The justices told the lower courts to reconsider whether eBay — having been found by a jury to have infringed two MercExchange patents on the method behind the "Buy It Now" feature of its online auction business — should be barred from continuing to use the method.
The decision left the resolution of this dispute uncertain, given the court's insistence that judges must engage in a case-by-case examination of requests for patent injunctions rather than apply one-size-fits-all rules.
In a unanimous opinion by Justice Clarence Thomas, the court said that neither of the lower courts that handled MercExchange's request for an injunction had approached it correctly, despite having reached opposite conclusions.
The Federal District Court in Norfolk, Va., denied MercExchange's request for an injunction on the ground that MercExchange had not itself engaged in "commercial activity" to market its patents. MercExchange, a small company in Great Falls, Va., tried but failed in the late 1990's to raise the capital necessary to market its invention.
After failing to reach agreement with eBay on a license fee, MercExchange filed suit in 2001. It won damages of $25 million but wanted an injunction as well.
The denial of the injunction was wrong, Justice Thomas said, because the court took too categorical an approach in relying on MercExchange's failure to put its patents to practical use. "Some patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves," Justice Thomas said.
But, he continued, the United States Court of Appeals for the Federal Circuit, a specialized court here that handles patent appeals, was also in error for the analysis it applied when it overturned the district court's denial of the injunction. The appeals court invoked what it called the "general rule" that "a permanent injunction will issue once infringement and validity have been adjudged."
Justice Thomas said that in resorting to the general rule, "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."
In patent cases no less than in other kinds of cases, he said, the party seeking an injunction must meet a four-factor test. It must show that it has "suffered an irreparable injury"; that other remedies like monetary damages are inadequate; that an injunction is warranted; and that the public interest "would not be disserved by a permanent injunction."
While the opinion, eBay v. MercExchange, No. 05-130, emphasized that "we take no position" on whether an injunction should eventually be issued, it was clear from a pair of concurring opinions that different justices had different inclinations. In fact, the surface unanimity of the decision could not hide a substantial dispute involving two groups.
One group, composed of Chief Justice John G. Roberts Jr. and Justices Antonin Scalia and Ruth Bader Ginsburg, noted in a concurring opinion by the chief justice that "from at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases." Consequently, courts approaching this issue were not "writing on an entirely clean slate," Chief Justice Roberts said.
The thrust of this concurring opinion was that denial of an injunction should be an unusual, even rare outcome of a case like MercExchange's.
But the other group of justices said that history was not necessarily a reliable guide in the new business climate of today. "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," this group, composed of Justices Anthony M. Kennedy, John Paul Stevens, David H. Souter, and Stephen G. Breyer, said in an opinion by Justice Kennedy.
Justice Kennedy's opinion continued: "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."
Beyond the ruling, there is another source of uncertainty about the case. The Patent and Trademark Office has embarked on a reconsideration of the validity of MercExchange's patents, a process that could take years and produce more litigation.
In a decision in another closely watched case on Monday, the court held that the Ohio taxpayers who had challenged the validity of a tax credit intended to stimulate capital investment by businesses in the state lacked standing to pursue the case in federal court.
The unanimous ruling in DaimlerChrysler Corporation v. Cuno, No. 04-1704, overturned a decision by the federal appeals court in Cincinnati that found the investment tax credit to violate the Constitution by hindering "free trade among the states."
Chief Justice Roberts wrote the opinion, invoking a longstanding doctrine that taxpayers generally may not go to federal court with policy disputes in which they cannot demonstrate a concrete stake.
The case was an appeal by DaimlerChrysler, which received substantial tax breaks under the program for expanding a Jeep assembly plant in a depressed area of Toledo.
Prof. Peter Enrich of Northeastern University School of Law, a lawyer for the plaintiffs, said the case against the tax credits would be refiled in state court, where "rules for citizen standing are far more permissive than those in the federal courts."