eBay: Did the Supreme Court Get the Porridge “Just Right?”

May 22, 2006

Some companies were heard to rejoice when the United States Supreme Court unanimously held incorrect the Federal Circuit’s “general rule” that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.  The Supreme Court decided that both the district court and the Federal Circuit were wrong in not explicitly following a four-factor test for determining whether equitable relief was appropriate.
 
It reminds me of the three bowls of porridge in “Goldilocks and the Three Bears.”  The district court found the porridge too cold.  The Federal Circuit found the porridge too hot.  The Supreme Court believed it found the way to make the injunction porridge “just right.”  Justice Thomas’s majority opinion attempted to differentiate between the statutory right of a patent to exclude others and the relief that should be awarded for a violation of that right.  He rejected the notion that an injunction should automatically issue for an infringement by focusing the language of 35USC 283, which states that courts “may” grant injunctions in accordance with the principles of equity.  He also analogized the Patent Act’s permissible injunction language with cases interpreting similar permissible language under the Copyright Act.

Chief Justice Roberts’s concurrence seemed to chastise the Federal Circuit for departing from the long tradition of equity practice in adopting a “general rule.” His dicta, however, pointed out 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.  He said, “there is a difference between exercising equitable discretion … and writing on an entirely clean slate…a page of history is worth a volume of logic.” (Emphasis added and interior quotation marks omitted)

If the court finds the patent valid and infringed and explicitly applies the four-factor test -- 1) irreparable injury, (2) legal remedies inadequate to compensate, (3) balancing the hardships, and (4) public interest would not be disserved by a permanent injunction -- and grants a permanent injunction, the decision should be affirmed unless it can be established that the judge abused his discretion.

Did Justice Kennedy disagree with Justice Roberts in his concurring opinion by suggesting that while history may be instructive in applying the test, there are new types of cases arising where those traditions may not apply, and that the district courts must determine whether past practice fits the circumstances of the cases before them?  Kennedy said, “to the extent earlier cases establish a pattern of granting an injunction …almost as a matter of course, this pattern simply illustrates the result of the four-factor test in the contexts then prevalent.” (Emphasis added)

Justice Kennedy cited the FTC analysis of new patent licensing business models that said licensing firms may use the threat of an injunction to charge exorbitant fees to companies that seek to buy licenses to practice the patent. Perhaps remembering the recent Blackberry debate, he suggested that injunctions may not be granted depending on how the patentee behaves and whether the patented invention is but a small part of a bigger product. He said, “when a patented invention is but a small component of the product and the threat of an injunction is employed simply for undue leverage …an injunction may not serve the public interest.”  (emphasis added)

I am intrigued that Justice Kennedy is instructing the district court to look into a non- manufacturing patentee’s behavior during licensing negotiations, and to use the patentee’s behavior in the four-factor analysis against the patentee (certain negotiating tactics = not serving the public interest) if the court is of the view that the behavior  constituted “undue leverage.”  Regardless of the evidentiary problems associated with license negotiation posturing, the patentee’s desire to retain exclusive rights to its personal property and not offer the infringer a reasonable license proposal could cause the patentee’s behavior to be characterized as against the public interest.  At what point does this begin to sound like supporting compulsory licensing by non-manufacturing patentees?

Justice Kennedy went on to discuss injunctive relief for infringements of business method patents, which were of less significance in earlier times.  He said, “the potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.”  (Emphasis added)

When I read the FTC report I was troubled by the characterization of patents as having “questionable” validity.  If a patent is of questionable validity, the validity should be thoroughly tested as a matter of law before infringement can be found.  Validity can be tested in litigation, in USPTO reexamination, or in the proposed post-grant opposition proceedings supported by IPO.

Should a patent that has been found to be valid and infringed be referred to as of “questionable” validity simply because it relates to a new method of doing business? Do Justice Kennedy and those concurring with him appreciate that while technology always changes, patent law should not be interpreted differently depending on the type of technology claimed?  If a business method patent is valid and infringed it should be treated the same as any other patent under the statute. The four-factor test should apply in the same manner as if the invention were a new chemical composition or an agricultural device.
   
Rather than making the porridge just right, I believe this short opinion may have little impact. There may be more briefs filed exploring each of the four factors in detail and there may be more economic arguments made against injunctive relief in situations involving non-manufacturing patentees, but I think the porridge will need to be stirred and revisited.

Comments are always welcome.

Cordially,

Marc S. Adler

NOTE:  IPO did not file an amicus brief or otherwise take a position on how the eBay case should be decided.

Comments

[John H. Hornickel]

Dear Marc:

Your reaction to the opinions in the eBay decision is "Just Right."

This Supreme Court decision will be studied for years about how our English system of law attempts to reconcile legal and equitable remedies within the context of a statutory framework. The predictability that the Federal Circuit was to have established beginning a quarter century ago has run into the historical basis for injunctions as an equitable remedy. I also think there was some contemplation in the concurring opinions about how a non-manufacturing patentee can threaten to remove a technology from commerce, as those with Blackberry PDAs remember just a few months ago.

There are other parts of the Patent Law of 1952 where equitable principles are codified. The Doctrine of Equivalents comes to mind. "Precedential fairness" is an oxymoron. So we have Festo rules as a result, to apply on a case-by-case basis.

With one part of English law requiring Stare Decisis and the other part requiring fairness according to the "length of the Chancellor's foot", our Supreme judiciary has told us unanimously that we are to remain in uncertain remedial territory.

Sincerely,
John Hornickel

[Tim O'Hearn]

Dear Marc:

I think this opinion will have a major impact and open many new fronts for litigation in the area of remedies. If there is no automatic injunction at the end of trial, what does that mean for the damages case preparation? Does this give District Court judges the authority, in effect,to implement compulsory licensing under an abuse of discretion standard of review? Is a Judge now authorized to entertain notions about "suspect validity" and deny injunctive relief on that basis when the verdict has already established that the statutory presumption of validity was not defeated? What will be expected of the patentee to prove the four factor test to a high enough standard that the denial of injunctive relief is overturned as an abuse of discretion? So much for doctrinal certainty - the very reason for the creation of the Federal Circuit.

Best Regards,
Tim O'Hearn