patent trolls, it most likely will not change whether injunctions are obtained as the courts will continue to grant them at the same rate as before.

 
Jacobs did note that the need to meet the four-factor test will almost certainly drive up the cost of litigation as every injunction will now be contested on the more detailed four-factor standard.
 
In order to obtain a permanent injunction, the plaintiff must use the four-factor test to prove the following:
 
·        It has suffered irreparable injury.
·        Remedies available at law are not adequate to compensate for that injury.
·        A remedy in equity is warranted in light of the balance of hardships between the plaintiff and defendant.
·        The public interest would not be disserved by a permanent injunction.
 
Michael Bednarek, a partner in the IP litigation practice at Pillsbury Winthrop Shaw Pittman, contributed that the court appears to have found a middle ground that preserves the traditional economic power and value of patents while also giving trial courts the discretion to deal with emerging abusive practices.
 
Bednarek added that four of the eight justices expressed discomfort granting injunctions in cases involving patent trolls, business method patents or patents where the invention is a small component of the product. The value of patents in the electronics industry could be lessened where the invention is a small component of the larger product.
 
According to Beth Brinkmann, head of Morrison & Foerster’s Appellate practice in Washington, the Supreme Court emphasized the fact that the U.S. Patent Act conveys to a patent owner the explicit right to exclude others from making, using, offering for sale or selling the invention does not justify a general rule in favor of granting permanent injunctions because the creation of a right is distinct from the provision of remedies for violations of that right. 
 
William Atkins, a senior patent litigator with Pillsbury’s Northern Virginia office called today’s decision a forceful reminder to the district courts that there is still a four-part test from general civil litigation that applies to patent cases. Going forward, the quest to obtain a permanent injunction following a jury verdict will be more analytical.
 
Atkins poses many questions that will need to be resolved by the courts such as what will happen when a judge declines to issue an injunction? Does the adjudicated infringer get off scott-free? Is there a compulsory license fee and if so, who decides that fee?

The decision by the Supreme Court changes the landscape for patent holders, according to Larry Gotts, leader of Pillsbury’s IP group. It is likely to significantly impact not only the settlement dynamic, but also the manner in which many patent claims are tried down the road. Questions remain open, including how the four-factor test will be implemented in the case of practicing and non-practicing entities alike.
 
Mr. Jacobs pointed out that Justice Kennedy’s concurring opinion provides some potential relief for technology companies now feeling besieged by so-called patent trolls. If Kennedy’s reasoning is adopted by lower courts, patent trolls may face a higher hurdle in getting a permanent injunction, which could end up pushing down the cost of a settlement.
 
Kennedy’s concurrence for the four Justices stated that:
 
“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….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.”
 
Jacobs highlighted that Kennedy may be arguing that instead of allowing product-killing injunctions, courts should hold that damages may be sufficient. This was a position that the software and electronics community vehemently argued in their amici briefs.
 
Jacobs called the recognition of the need for limitations on injunctions a victory for the high-technology community.
 
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Susan J. Campbell is a contributing editor for TMC and has also written for eastbiz.com. To see more of her articles, please visit Susan J. Campbell’s columnist page.
 

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