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Supreme Court decision in eBay case could affect value of patents

On Monday, May 15, 2006, the Supreme Court in eBay Inc. v. Mercexchange LLC, held that whether a patent owner who proves infringement should be granted an injunction must be determined under the standard four-factor test. Those factors are (1) irreparable injury; (2) inadequacy of remedies at law; (3) balancing of hardships; and (4) the public interest. The Court rejected the Federal Circuit's approach that an injunction should be granted where infringement is found absent exceptional circumstances. The unanimous decision was written by Justice Thomas.

Justice Roberts wrote a concurring opinion, joined by Justices Scalia and Ginsburg, noting the tradition of granting injunctions because of the difficulty of protecting a right to exclude by monetary damages, but emphasizing the difference between an entitlement or general rule versus an exercise of discretion limited "according to legal standards."

Justice Kennedy, joined by three others, also wrote a concurring opinion, suggesting that the historical results of granting an injunction almost as a matter of course resulted from application of the four-factor test, but that today, the circumstances are changing. "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." He noted the inequity of a patent covering a small component creating "undue leverage" and noted the prominence of "business method" patents as a new development. He further observed: "The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test."

The ruling may have a significant impact on the value of some patents because injunctions (as opposed to monetary awards) may be more difficult to obtain. The case may also impact the enforcement campaigns conducted by so-called "patent trolls" - entities that exist for the sole purpose of enforcing patents against others and obtaining licensing fees. With injunctions no longer guaranteed, a patent enforcer's ability to extract license fees from other entities may be reduced.

David DeBruin is a partner with Michael Best & Friedrich who practices primarily in intellectual property litigation, patent opinions, ITC actions and intellectual property counseling. Contact him at dldebruin@michaelbest.com or 414.225.2776.

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