I Fought the Law

Justice Kennedy Rocks: Now in Patent Form!

The Supreme Court handed down its decision in eBay v. MercExchange this morning. At issue was whether an injunction should automatically issue upon a finding of patent infringement. The Federal Circuit had established the "general rule" that patent infringement should always be enjoined. The Supreme Court unanimously disagreed, holding 9-0 that the traditional four-factor equitable test for injunctive relief is applicable even in Patent cases.

Justice Thomas delivered the opinion of the Court without much elaboration. Chief Justices Roberts, joined by Justices Scalia and Ginsburg(!), filed a brief concurrence in which he pointed out that the equitable inquiry should be guided by the historical background of patent litigation, and claimed that the long history of injunctive relief following a finding of infringement probably means that infringement will still generally be enjoined (i.e., the four-factor test will usually favor the patentee).

Justice Kennedy, joined by Justices Stevens, Souter, and Breyer, took issue with Roberts' historical approach and laid down some Legal Realism, including some thoughts on patent holding companies (or, less kindly, "patent trolls") (emphasis added):

In cases now arising trial 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. 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. [Citations.] 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. 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. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.

It would have been nice to see this in the opinion of the Court, but I'm glad this approach got at least the four votes. Supreme Court vote counts don't necessarily hold much water in Patent litigation, of course, since the Federal Circuit is notoriously willful and district courts tend to do what they want as well (only to be reversed 50% of the time by the Federal Circuit), but hey. Reading Kennedy's feet-on-the-ground thoughts on patent litigation was a nice way to start the day.

Posted by hb at May 15, 2006 10:30 AM