MercExchange, L.L.C. v. eBay, Inc, 275 F.Supp.2d 695 (E.D. Va. 2003) (full-text), aff’d, 401 F.3d 1323 (Fed. Cir. 2005) (full-text), vacated and remanded, 547 U.S. 388, 78 U.S.P.Q.2d (BNA) 1577 (2006) (full-text), on remand, 500 F.Supp.2d 556, 83 U.S.P.Q.2d (BNA) 1688 (E.D. Va. 2007) (full-text).
eBay operates a website that allows sellers to list products for sale and buyers to purchase those goods either through an auction system or at a fixed price. MercExchange alleged that eBay’s “Buy It Now” functionality on its website, which permits users to buy items at fixed prices rather than bid for them, comes within the claims of its patent, and filed a patent infringement lawsuit against eBay in September 2001.
Under U.S. patent law, a patent holder has the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States, or importing the protected invention into the United States. Whoever performs any one of these five acts during the term of the invention’s patent, without the patent holder’s authorization, is liable for infringement. To prevent the violation of any right secured by a patent, the Patent Act provides that a federal court “may grant injunctions in accordance with the principles of equity.”
Trial Court Proceedings
Although the jury returned a verdict finding that eBay had willfully infringed MercExchange’s patent, the U.S. District Court for the Eastern District of Virginia refused to issue an injunction against eBay, after determining that 1) monetary damages would be an adequate remedy at law, 2) MercExchange would not be irreparably harmed in the absence of an injunction, 3) the balance of hardships fell slightly in eBay’s favor; and 4) the public interest would not necessarily be furthered in this case, because MercExchange “does not practice its patents” and “exists merely to license its patented technology to others.”
Federal Circuit Court Proceedings
On appeal, the Federal Circuit unanimously affirmed the jury’s verdict on the finding of infringement. However, the appellate court ruled that MercExchange was entitled to an injunction to prevent further infringement by eBay, finding inadequate the district court’s reasons for refusing to issue an injunction. According to the Federal Circuit, “[b]ecause the right to exclude recognized in a patent is but the essence of the concept of property, the general rule is that a permanent injunction will issue once infringement and validity have been adjudged.”
U.S. Supreme Court Proceedings
In May 2006, the Supreme Court unanimously vacated the Federal Circuit’s judgment and remanded the case to the district court for further proceedings consistent with the Court’s opinion in this case. Although the Court noted that “we take no position on whether permanent injunctive relief should or should not issue in this particular case,” the Court clarified that the traditional principles of equity that govern issuance of injunctive relief “apply with equal force to disputes arising under the Patent Act,” thus dispelling any notion that patent disputes are subject to different standards than those applicable to cases arising under other areas of law.
The Court explained that neither of the lower courts had “fairly” applied the traditional equitable principles in determining whether injunctive relief should issue in this case. The district court had erred by improperly suggesting that injunctive relief was categorically unavailable in cases where patent holders only license their patents rather than commercialize the invention themselves. On the other hand, the Federal Circuit was incorrect in pronouncing a rule, unique to patent cases, that strongly favored injunctions when infringement has been adjudged.
Two concurring opinions, written by Chief Justice Roberts and Justice Kennedy, reveal an apparent disagreement among the justices. Roberts’ concurring opinion, joined by Justices Scalia and Ginsburg, predicted that injunctive relief will likely continue to be the usual remedy for patent infringement, consistent with the “long tradition of equity practice.” The justices cautioned that a major departure from the long tradition of equity practice should not be lightly implied. Courts have granted injunctive relief in the vast majority of patent cases, they explained, due to the difficulty of protecting a patentee’s right to exclude others from using the invention through monetary damages.
While agreeing with Chief Justice Robert’s concurrence that “history may be instructive” in applying the four-factor test when the circumstances of a patent case are similar to those of earlier cases, Justice Kennedy’s concurring opinion, joined by Justices Stevens, Souter, and Breyer, suggested that historical practice might not necessarily be helpful for courts to follow when dealing with some patent infringement suits in the current business environment. Citing the FTC’s 2003 IP Report, Justice Kennedy noted the development of a business model in which non-practicing entities obtain patents primarily to garner license fees, not to practice the inventions. “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.” In addition, Justice Kennedy suggested that situations in which the patented invention is “but a small component of the product the companies seek to produce” may also be inappropriate for injunctive relief because “the threat of an injunction is employed simply for undue leverage in negotiations.”
|“||[T]rial courts should bear in mind that in many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases.”||”|
Justice Kennedy acknowledged the emergence of patent holding companies and their impact on patent litigation today:
|“||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. . . . 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.||”|
eBay v. MercExchange II
After remand eBay argued that new patents implemented by the company have halted infringement of the MercExchange patent (one such change is the "Buy It Now" feature that allows a user to buy an item for a set price without bidding). The U.S. District Court in Norfolk, Virginia held that eBay had willful willfully infringed MercExchange's patent. However, court refused to grant a permanent injunction and granted partial stay to eBay.
- MercExchange’s patent “pertains to a system for selling goods through an ‘electronic network of consignment stores.’” MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1323, 1327 (Fed. Cir. 2005).
- 35 U.S.C. §154(a)(1). However, there is no statutory requirement that a patentee make, use, or sell its invention. Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1547 (Fed. Cir. 1995)(full-text).
- 35 U.S.C. §271(a).
- Id. §283.
- 275 F. Supp. 2d 695, 714-15 (E.D. Va. 2003).
- Id. at 712.
- 401 F.3d 1323, 1329 (Fed. Cir. 2005).
- Id. at 1339.
- Id. at 1338 (citation and internal quotations omitted).
- 547 U.S. 388 (2006).
- Id. at 394.
- Id. at 391. Justice Thomas, the author of the Court’s opinion, noted that this observation finds express statutory support in the Patent Act, which states that district courts “may” issue injunctions “in accordance with the principles of equity.” 35 U.S.C. §283.
- Id. at 395 (Roberts, C.J., concurring).
- Id. at 395 (Roberts, C.J., concurring) (explaining that the "long tradition of equity practice is not surprising, given the difficulty in 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.”).
- Federal Trade Commission, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, ch. 3, at 38-39 (Oct. 2003) (full-text).
- eBay, 547 U.S. at 396 (Kennedy, J. concurring).
- Id. at 396 (Kennedy, J., concurring).
- Id. at 396-97.