Intellectual Property Law

Automatic Injunctions in Patent Cases must Conform to a Four-Prong Equitable Test.

By IBLS Editor

eBay v. MercExchange seven-year-patent dispute is finally over.  Ebay has bought two patents that MercExchange alleged it owned and for which MercExchange accused eBay of patent infringement.  The financial terms of the settlement were not disclosed. MercExchange sued eBay for patent infringement in 2001 and after lengthy court battles, a jury ruled in favor of MercExchange in 2003 and provided a US$30 million ruling against eBay.  eBay appealed this judgment and now, before any other subsequent appeal, eBay settled the case and offered to buy the two patents on dispute.  Even though this case constituted another ordinary case on patent infringement, its relevance is found on the issue of ?automatic? permanent injunction for online patent cases.  This question went to the Supreme Court of the United States (?US?) which rendered an important decision on this point.  This article provides an overview of this renowned e-commerce patent case and US decision on permanent injunction for patent cases.

MercExchange obtained a patent from the United States Patent Office (?USPO?) on a business model used by online auctions.  The model included options like ?buy now at a set price.?  A couple of years later, eBay used and commercialized a ?Buy it Now? feature.  Then, MercExchange sued eBay for patent infringement by using the ?Buy it Now? feature that resembled MercExchange?s online action patents. 

A Jury ruled in favor of MercExchange and granted an award of US$30 million.  eBay appealed and at the same time contested MercExchange granted patents before the USPO.  eBay argued before the USPO that those patents were vague and should not been granted in the first place. 

On appeal, the court affirmed the Circuit court ruling and before any other appeal, eBay settled the case by offering to buy MercExchange?s patents.  This settlement was reached last week and not details have been provided as to the financial part of this settlement. 

Yet, the most important legal precedent obtained from this case is the US Supreme Court?s ruling on the issue of ?automatic? permanent injunction requests in patent disputes.

MercExchange requested an automatic permanent injunction against eBay for the use of its two patents.  This request was denied by the Circuit Judge. The Court of Appeals vacated the Circuit court ruling on the injunction. Then, MercExchange appealed before the US Supreme Court.  

The US Supreme Court vacated the Court of Appeal?s ruling and held that automated injunctions do not make sense and permanent injunctions should be fully analyzed under a fourth-prong test.  Indeed, the Supreme Court held that the proper standard of review for ?automatic? permanent injunctions is the traditional ?four-factor equitable test? and should be applied in all patent cases. 

The four-prong test requires to answer the following questions: ?(1) that the party requesting the injunction has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and the defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.?     

Thus, online patent holders seeking ?automatic? permanent injunctions must make sure their claims positively answer these questions before they file any request for permanent injunction in a patent infringement case.   

Full post as published by IBLS Internet Law Blog on March 17, 2008 (boomark / email).