In a significant victory for the online auction giant, the U.S. Supreme Court ruled Monday that eBay may continue to offer the Buy It Now service even though two courts have determined it infringes on patents held by MercExchange.
The justices did not disagree with the infringement decision, but said courts are not obligated to issue automatic injunctions in patent-infringement cases.
"The decision to grant or deny such relief is an act of equitable discretion, reviewable on appeal for abuse of discretion," the courts said.
Large technology companies have long argued that the threat of a permanent injunction puts a loaded gun to their heads to settle patent infringement claims, no matter how frivolous.
The Monday unanimous decision does not, however, preclude a permanent injunction against eBay. Instead, the court ruled only on the narrow question of whether judges must issue a permanent injunction after a finding of patent infringement.
"We take no position on whether permanent injunctive relief should or should not issue in this particular case, or indeed in any number of other disputes arising under the Patent Act," Justice Clarence Thomas wrote in the decision.
Specifically, the court vacated a 2005 decision by a U.S. Appeals Court ordering a permanent injunction against eBay's Buy It Now feature.
The Falls Church, Va.-based MercExchange won that decision after a district court in 2003 decided eBay infringed on MercExchange's system for fixed-price sales over the Internet.
The district court awarded damages of almost $30 million but refused to grant a permanent injunction against eBay.
The appeals court ruled the injunction should have been automatically issued by the district court.
Underscoring that the issuance of a permanent injunction is a matter of judicial discretion, Thomas wrote, "Just as the district court erred in its categorical denial of injunctive relief, the court of appeals erred in its categorical grant of such relief," Thomas wrote.
The case now goes back to district court to again determine if a permanent injunction is justified in the dispute.
"We are extremely gratified by the Supreme Court's unanimous decision," Jay Monahan, eBay's deputy general counsel for intellectual property, said in a statement. "The trial judge originally found in this case that money was sufficient, and denied an injunction."
Monahan said eBay was "confident that when the district court revisits this issue, particularly in light of the ongoing re-examination of the patents, that the result will be the same."
MercExchange, which has been involved in litigation with eBay since 2001, also issued a statement predicting victory in the district court.
"MercExchange is pleased that the Supreme Court has ordered the district court to reconsider MercExchange's request for an injunction to force eBay to stop infringing MercExchange's valid patent," MercExchange said in an email statement to internetnews.com.
"We are confident that the district court, when it fairly applies the traditional principles of equity set forth in the Supreme Court's opinion, will grant the injunctive relief to which MercExchange is Entitled," the statement added.
The Business Software Alliance (BSA), which has supported eBay in the case, also issued a statement claiming victory for "innovation and for consumers, and a defeat for patent trolls and others who are abusing the legal system."
In a teleconference with reporters, BSA lawyer Emery Simon stressed that the BSA "has never argued that injunctions shouldn't be available. What we objected to is doing it automatically."
Thomas wrote that both the district and appeals court failed to apply traditional legal tests applied by courts of equity when considering a permanent injunction.
To win a permanent injunction, Thomas wrote, requires proving irreparable harm and that financial remedies do not compensate for the injury. In addition, the court said plaintiffs must prove a remedy in equity is warranted given the "balance of hardships" between plaintiffs and defendants.
Finally, Thomas wrote, patent plaintiffs must prove the public interest would not be harmed in issuing a permanent injunction.
"Although the district court recited the traditional four-factor test, it appeared to adopt certain expansive principles suggesting that injunctive relief could not issue in a broad swath of cases," Thomas wrote.
In that case, the lower court determined that money alone would heal MercExchange. The appeals court, however, said the law dictates that a permanent injunction be issued once infringement and invalidity are established, except in cases of public safety.
The Patent Act does not require permanent injunctions, but it expressly states that courts "may grant injunctions in accordance with the principles of equity."
"Because we conclude that neither court…correctly applied the traditional four-factor framework that governs the award of injunctive relief, we vacate the judgment of the court of appeals, so that the district court may apply that framework in the first instance," Thomas wrote.
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