The Misinterpretation of eBay v. MercExchange and Why: An Analysis of the Case History, Precedent, and Parties

Chapman Law Review Chapman Law Review

Volume 18 Issue 3 Article 5

2015

The Misinterpretation of eBay v. MercExchange and Why: An The Misinterpretation of eBay v. MercExchange and Why: An

Analysis of the Case History, Precedent, and Parties Analysis of the Case History, Precedent, and Parties

Ryan T. Holte

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Precedent, and Parties

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677

The Misinterpretation of eBay

v. MercExchange and Why: An Analysis of the

Case History, Precedent, and Parties

Ryan T. Holte*

ABSTRACT

eBay v. MercExchange, 547 U.S. 388 (2006) is approaching a decade of

citation and, in that time, the landscape for injunctions in patent infringement

cases has changed dramatically. Can revisiting the case give us a better

understanding of how the standards for injunctions should be understood

post-eBay, perhaps in contrast to how they are understood? The purpose of this

article is to extract that detail regarding the eBay injunction denial from

primary sources. This research focuses solely on the injunction issue post-trial

to case settlement. The article next assesses the impact of eBay on district

courts, inventors, news stories, intellectual property investors, and others over

the last decade. Finally, based in part on a review of court opinions considering

permanent injunctions since eBay, and court citations to eBay’s concurring

opinions by Chief Justice Roberts and Justice Kennedy, the article argues that

the case has largely been misinterpreted by district courts and others for

various reasons including: improper reliance on Justice Kennedy’s concurrence;

misleading media coverage; eBay’s public relations efforts to spin media

attention in its favor; a district court judge generally biased against patent

owners and uniquely concerned with the wide disparities between the parties,

the motives of MercExchange, and the vast consequences an injunction may

bring against the world’s largest auction marketplace; and the fact that the case

settled after the district court’s second denial of an injunction but before the

Federal Circuit could revisit the issues. The article concludes by emphasizing

that eBay should be cited for what the Court actually held, and not for how the

case has been (mis)interpreted these last ten years.

* Assistant Professor of Law, Southern Illinois University School of Law. Many

thanks to the Chapman University Dale E. Fowler School of Law for its support in writing

this Article and inviting me to be a participant in its 2015 Non-practicing IP Enforcement

Entities Law Review Symposium. For comments on earlier drafts, thanks to the

participants in the Chapman Symposium panel, Samuel Ernst, Robin Feldman, Bryan

Frye, and Amy Landers; the Southern Illinois University School of Law and University of

Kentucky School of Law faculty for inviting me to workshop this paper; and Jennifer

Brobst, Eric Claeys, Camilla Hrdy, David Kelly, Peter Lee, George Mocsary, Adam

Mossoff, Andrew Pardieck, Nicholson Price, Mark Schultz, Chris Seaman, Ted Sichelman,

Greg Stillman, John Whealan, and Tom Woolston. Finally, many thanks to my wife

Jessica for her support and comments and Michael Morthland for the excellent research

assistance. Comments welcome at ryan.holte@gmail.com.

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678 Chapman Law Review [Vol. 18:3

CONTENTS

INTRODUCTION ......................................................................... 679

I. EBAY V. MERCEXCHANGE BEFORE AND AT THE SUPREME

COURT............................................................................. 683

A. eBay v. MercExchange at the District Court—

Trial and Initial Permanent Injunction Request

Denied ...................................................................... 683

B. eBay v. MercExchange at the Federal Circuit—

Initial Appeal; Reverse and Remand of the

District Court Injunction Denial ............................ 688

C. eBay v. MercExchange at the Supreme Court—

Reversal of the Federal Circuit and District

Court ........................................................................ 690

1. Parties with Interest and Briefing .................... 691

2. Supreme Court Oral Argument ......................... 696

3. Supreme Court Opinion and Two

Concurrences ...................................................... 699

4. Media Attention During and After Supreme

Court Appeal ...................................................... 703

II. EBAY V. MERCEXCHANGE AFTER THE SUPREME COURT ....... 705

A. eBay v. MercExchange in Further Proceedings

Before the District Court ........................................ 706

1. Additional District Court Proceedings Before

Reconsideration of the Injunction ...................... 706

2. District Court Injunction Oral Argument ......... 708

3. The District Court’s Second Denial of a

Permanent Injunction ........................................ 710

4. Judge Friedman and Other Patent Cases ......... 714

5. Procedural Notes and Press Before Second

Federal Circuit Appeal ....................................... 715

B. Second Appeal to the Federal Circuit and

Settlement ............................................................... 716

III.WHAT THE EBAY V. MERCEXCHANGE OPINION HAS COME

TO MEAN ......................................................................... 718

A. Fewer Permanent Injunctions Granted Post-

eBay ......................................................................... 719

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B. Courts Improperly Using Justice Kennedy’s

Concurrence as Precedent ...................................... 721

C. Public Perception of Patent Injunctions Post-

eBay: No Injunctions Allowed ................................. 723

IV.MISINTERPRETATION OF EBAY V. MERCEXCHANGE AND

WHY ................................................................................ 726

A. The Holding of eBay’s Unanimous Majority

Opinion Has Been Lost ........................................... 726

B. The eBay v. MercExchange Dispute Had Many

Complications Resulting in Bad Precedent for

Patent Injunctions .................................................. 728

C. Who Has Won and Lost in the eBay Confusion ..... 731

CONCLUSION ............................................................................ 732

INTRODUCTION

In the landmark Supreme Court decision, eBay

v. MercExchange,

the Court changed the standards for granting

permanent injunctions in patent cases. The opinion dramatically

altered the landscape of patent litigation,

ending the practice of

near-automatic granting of injunctions to successful patent

owners.

There have been voluminous writings about all aspects

of the eBay decision, but the particular details of the case and its

procedural posture before the Supreme Court have gone largely

unexplored by commentators and lawyers. It is important to ask

whether the eBay Court’s radical change to remedies law in

eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).

DOUGLAS C. LAYCOCK, MODERN AMERICAN REMEDIES: CASES AND MATERIALS 427

(4th ed. 2010) (“By early May 2010 [only four years after the opinion was issued], eBay

had been cited more than 4,100 times. Before eBay, courts presumed irreparable injury in

intellectual property cases on the ground that damages in such cases are notoriously

difficult to measure. Now courts are split on whether any such presumption is

permissible.”); Mark P. Gergen et al., The Supreme Court’s Accidental Revolution? The

Test for Permanent Injunctions, 112 COLUM. L. REV. 203, 205 (2012) (“U.S. law has, it

seems, entered a new world of injunctive relief in which the . . . language of eBay is

king.”); see also id. at 206 (noting the far-reaching eBay case impact to control even the

United States national healthcare reform act enforceability, and detailing how the

“government argued that a district court’s declaratory judgment that the act is

unconstitutional should not be deemed immediately effective without a holding that the

eBay test was satisfied”).

See infra Part III. A sampling of district court permanent injunction decisions

between May 2003 and May 2005, just prior to eBay, revealed between 94% and 100% of

patentee motions for injunctions granted. In the most recent and comprehensive study of

the 217 district court permanent injunction decisions post-eBay, Professor Chris Seaman

finds permanent injunctions were granted in only 72.8% of cases where the parties

contested the issue. Where parties were not market competitors, injunctions were granted

in only 21.6% of cases (8 of 37 cases), and where the patentee was an NPE, injunctions

were granted in only 16.0% of cases (4 of 25 cases)—a 78% to 84% drop post-eBay. Id.

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680 Chapman Law Review [Vol. 18:3

patent jurisprudence was effected, at least in part, by the

litigation details.

This Article fills the gap in the scholarship by asking some

simple, yet heretofore unanswered, questions about the eBay case

itself. Was there something in particular about the patent owner,

MercExchange, or the litigation that led the Court to break with

past practice? Can revisiting the case and its great impact give

us a better understanding of how the standards for injunctions

should be understood post-eBay, perhaps in contrast to how they

are understood? After scrutinizing the primary sources, this

Article provides what may appear to many patent lawyers and

commentators to be surprising answers. In sum, a close analysis

of the case records reveals that lawyers, judges, and academics

have read eBay incorrectly, which has resulted in an improper

post-eBay change in law governing how injunctions should be

issued against infringers of patents.

The purpose of this Article is to answer the questions posed

above. While much has been written about the likelihood of

obtaining an injunction in patent litigation post-eBay, little

attention has been given to what may have made the case,

parties, or inventions at issue so unique that they became the

basis for the Supreme Court’s complete revision of equitable

remedies doctrine in patent law.

In the words of MercExchange’s

former lead counsel, “Justice is made by the litigants of a

particular case and what they consider to be a reasonable

result.”

Some attention to the particular facts of this case proves

These questions were prompted by an earlier article by the author. That article

presented a case study of MercExchange, L.L.C., a patent assertion entity (“PAE”), as it

rose to prominence from an inventive startup, to litigant against eBay, and finally to

subject of a landmark United States Supreme Court decision. That article described

inventors represented by PAEs and the stories behind their patents; however,

commentators expressed interest in learning more about the injunction issue in

MercExchange’s famous appeal. See generally Ryan T. Holte, Trolls or Great

Inventors: Case Studies of Patent Assertion Entities, 59 ST. LOUIS U. L.J. 1 (2014).

See Susan Decker & Oliver Staley, EBay Agrees to Settle ‘Buy It Now’ Patent

Lawsuit, BLOOMBERG (Feb. 28, 2008, 4:25 PM), http://www.bloomberg.com/apps/news?

pid=newsarchive&sid=aoOIDXjUOi8A (“EBay Inc. . . . agreed to end a lawsuit over its

‘Buy It Now’ sales option in a case that reversed an almost 100-year-old precedent in U.S.

patent law . . . . Before the Supreme Court’s EBay ruling in May 2006, patent owners

almost always received orders to block products. Since then, judges throughout the U.S.

have denied such orders in cases where the patent owner is not a competitor of the

company making the infringing products.”); see also Andrew Beckerman-Rodau, The

Aftermath of eBay v. MercExchange, 126 S. Ct. 1837 (2006): A Review of Subsequent

Judicial Decisions, 89 J. PAT. & TRADEMARK OFF. SOC’Y 631, 632 (2007) (“However, in

2006 in eBay v. MercExchange, the Supreme Court overruled its longstanding precedent.

Although a patent owner, pursuant to statutory patent law, is entitled to monetary

damages for patent infringement, he or she is not entitled to permanent injunctive

relief.”).

Interview with Greg Stillman, Partner, Hunton Williams (July 15, 2014).

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illuminating, as a previous article has shown in a case study of

MercExchange as an alleged “patent assertion entity.”

This Article presents an in-depth case study of eBay with a

focus on the injunction issue as it developed from post-trial to

case settlement. Most people are aware of the basic “case brief”

details of eBay, such as the denial of a permanent injunction

after a jury found eBay to have willfully infringed

MercExchange’s patent,

but this Article explores more deeply

what happened in this case by considering the following

questions: first, were the facts of the case sufficiently different

from previous cases to encourage the Supreme Court to reverse

the Federal Circuit’s practice of issuing injunctions virtually

automatically based on findings of patent infringement; second,

what were the facts and circumstances motivating the district

court’s initial denial of an injunction, and later the Supreme

Court’s review of the injunction as well; and third, what were the

details of the eventual settlement of the dispute prior to

resolution of MercExchange’s second appeal to the Federal

Circuit. It answers these questions by closely examining the

primary sources to piece together the full story, including the

records regarding the denial of the injunction, court transcripts,

court dockets, and interviews with the parties and counsel

involved.

This Article reviews the history of eBay and explains how

and why this hugely important Supreme Court decision has been

widely misunderstood in recent years. Part I provides the

background on the case prior to reaching the Supreme Court,

detailing the actual dispute between MercExchange and eBay,

the jury’s findings of infringement, the district court’s denial of

an injunction, and the Federal Circuit’s reversal of the district

court’s decision. Part I then goes on to discuss the briefing and

proceedings before the Supreme Court and resulting May 2006

opinion remanding the case to the district court with two

separate concurrences by Chief Justice Roberts and Justice

Kennedy. Part II reviews the case proceedings after the Supreme

Court remand to the Eastern District of Virginia, which denied

MercExchange an injunction against eBay for a second time,

followed by further appellate proceedings at the Federal Circuit

Holte, supra note 4, at 1.

MercExchange, L.L.C. v. eBay, Inc., 500 F. Supp. 2d 556, 559–60 (E.D. Va. 2007)

(“On appeal, the Federal Circuit affirmed the damages award for the ’265 patent, reversed

the ’176 damages, finding such patent invalid based upon obviousness . . . .” (citing

MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1323 (Fed. Cir. 2005))); see also id. at 560

(“Accordingly, the [Supreme] Court ordered that the ’265 injunction dispute be remanded

to [the district] court . . . .”).

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before the case finally settled in February 2008. Part III reviews

what eBay v. MercExchange has come to mean to district courts,

the Federal Circuit, inventors, the media, intellectual property

investors, and others in the decade since the Supreme Court’s

opinion. This includes discussion of how injunction grants have

gone from pre-eBay rates of 94%–100% to post-eBay rates of 73%

for all patent owners and 16% for patentees that do not practice

the patents they own.

Part III further includes how courts are

routinely using Justice Kennedy’s concurrence as the law in

analyzing patent injunctions and how the public perception of

patent infringement post-eBay is that injunctions are no longer

allowed for non-practicing patentees. Finally, Part IV contrasts

the application of the new injunction standard, described in Part

III, with what the unanimous eBay opinion actually held. Based

in part on surveys of how courts and others have understood the

new injunction standards, as well as the detailed analysis of the

eBay case record, this Article concludes that eBay has been

misinterpreted by trial courts and others for a variety of reasons.

These reasons include: courts improperly following Justice

Kennedy’s concurrence as precedent; incorrect media attention

on the case; eBay’s marketing and public relations efforts to spin

media attention in its favor; the district court judge being

generally biased against patent owners and uniquely concerned

with the wide disparities between the parties, the motives of

MercExchange, and the vast consequences an injunction may

bring against the world’s largest auction marketplace; and case

settlement timing depriving the Federal Circuit of ruling on the

case after the district court’s second denial of an injunction on

remand. This Article concludes by exploring what parties have

won and lost in the eBay confusion and emphasizes that the eBay

opinion should be cited for what it actually holds, not how it has

been misinterpreted. As stated recently by a district court

denying a motion to stay an injunction and emphasizing the

importance of equitable remedy options for patent holders:

[while] less well-remembered than its criticism of the Federal Circuit,

eBay’s criticism of the district court[] . . . was just as

pronounced . . . . [W]hether for Thomas Edison and his light bulb

patents or [a patent holder today] and its off-the-shelf purchase, the

exclusive rights under 35 U.S.C. § 271 are the same; that period of

exclusivity never comes back.

See infra Part III.

Sealant Sys. Int’l, Inc., v. Tek Global, S.R.L., No. 5:11-cv-00774-PSG, 2014 LEXIS

146443, at *17 (N.D. Cal. Oct. 13, 2014) (emphasis added) (order denying motion to stay

injunction, denying motion to extend injunction sunset period, and granting motion to

modestly modify injunction).

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I. EBAY V. MERCEXCHANGE BEFORE AND AT THE SUPREME COURT

A. eBay v. MercExchange at the District Court—Trial and

Initial Permanent Injunction Request Denied

The dispute between eBay and MercExchange began in 2001

after communications between the parties regarding the sale of

MercExchange’s patents broke down.

MercExchange filed suit

against eBay for patent infringement on September 26, 2001, in

the U.S. District Court for the Eastern District of Virginia.

The

three patents asserted by MercExchange, U.S. Patent Nos.

5,845,265 (“the ’265 patent”), 6,086,176 (“the ’176 patent”), and

6,202,051 (“the ’051 patent”), all related to business methods for

trusted Internet sales of used goods (eBay’s “Buy It Now”

feature).

Before trial, the district court judge, Jerome B.

Friedman, granted summary judgment in favor of eBay on the

’051 patent, finding it invalid for lack of written description.

Accordingly, trial proceeded on MercExchange’s ’265 and ’176

patents.

The five-week jury trial concluded on May 27, 2003.

[The] jury found that eBay had willfully infringed [12] claims . . . of

the ’265 patent and had induced [a co-defendant] to infringe [4]

claims . . . of the ’265 patent; that [another co-defendant subsidiary of

eBay]

had willfully infringed [12] claims . . . of the ’265 patent and

[12] claims . . . of the ’176 patent; and that neither the ’265 patent nor

the ’176 patent was invalid.

Concerning damages, the jury found eBay and its subsidiary

liable for $29.5 million.

Holte, supra note 4, at 29.

MercExchange, L.L.C. v. eBay, Inc., 275 F. Supp. 2d 695 (E.D. Va. 2003), aff’d in

part, rev’d in part, 401 F.3d 1323 (Fed. Cir. 2005), vacated and remanded, 547 U.S. 388

(2006). The original suit was filed against eBay, Half.com, and ReturnBuy. Half.com is a

subsidiary of eBay, and prior to trial ReturnBuy filed for bankruptcy and entered into a

settlement agreement with MercExchange. MercExchange, L.L.C. v. eBay, Inc., 401 F.3d

1323, 1326 (Fed. Cir. 2005), vacated and remanded, 547 U.S. 388 (2006) (“Prior to [the

district court] trial, ReturnBuy filed for bankruptcy and entered into a settlement

agreement with MercExchange.”).

Gregory d’Incelli, Has eBay Spelled the End of Patent Troll Abuses? Paying the

Toll: The Rise (And Fall?) of the Patent Troll, 17 U. MIAMI BUS. L. REV. 343, 353 (2009)

(“The eBay case involved a claim by MercExchange—the owner of a business method

patent for an electronic market designed to facilitate sale of goods among private

citizens—that eBay was violating its patent.”).

MercExchange, 401 F.3d at 1336–37.

Holte, supra note 4, at 29.

Tim Eaton, EBay Acquires Half.com, CBSMARKETWATCH.COM (June 13, 2000,

8:00 PM), http://www.marketwatch.com/story/ebay-buys-halfcom (“EBay said Tuesday it

will buy Half.com for up to $374 million in stock, adding a fixed-price service to the online

auctioneer’s business.”).

MercExchange, 401 F.3d at 1326.

Id. The jury found eBay liable for $10.5 million for their infringement and

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After trial, Judge Friedman decided ten post-trial motions

and described the case as “one of the more, if not the most,

contentious cases that [his] court [had] ever presided over.”

Included in those motions, and the focus of this Article, was

MercExchange’s Motion for Entry of a Permanent Injunction

Order.

In its “Brief in Support of Motion for Entry of a

Permanent Injunction Order,” citing numerous Federal Circuit

decisions, MercExchange asserted “permanent injunctions are

typically entered after a patent owner prevails on the merits.”

MercExchange went on to say:

The injunction creates a property right and leads to negotiations

between the parties. A private outcome of these negotiations - whether

they end in a license at a particular royalty or in the exclusion of an

infringer from the market - is much preferable to a judicial

guesstimate about what a royalty should be. The actual market beats

judicial attempts to mimic the market every time, making injunctions

the normal and preferred remedy. . . . In fact, it would be contrary to

the maxims of property law to deny MercExchange its fundamental

and statutory right to exclude now that the infringement has been

adjudged.

MercExchange further cited a District of New Jersey case

that listed the four equitable factors courts should consider

before issuing an injunction

and generally discussed each factor

$5.5 million for inducing ReturnBuy to infringe the patent. The jury also held Half.com

liable for $19 million for infringement, totaling $35 million for willfully infringing the

plaintiff’s patents. However, following the verdict, eBay moved to set aside the

$5.5 million award for inducing ReturnBuy to infringe the patent. The district court

granted eBay’s motion to set aside the damages award for inducement of infringement. Id.

MercExchange, L.L.C. v. eBay, Inc., 275 F. Supp. 2d 695, 698–99 (E.D. Va. 2003),

aff’d in part, rev’d in part, 401 F.3d 1323 (Fed. Cir. 2005), vacated and remanded, 547

U.S. 388 (2006).

Plaintiff MercExchange, L.L.C.’s Brief in Support of Motion for Entry of a

Permanent Injunction Order, in III Joint Appendix at 927, 927, eBay Inc.

v. MercExchange, L.L.C., 547 U.S. 388 (2006) (No. 05-130), 2006 WL 236431, at *927.

Id. at 932, 936 (“Based on the jury’s verdict of infringement, it is presumed that

the continued infringement causes MercExchange irreparable harm. . . . ‘In matters

involving patent rights, irreparable harm has been presumed when a clear showing has

been made of patent validity and infringement.’. . . ‘[T]his presumption derives in part

from the finite term of the patent grant, for patent expiration is not suspended during

litigation, and the passage of time can work irremediable harm.’” (quoting Richardson v.

Suzuki Motor Co., 868 F.2d 1226, 1246–47 (Fed. Cir. 1989))); see also id. at 932

(“Infringement having been established, it is contrary to the laws of property, of which the

patent law partakes, to deny the patentee’s right to exclude others from use of his

property . . . It is the general rule that an injunction will issue when infringement has

been adjudged, absent a sound reason for denying it.” (citing Richardson, 868 F.2d at

1246–47)).

Id. at 933.

Id. at 934 (“The Boehringer court stated that it should consider the equities

of: (1) whether the patentee would be irreparably harmed without an injunction;

(2) whether the patentee had an adequate remedy at law; (3) whether granting the

injunction was in the public interest; and (4) whether the balance of hardships favored an

injunction.” (citing Boehringer Ingelheim Vetmedica, Inc. v. Schering-Plough Corp., 106

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as it related to the parties and case.

Finally, regarding the case

equities, MercExchange noted that “representatives of eBay have

already stated that the trial was only ‘Round One’ of an ongoing

battle in an attempt to overwhelm the substantially smaller and

under-funded MercExchange.”

In response, eBay’s district court opposition brief cited three

reasons why MercExchange’s request for injunction was

inappropriate. First, eBay argued that “MercExchange’s

proposed injunction [was] vague and overly broad, [and]

impermissibly seeks to restrain lawful-and

non-infringing-activity.”

Second, eBay contended that

“MercExchange’s proposed injunction fails to provide sufficient

guidance for design-around and contempt purposes . . . which

would bury the Court with computer source code, engineering

documents, and claim charts for over a decade.”

Finally, eBay

disagreed with MercExchange’s assertions that an injunction was

“automatic,” disagreed that the equities weighed in favor of

issuing an injunction, and argued that “MercExchange can be

adequately compensated by damages.”

Regarding the equities of an injunction, eBay cited an

Eastern District of Virginia case requiring the four traditional

equitable principles to be considered.

Regarding the first

equitable factor, whether MercExchange would be irreparably

harmed, eBay argued that the infringement was more than a

“close call”

and listed four points. First, eBay asserted that it

did “not practice any claims of the #265 and #176 patents, or

F. Supp. 2d 696, 700–01 (D. N.J. 2000))).

Id. at 935–40.

Id. at 938 (“Moreover, post-verdict conduct by eBay and Half.com demonstrates

that the infringement continues unabated. In fact, representatives of eBay have already

stated that the trial was only ‘Round One’ of an ongoing battle in an attempt to

overwhelm the substantially smaller and under-funded MercExchange. Without an

injunction, defendants' efforts may ultimately exhaust MercExchange's resources, thus

permitting it to prevail notwithstanding its wanton and willful infringement of

MercExchange's property rights.”).

Defendant’s Opposition to Plaintiff MercExchange, L.L.C.’s Brief in Support of

Motion for Entry of a Permanent Injunction Order, in III Joint Appendix at 982, 988,

eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (No. 05-130), 2006 WL 236431, at

*988.

Id.

Id. at 989.

Id. at 1009 (“The Court should not, however, merely rubber-stamp the jury’s

verdict with an injunction, as MercExchange suggests. The Court must instead consider

and weigh the equities of the case, including: (1) whether MercExchange would be

inseparably [sic] harmed if the injunction does not issue; (2) whether MercExchange has

an adequate remedy at law; (3) whether granting the injunction is in the public interest;

and (4) whether the balance of hardships tips in the plaintiffs’ favor.” (citing Odetics, Inc.

v. Storage Tech. Corp., 14 F. Supp. 2d 785, 794–97 (E.D. Va. 1998))).

Id. at 1011.

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686 Chapman Law Review [Vol. 18:3

encourage any one else to do so.”

eBay maintained “an

injunction would be inappropriate because there will be no threat

of future infringement.”

Second, eBay argued “the evidence

from trial was clear that MercExchange is willing to license or

sell its patents, such that it can be adequately compensated for

any allegedly continuing use. Such licenses weigh against, and in

fact rebut, any irreparable harm . . . .”

Third, eBay noted media

comments from MercExchange’s inventor, Tom Woolston, stating,

“[I]t is not our goal to enforce these patents, we want to sell off

our Intellectual Property rights,”

and MercExchange’s counsel’s

statement, “It’s not our goal to put eBay out of business. It’s our

goal to provide just compensation for the patent owner.”

Lastly,

eBay asserted the evidence at trial made clear MercExchange’s

inventor “utterly failed at all attempts to commercialize and

build his alleged inventions, and the only benefit his company

receives from the patents-in-suit is licensing revenue.”

Judge Friedman issued his order and opinion denying

MercExchange’s permanent injunction request on August 6,

2003.

Judge Friedman acknowledged “the grant of injunctive

relief against the infringer is considered the norm”; however,

issuance of an injunction is governed by “traditional equitable

principles.”

Judge Friedman then went through discussion of

the four equitable factors noted in both MercExchange and

eBay’s briefs.

Regarding the first factor, whether MercExchange would

face irreparable injury if an injunction did not issue, Judge

Friedman noted a “clear showing of [patent] validity and

Id. at 1013.

Id.

Id. at 1014 (citation omitted); Ina Steiner, eBay-Contested MercExchange Patents

Are on the Block, ECOMMERCEBYTES.COM (May 30, 2003), http://www.ecommerce

bytes.com/cab/abn/y03/m05/i30/s01 (“When asked if he would go after small niche sites in

the auction industry, Woolston said, ‘it is not our goal to enforce these patents, we want to

sell off our Intellectual Property rights.’”).

Defendant’s Opposition to Plaintiff MercExchange, L.L.C.’s Brief in Support of

Motion for Entry of a Permanent Injunction Order, supra note 2620, at 1014 (“We are

seeking reasonable royalties as permitted under the patent laws,’ Robertson said. ‘It’s not

our goal to put eBay out of business. It’s our goal to provide just compensation for the

patent owner.” (quoting Troy Wolverton, Patent Suit Could Sting eBay, CNET (Sept. 5,

2002, 4:00 AM), http://news.cnet.com/Patent-suit-could-sting-eBay/2100-1017_3-9566

38.html)).

Id. at 1015.

MercExchange, L.L.C. v. eBay, Inc., 275 F. Supp. 2d 695 (E.D. Va. 2003), aff’d in

part, rev’d in part, 401 F.3d 1323 (Fed. Cir. 2005), vacated and remanded, 547 U.S. 388

(2006).

Id. at 711 (citing Odetics, Inc. v. Storage Tech. Corp., 14 F. Supp. 2d 785, 788

(E.D. Va. 1998)).

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infringement has been met,” but that “merely establishes a

presumption of irreparable harm.”

He went on, stating:

[T]he evidence of [MercExchange’s] willingness to license its patents,

its lack of commercial activity in practicing the patents, and its

comments to the media as to its intent with respect to enforcement of

its patent rights, are sufficient to rebut the presumption that it will

suffer irreparable harm if an injunction does not issue.

He went on to note MercExchange never motioned for a

preliminary injunction, which “lends additional weight in support

of [eBay’s] arguments that [MercExchange] will not be

irreparably harmed absent an injunction.”

Regarding the second factor, adequate remedy at law, Judge

Friedman stated that MercExchange “has licensed its patents to

others in the past and has indicated its willingness to license the

patents to [eBay] in this case.”

He noted the court was aware

“monetary damages are typically inadequate because it limits the

patent holder from exercising its monopoly power” but that this

particular dispute “[was] certainly an atypical case.”

Regarding the third factor, public interest, Judge Friedman

discussed how the public’s interest in maintaining the integrity

of the patent system favors enjoining an infringer’s activities, but

stated: “[I]n this case[,] where the patentee does not practice its

patents, nor has any intention of practicing its patents[,] . . . the

public does not benefit from a patentee who obtains a patent yet

declines to allow the public to benefit from the inventions

contained therein.”

He further noted “there is a growing

concern over the issuance of business-method patents.”

Finally, regarding the fourth equitable factor, balance of the

hardships, Judge Friedman reasoned that “[w]hile it is important

to respect the rights of the patent holder, in this case, the

plaintiff exists solely to license its patents or sue to enforce its

patents, and not to develop or commercialize them.”

Before

denying MercExchange’s injunction request, he concluded: “If the

court did enjoin [eBay], the court would essentially be opening a

Pandora’s box of new problems. . . . The court envisions contempt

Id. at 711–12.

Id. at 712.

Id.

Id. at 712–13.

Id. at 713.

Id. at 713–14. For a brief discussion of the error in this portion of the district

court’s holding, see Jeremy Mulder, The Aftermath of eBay: Predicting When District

Courts Will Grant Permanent Injunctions in Patent Cases, 22 BERKELEY TECH. L.J. 67, 68

(2007).

MercExchange, 275 F. Supp. 2d at 713.

Id. at 714.

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688 Chapman Law Review [Vol. 18:3

hearing after contempt hearing requiring the court to essentially

conduct separate infringement trials . . . [at] extraordinary costs

to the parties, as well as considerable judicial resources.”

B. eBay v. MercExchange at the Federal Circuit—Initial

Appeal; Reverse and Remand of the District Court Injunction

Denial

Both MercExchange and eBay appealed to the Federal

Circuit on various grounds. The Federal Circuit issued a

seventeen-page opinion on March 16, 2005, addressing the

injunction issue for just over one page.

In reversing the denial

of a permanent injunction, the Federal Circuit did not cite the

four-factor equitable test. Instead, the court began its analysis by

stating: “[T]he general rule is that a permanent injunction will

issue once infringement and validity have been adjudged,”

but

“a court may decline to enter an injunction when ‘a patentee’s

failure to practice the patented invention frustrates an important

public need for the invention,’ such as . . . to protect public

health.”

The court went on to find error with the district court

opinion in four fundamental areas.

First, regarding Judge Friedman’s concern over the issuance

of business-method patents, the Federal Circuit stated,

“A general concern regarding business-method patents . . . is not

the type of important public need that justifies the unusual step

of denying injunctive relief.”

Second, regarding Judge

Friedman’s concerns over multiple future contempt hearings

requiring separate infringement trials if an injunction issued, the

Federal Circuit stated, “A continuing dispute of that sort is not

unusual in a patent case,” but “[this] is not a sufficient basis for

denying a permanent injunction.”

The court went on to note

that even in the absence of an injunction, such disputes would be

likely to continue if MercExchange believed eBay continued to

violate its patent rights.

Third, regarding the district court’s discussion of

MercExchange’s public statements describing willingness to

license the patents at issue, the Federal Circuit stated,

Id.

MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1323 (Fed. Cir. 2005), vacated and

remanded, 547 U.S. 388 (2006).

Id. at 1338 (citing Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1246–47

(Fed. Cir. 1989)).

Id. (quoting Rite–Hite Corp. v. Kelley, Inc., 56 F.3d 1538, 1547 (Fed. Cir. 1995)).

Id. at 1339.

Id.

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“Injunctions are not reserved for patentees who intend to practice

their patents,” and “[i]f the injunction gives [MercExchange]

additional leverage in licensing, that is a natural consequence of

the right to exclude.”

Lastly, regarding Judge Friedman’s

conclusions that MercExchange’s lack of moving for

a preliminary injunction weighed against future rights to a

permanent injunction, the Federal Circuit stated that a

preliminary injunction is an extraordinary relief available on

a special showing of pre-litigation need serving an “entirely

different purpose[]” than a permanent injunction.

The Federal

Circuit concluded its discussion of the injunction issue

holding: “We therefore see no reason to depart from the general

rule that courts will issue permanent injunctions against patent

infringement absent exceptional circumstances.”

There were two additional holdings worthy of note regarding

the Federal Circuit opinion. First, the Court reversed the district

court’s summary judgment finding in favor of eBay on the ’051

patent, vacating the district court’s findings of invalidity and

remanding for further proceedings.

Second, the Federal Circuit

held MercExchange’s ’176 patent claims invalid as anticipated.

The ’176 portion of the damages were $4.5 million.

Interestingly, on the day the Federal Circuit opinion was

published—March 16, 2005—eBay issued a press release stating:

eBay is pleased with today’s decision by the U.S. Court of Appeals

that invalidates one of MercExchange’s patents, and as a result,

throws out all the related damages. Looking forward, we believe that

any injunction that might be issued by the District Court with respect

to the other patent will not have an impact on our business because of

changes we have made following the District Court’s original verdict.

The press release concluded by stating, “We are confident in our

position against MercExchange and do not believe that these

matters will have any impact on our business.”

Id.

Id. (quoting Lermer Ger. GmbH v. Lermer Corp., 94 F.3d 1575, 1577 (Fed. Cir.

1996)).

Id.

Id. at 1337.

Id. at 1335 (discussing the ’176 patent to be invalid as it was enabled and found

that a previous article disclosed each limitation of the asserted claims of the ’176 patent,

“and for that reason [the court held] those claims are anticipated”).

MercExchange, L.L.C. v. eBay, Inc., 275 F. Supp. 2d 695 (E.D. Va. 2003)

(“Accordingly, the Clerk is directed to enter judgment for the plaintiff in the amount of

$29.5 million. This consists of . . . $4.5 million for . . . direct infringement of the ’176

patent.”), aff’d in part, rev’d in part, 401 F.3d 1323 (Fed. Cir. 2005), vacated and

remanded, 547 U.S. 388 (2006).

Press Release, eBay, eBay Statement on U.S. Court of Appeals Ruling in

MercExchange Case (Mar. 16, 2005), available at http://www.businesswire.com/news/

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690 Chapman Law Review [Vol. 18:3

On April 29, 2005, three days after the Federal Circuit

denied eBay’s request for en banc rehearing, eBay petitioned the

Federal Circuit for a stay of its mandate pending a planned writ

of certiorari to the Supreme Court.

Within that pleading, eBay

stated that staying the mandate “is necessary to prevent

irreparable harm to eBay.”

The Federal Circuit granted the

stay of the mandate on May 11, 2005, without opinion.

On May

13, 2005, eBay issued a press release stating: “In granting eBay’s

petition to stay the case, the U.S. Court of Appeals considered

whether there was both a reasonable probability that the

Supreme Court would accept eBay’s appeal and a fair prospect

that the majority of the Supreme Court would reverse one or

more rulings against eBay.”

C. eBay v. MercExchange at the Supreme Court—Reversal of

the Federal Circuit and District Court

eBay filed its petition for writ of certiorari with the Supreme

Court on July 25, 2005.

MercExchange filed its opposition on

September 26, 2005; six amici curiae briefs regarding the petition

for certiorari were also filed by that date.

On November 28,

2005, the Supreme Court granted certiorari on two questions.

First, the question presented by eBay—whether the Federal

Circuit erred in employing the general rule of issuing a

permanent injunction after a finding of infringement. Second,

home/20050316005875/en/eBay-Statement-U.S.-Court-Appeals-Ruling-MercExchange#.V

E1tYYvF-xw.

Order Denying a Combined Petition for Panel Rehearing and for Rehearing En

Banc, MercExchange, L.L.C. v. eBay, Inc. (No. 03-1600), 2005 U.S. App. LEXIS 10220

(Fed. Cir. Apr. 26, 2005) (excerpts from order on file with author); Order Granting Motion

for Stay of Mandate, MercExchange, L.L.C. v. eBay, Inc. (Nos. 03-1600, -1616) (Fed. Cir.

May 11, 2005) (excerpts from order on file with author).

See Order Denying a Combined Petition for Panel Rehearing and for Rehearing

En Banc, MercExchange, L.L.C. v. eBay, Inc. (No. 03-1600), 2005 U.S. App. LEXIS 10220

(Fed. Cir. Apr. 26, 2005) (excerpts from order on file with author); Order Granting Motion

for Stay of Mandate, MercExchange, L.L.C. v. eBay, Inc. (Nos. 03-1600, -1616) (Fed. Cir.

May 11, 2005) (excerpts from order on file with author).

Press Release, eBay, eBay Patent Case Against MercExchange Put on Hold by

U.S. Court of Appeals (May 13, 2005), available at http://www.businesswire.com/news/ho

me/20050513005443/en/eBay-Patent-Case-MercExchange-Put-Hold-U.S.#.VQeX1ItNnKA.

Id.

Petition for Writ of Certiorari, eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388

(2006) (No. 05-130), 2005 WL 1801263.

Brief in Opposition of Writ of Certiorari, eBay, Inc. v. MercExchange, L.L.C., 547

U.S. 388 (2006) (No. 05-130), 2005 WL 2396812.

eBay Inc. v. MercExchange, L.L.C., 546 U.S. 1029 (2005). The Supreme Court did

not invite the Solicitor General’s office “to file an amicus brief setting forth the

government’s views as to whether the Court should grant certiorari in” the case. “Such

invitations, which Supreme Court practitioners refer to as ‘Calls for Views of the Solicitor

General’ or ‘CVSG’ orders, have been an accepted part of Supreme Court practice for

about a half century.” John F. Duffy, The Federal Circuit in the Shadow of the Solicitor

General, 78 GEO. WASH. L. REV. 518, 525 (2010).

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whether the Supreme Court should “reconsider its precedents,

including Continental Paper Bag Co. v. Eastern Bag Company,” a

1908 case containing strong language requiring a near automatic

injunction rule.

Regarding the grant of certiorari in the case,

MercExchange’s CEO and inventor later stated: “[W]hen cert is

granted your case becomes a vessel in which policy gets dumped

into; leaving you as merely a passenger-party to hold on for the

ride.”

1. Parties with Interest and Briefing

The first amici brief in the case was filed on January 17,

2006, by the American Intellectual Property Law Association and

the Federal Circuit Bar Association, in support of neither party.

In all, there were thirty-one amici briefs filed; thirteen in support

of eBay, fourteen in support of MercExchange, and four in

support of neither party. In total, the briefs represented

hundreds of associations, corporations, professors, technology

investors, and inventors.

While a comprehensive review of all amici briefs filed is

impractical, key parties and arguments may help provide insight

into the impact of the case and greater policies at issue.

Beginning with the thirteen briefs in support of eBay, some clear

themes within the arguments are pronounced. First, in a

representative brief filed by Time Warner, Amazon.com,

Chevron, Cisco, Google, IAC, Infineon Tech., Shell Oil, VISA, and

Xerox, amici argued: “[T]he automatic injunction rule grants

patent holders leverage to extract unjust windfalls.”

The brief

went on to contend that the automatic injunction rule encourages

the rise of non-practicing patent litigants and discourages the

eBay, 546 U.S. at 1029; see Cont’l Paper Bag Co. v. E. Paper Bag Co., 210 U.S.

405, 430 (1908) (“From the character of the right of the patentee we may judge of his

remedies. It hardly needs to be pointed out that the right can only retain its attribute of

exclusiveness by a prevention of its violation. Anything but prevention takes away the

privilege which the law confers upon the patentee.”).

Telephone Interview with Thomas Woolston, CEO, MercExchange (July 15, 2014).

Similarly, regarding Supreme Court briefing in the case, John Whealan, deputy general

counsel for intellectual property law and solicitor of the United States Patent and

Trademark Office at the time of eBay, stated: “In most cases everyone has policy issues to

discuss when Solicitor General briefing goes on in a patent case.” Telephone Interview

with John Whealan, Dean for Intellectual Property Law Studies, The George Washington

School of Law (Nov. 3, 2014).

Brief of Am. Intellectual Prop. Law Ass’n and Fed. Circuit Bar Ass’n as Amici

Curiae in Support of Neither Party, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388

(2006) (No. 05-130), 2006 U.S. S. Ct. Briefs LEXIS 90 [hereinafter Brief of Am.

Intellectual Prop. Law Ass’n].

Brief of Time Warner Inc., Amazon.com, Inc., Chevron Corp., Cisco Sys., Inc.,

Google Inc., IAC/Interactive Corp., Infineon Techs. AG, Shell Oil Co., Visa U.S.A., Inc.,

and Xerox Corp. as Amici Curiae in Support of Petitioners at 7, eBay, 547 U.S. 388 (No.

05-130), 2006 U.S. S. Ct. Briefs LEXIS 167, at *13.

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useful innovation that the patent system is intended to promote,

through causing great costs in innovation “that could be spent

more productively on research and development.”

The brief also

noted that smaller companies may waste resources on defensive

patents further reducing funds available for additional research

and development.

In a second representative brief filed in support of eBay by

America Online, Applied Materials, Chevron, Cisco Systems,

Google, Shell Oil, and VISA, amici curiae argued that the

injunctions mandated by the Federal Circuit’s rule “will

exacerbate the growing problem of abusive patent litigation.”

The brief went on to conclude that the abusive litigation will

unnecessarily burden overstretched courts and undermine the

primary goal of the patent system in promoting innovation.

Turning to the fourteen briefs filed in support of

MercExchange, in a representative brief filed by GE, 3M,

Proctor & Gamble, Du Pont, and Johnson & Johnson, amici

argued that they have relied and invested on the presumptive

right to an injunction and “built their respective patent portfolios

in reliance on this bargain.”

Further, in a brief submitted by the

Id. at 17–18, 22 (“Instead, [litigants that do not practice their patents] seek out

companies that have independently developed similar innovations and then either sue

them or extort licenses out of them based upon the threat of suit . . . . The automatic

injunction rule gives such sophisticated professional patent litigants additional leverage

to extract unjust settlements and license fees. The non-practicing patent plaintiff has no

capital investments or technology of its own at stake.”).

Id. at 23 (“[T]he risk of litigation distorts business operations. For smaller firms,

the risk of litigation is a major consideration in deciding whether to engage in research

and development. Aware that they cannot afford the time and expense of patent litigation,

many small companies reduce or alter their research and development efforts. . . . The

research and development decisions of larger companies are affected as well. To avoid

patent litigation, these companies often seek defensive patents that they would not

otherwise prosecute, thereby reducing the funds available for additional research and

development. . . . They also forego pursuing smaller innovations because it is safer to use

old components and processes that are clearly in the public domain or for which they

already own the patents.”).

Brief of Am. Online, Inc., Applied Materials, Inc., Chevron Corp., Cisco Sys., Inc.,

Google Inc., Shell Oil Co., and Visa U.S.A. Inc. as Amici Curiae in Support of Petitioner at

4–5, eBay, 547 U.S. 388 (No. 05-130), 2005 U.S. S. Ct. Briefs LEXIS 2374, at *6–7

(“Of particular concern to amici are those instances in which a court will be compelled to

grant injunctive relief based upon infringement by a minor element of a complex good or

service. Such injunctions can impose enormous costs wholly unrelated to the value of the

patent infringed because they force manufacturers to retool entire complex

processes. . . . The threat of such costs will enable unscrupulous plaintiffs, many of whom

are well-financed and experienced patent litigants, to leverage patents of little or no value

into massive settlements. The automatic injunction rule hands a powerful club to such

litigants, inviting abusive patent litigation.”).

Id. at 5 (“By making otherwise frivolous litigation economically attractive and

escalating the potential recovery in other cases, the rule adopted below will profoundly

exacerbate this problem.”).

Brief for Gen. Elec. Co., 3M Co., Procter & Gamble Co., E.I. Du Port De Nemours

and Co., and Johnson & Johnson as Amici Curiae in Support of Respondent at 15, eBay,

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American Bar Association (“ABA”), the ABA argued “there would

be significant consequences if [the Supreme Court] changes the

current standard for granting injunctions” and “independent

discovery without notice of the patent and a ‘close case of

infringement’ are not viable equitable defenses.’”

The ABA went

on to assert that a change in the general rule would lead to

additional litigation and promote forum-shopping in patent

infringement cases.

Speaking more broadly regarding the patent system, in a

brief submitted by the United Inventors Association, a non-profit

group composed of “local inventor organizations as well as

individual inventors,” amici argued that injunctive relief should

turn on the facts of each case rather than general policy concerns

regarding potential abuse of the patent system.

The ABA brief

reiterated this in stating “Congress has exclusive authority to

establish new equitable defenses that did not exist at common

law.”

Finally, a number of universities submitted a brief in

547 U.S. 388 (No. 05-130), 2006 U.S. S. Ct. Briefs Lexis 331, at *23 (“The Amici made

these detailed disclosures of the fruits of their research and development, rather than

maintaining their inventions as trade secrets, based on their understanding that they

would receive an enforceable right to exclude others from practicing those inventions for

the term of the patent.”).

Brief of Am. Bar Ass’n as Amicus Curiae Supporting Respondent at 10

−

14, eBay,

547 U.S. 388 (No. 05-130), 2006 U.S. S. Ct. Briefs Lexis 342, at *16–21 (“Patent

infringement is a strict liability offense . . . . This Court should not recognize new defenses

in equity where none exists at law. . . . All patent licenses . . . have relied upon the general

rule that a patentee—even one who is merely licensing, or is trying to merely license, his

patented invention—is entitled to a permanent injunction against an adjudicated

infringer. A change in that venerable general rule would have profound, immeasurable

economic consequences on existing and future patent licenses. The judiciary is

ill-equipped to decide whether the public interest would be better served by preserving or

changing that general rule which has provided the economic foundation for patent

licenses for a century or more.”).

Id. at 16–17 (“The real threat of a permanent injunction is a major factor that

currently must be considered in evaluating the risks of continued litigation of any suit for

patent infringement. The risk of a permanent injunction might cease to be a

consideration—especially if this Court were to declare ‘close infringement’ or ‘independent

creation’ viable defenses to an injunction. . . . Permitting district courts to consider a wide

variety of new factors in deciding whether to impose an injunction would also create

incentives for patentees to ‘forum-shop’ and file lawsuits in those jurisdictions where the

bench is thought to favor permanent injunctions against infringers. This would have the

effect of undoing one of the goals for which the Federal Circuit was created, the

elimination of forum-shopping in patent cases.”).

Brief of United Inventors Ass’n and Tech. Licensing Corp. as Amici Curiae in

Support of MercExchange, L.L.C., on the Merits, eBay, L.L.C., 547 U.S. 388 (No. 05-130),

2006 U.S. S. Ct. Briefs Lexis 333, at *4 (“The Amici believe that the ability to obtain

injunctions, whether or not the patent owner is practicing the invention, is important to

the licensing efforts of independent inventors. Such licensing is essential to continued

research and development efforts by inventors across the country and the world.”).

Brief of Am. Bar Ass’n, supra note 77, at 9–10 (“[T]he equitable considerations

advanced by Petitioners are properly addressed to Congress, not to the federal courts.

Congress is best able to evaluate these policy considerations . . . .” (quoting Nw. Airlines,

Inc. v. Transp. Workers Union of Am., 451 U.S. 77, 88 n.41 (1981))).

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favor of MercExchange, and emphasized their role in innovation

by stating the “academic sector drives research and innovation in

the United States . . . . [T]he sector accounted for an estimated

54% of the basic research conducted in this country.”

After

noting their strong interest in the outcome of the case, as

academic amici are similarly situated “non-manufacturing

entities” who license their inventions to the private sector, the

university brief argued that all patentees should continue to have

the same right to permanent injunctive relief.

The final amicus brief in support of MercExchange was filed

by the United States and signed by the Patent and Trademark

Office, Department of Justice, and Solicitor General.

The brief

asserted that: patent injunctions should be issued in accordance

with the four equitable principles; injunctive relief should turn

on the facts of each individual case; and “although the Court of

Appeals did not recite the governing equitable principles, it

correctly concluded that the district court abused its discretion.”

The United States brief concluded that the Supreme Court need

not overrule Continental Paper Bag, because that precedent was

only dicta in the case which “could be read to support an

erroneous rule of automatic or nearly automatic injunction

relief . . . .”

Brief of Wis. Alumni Research Found., Am. Council on Education, Ass’n of Univ.

Tech. Managers, Board of Trs. of the Univ. of Ill., Cal. Inst. of Tech., NDSU Research

Found., Regents of the Univ. of Cal., Research Corp. Techs., Tex. A&M Univ. System’s

Office of Techn. Commercialization, Univ. of Va. Patent Found. and Wash. Research

Found. as Amici Curiae in Support of Respondent at 1, 9, eBay, 547 U.S. 388 (No. 05-130),

2006 U.S. S. Ct. Briefs Lexis 341, at *1, 5–6 (“Making it more difficult for

non-manufacturing entities like universities to obtain permanent injunctions also would

reduce the leverage the academic sector needs to negotiate reasonable licensing

agreements with potential licensees. Limiting injunctive relief similarly would mean that

the academic section could no longer count on the right to exclusive use of an invention

that the availability of an injunction protects. Universities need such certainty to form

and invest in start-up companies built on university inventions.”).

Id. at 2, 11.

Brief for United States as Amicus Curiae Supporting Respondent, eBay, 547 U.S.

388 (No. 05-130), 2006 U.S. S. Ct. Briefs Lexis 327 [hereinafter Brief for United States].

Id. at 23 (“The court of appeals did not recite or explicitly apply the traditional

four-part test that governs the district court's exercise of equitable discretion, but it

properly concluded that the district court abused its discretion by relying on

inappropriate considerations in withholding equitable relief. Because this Court ‘reviews

judgments, not statements in opinions,’ the court of appeals’ judgment should be affirmed,

and the case should be returned to the district court for entry of an appropriately tailored

injunction.”). See generally LAYCOCK, supra note 2 (stating that many amici parties,

including the Solicitor General, referred to some version of the four traditional injunction

factors but “did not all cite the same four factors”).

Brief for United States, supra note 83, at 29–30 (emphasis added) (“The Court's

decision in Continental Paper Bag arguably contains questionable dicta that could be read

to support an erroneous rule of automatic or nearly automatic injunctive relief, but its

central holding is sound. That holding, which the Court has repeatedly endorsed, is

consistent with 35 U.S.C. 283, as well as with the collective experience of the federal

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Turning to the four amici curiae briefs in support of neither

party, two are worthy of discussion. First, the brief of IBM

essentially argued in favor of eBay. IBM began its brief by noting

that the original Patent Act of 1790 only gave patentees a

remedy of monetary damages; the statutory remedy for patent

injunctions was not introduced until 1819. Continuing its focus

on history, IBM went on to argue that in “the 98 years since

Continental Paper Bag, the patent laws and their interpretation

have adapted to changes in technology and business operations,

but the Federal Circuit’s approach in addressing patent

injunctions has become rigid.”

IBM summarized that if an

injunction would cause an infringer to abandon a significant

investment, incur significant additional costs unrelated to

technological merits, or block an infringing product that contains

many thousands of technological elements, that disproportionate

impact should weigh against an injunction.

Finally, the Intellectual Property Law Association and

Federal Circuit Bar Association Brief in Support of Neither Party

argued an explanatory position of the Federal Circuit opinion.

While the brief recognized that the traditional equitable factors

apply, it argued that a patentee is normally entitled to an

injunction under those factors.

In support of the Federal

Circuit’s reasoning, the brief went on to assert three fundamental

points: “the Federal Circuit’s ‘general rule’ correctly recognizes

that patentees lack an adequate remedy at law”; “the Federal

Circuit’s ‘general rule’ has been part of the patent system for

more than a century and a half”; and “the Federal Circuit’s

‘general rule’ is consistent with the analysis applied in other

areas of property law.”

courts in applying the principles of equity to patent disputes.”).

Brief of Int’l Bus. Machs. Corp. as Amicus Curiae in Support of Neither Party at 2,

eBay, 547 U.S. 388 (No. 05-130), 2006 U.S. S. Ct. Briefs Lexis 164, at *11–12.

Id. at 3 (“If an injunction would cause the infringer to abandon a significant

investment or incur significant additional costs unrelated to technological merits of the

invention, that may weigh against a broad injunction. Similarly, where an infringing

product contains many thousands of technological elements, an injunction against a

minor, infringing element could have a disproportionate impact on the infringer by

preventing the marketing of the entire product, an entire product line and/or interrelated

products.”).

Brief of Am. Intellectual Prop. Law Ass’n, supra note 70, at 3 (“The Federal

Circuit's ‘general rule’ that a permanent injunction will normally issue in a patent case

once liability has been established is fully consistent with 35 U.S.C. § 283 and is

well-grounded in the traditional factors governing the issuance of injunctions. The

Federal Circuit’s statement of the ‘general rule’ appropriately recognizes that three of the

traditional injunction factors (irreparable harm, inadequate remedy at law and the public

interest), will normally favor the patentee as a result of the inherently limited nature of

the patent's exclusive right and the strong public policy favoring enforcement of valid

patents.”).

Id. at 10, 19–20.

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Summarizing the amici curiae brief issues the day before

oral argument, the Wall Street Journal stated the following:

[T]o say that this case is about Ebay’s “Buy It Now” feature is like

saying Moby Dick is about a whale. Roughly thirty parties have

submitted briefs to the Supreme Court weighing in on the injunction

issue. Supporting MercExchange and arguing for courts’ strong

injunctive powers are companies fiercely protective of their patents

such as General Electric and Procter & Gamble. Arguing on Ebay’s

side are tech companies such as Intel and Microsoft that hope to give

considerable discretion to the courts in deciding whether to issue

injunctions.

2. Supreme Court Oral Argument

The Supreme Court oral argument was held on March 29,

2006. Carter G. Phillips argued for eBay, Seth P. Waxman

argued for MercExchange, and Jeffrey P. Minear argued for the

United States. To begin the argument, the question framed by

eBay was “whether or not the . . . [Federal Circuit] rule that

declares categorically that three out of the four traditional factors

for deciding . . . injunctive relief will be irrebuttably presumed to

be satisfied whenever a jury has found that a patent is valid and

has been infringed.”

Further, regarding the facts of the case,

eBay’s counsel repeatedly emphasized that “we not only intend to

but have, in fact, implemented a design-around or a work-around

to this particular patent.”

In opposition to the general

argument, MercExchange’s counsel rebutted that “a final

judgment of patent infringement yields an injunction in all but

the very rare case, and that settled regime is not an exception to

traditional equitable principles. It’s an application of those

principles.”

Regarding MercExchange’s factual emphasis before

the Court, MercExchange’s counsel reiterated that

MercExchange

is no patent troll. The founder of MercExchange really did invent this

innovation. He really did . . . spend years of effort trying to build the

system to suit himself . . . . He was [then] asked by eBay in 2000 to

consider selling [the patents] . . . offered to license them . . . and eBay

then stole the technology.

Peter Lattman, Ebay v. MercExchange: Sizing up the Case and Its Lawyers,

WALL ST. J. (Mar. 28, 2006, 6:00 AM), http://blogs.wsj.com/law/2006/03/28/ebay-v-merc

exchange-sizing-up-the-lawyers/.

Transcript of Oral Argument at 3, eBay, 547 U.S. 388 (No. 05-130), available at

http://www.supremecourt.gov/oral_arguments/argument_transcripts/05-130.pdf.

Id. at 17.

Id. at 37.

Id. at 42–43. For a full discussion of the MercExchange invention history, see

generally Holte, supra note 4.

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To summarize the argument, and concerns of the Court, a

few representative questions are worth noting. First, during the

argument, there was much discussion regarding business method

patents. When Chief Justice Roberts pressed the issue of whether

Judge Friedman’s “concern over the issuance of business method

patents . . . [was] appropriate consideration to take into account

in determining whether to grant an injunction,” eBay’s counsel

conceded, “I think probably, at the end of the day, it wouldn’t

be . . . .”

Justice Kennedy came back to this, stating that

business method patents “can be very restrictive” and that if “you

take that [consideration] away, I don’t know if you’ve got a lot left

for . . . saying no injunction in this case.”

Further, regarding specific representative questions by the

Court, Justice Ginsberg emphasized to eBay’s counsel that “[o]ne

of the problems with the district court exercising equitable

discretion without a close review by the Federal Circuit is just

the thing that the Federal Circuit was created to handle . . . . the

Federal Circuit is put there . . . so that you won’t have wide

disparities . . . .”

Regarding inventor control of inventions, Chief

Justice Roberts asked “if I invent something . . . [a] better way to

make a car engine work and I want to sell that to

somebody . . . you’d say that’s not practicing the invention

because I don’t build cars?”

Justice Scalia added, “[W]hy should

I be in better shape, as far as getting an injunction is concerned,

if I produce an automobile engine?” To the engine design

questions, eBay’s counsel replied, “[MercExchange] is not a

competitor in the market. If they were . . . you have a much

better claim to a need to occupy space . . . . [I]f you chose not to

occupy it, it’s not to say that you abandon your right to an

injunction, but that ought to be a legitimate, individualized

consideration . . . .”

There were fewer questions to MercExchange’s counsel

during oral argument—and less time, since part of

MercExchange’s argument was allotted to the government—but

perhaps more factual questions regarding the patent. Concerning

reexamination of the patent-in-suit, Chief Justice Roberts asked,

“Could the district court say, well, the patent office staff has

rejected every claim of this patent, and I’m going to take that into

account in deciding whether to put eBay out of business?”

100

Transcript of Oral Argument, supra note 91, at 14.

Id. at 16.

Id. at 11–12.

Id. at 23.

Id. at 25.

100

Id. at 39. At the time of oral argument, the MercExchange ’265 patent had been

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698 Chapman Law Review [Vol. 18:3

MercExchange’s counsel responded emphasizing that the patent

had been involved in patent office administrative proceedings for

“almost 3 years . . . [without] a final action.”

101

Indeed, earlier in

the argument, the Assistant Solicitor General had explained the

United States Patent and Trademark Office (PTO) office action

process, board of patent appeals processes (BPAI), and then

judicial review, noting how long that took and the likely reversals

after an initial early-stage office action.

102

Perhaps more

damaging to MercExchange, however, later in the argument,

Chief Justice Roberts asked, “[W]hat exactly is the invention

here?”

103

After some stumbling in response, MercExchange’s

counsel replied, “[I]t’s not a business method. It doesn’t claim

methods. It claims a system, an apparatus for an electronic

market for the sale of goods via a network.”

104

Without greater

detail, the Chief Justice continued, “[I]t’s displaying pictures of

your wares on a computer network and, you know, picking which

ones you want and buying them. I—I might have been able to do

that.”

105

MercExchange’s counsel was unable to provide greater

detail, but simply emphasized in response that the patent had

gone through a lengthy Markman hearing and been upheld at

the district court and Federal Circuit concerning written

description.

106

Lastly, during the government’s argument, the Assistant

Solicitor General emphasized that the Court can “provide

guidance on how [the four equitable factors] are applied in the

patent context . . . .”

107

Chief Justice Roberts characterized the

argument as, “[A]ll you want us to do is edit [the Federal Circuit]

opinion and stick in this formulaic paragraph about [‘]there are

four factors[’] and here they are.”

108

The Assistant Solicitor

General responded that the government’s position was that the

Court make clear the test was an exercise of “equitable

rejected under obviousness during the reexamination process at the Patent and

Trademark Office. MercExchange, L.L.C. v. eBay, Inc., 500 F. Supp. 2d 556, 562–63 (E.D.

Va. 2007) (“Although the PTO has not yet issued a final office action in either pertinent

reexamination, a ruling that would be appealable . . . the PTO has issued interim office

actions in both reexaminations, twice indicating that all claims of the #256 patent are

invalid as obvious . . . .”). However, the reexamination rejections at the Patent Office were

eventually overcome, and the patent allowed. See Holte, supra note 4, at 29 (where the

ultimate settlement between eBay and MercExchange included full assignment of the

remaining patents and patent applications related to online auctions).

101

Transcript of Oral Argument, supra note 91, at 40.

102

Id. at 29.

103

Id. at 47.

104

Id.

105

Id. at 48–49.

106

Id. at 49.

107

Id. at 28.

108

Id. at 27–28.

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discretion”, but provide further guidance regarding questions of

patent injunctions.

109

Regarding specific questions from Justice Stevens concerning

damages and adequate remedies, the Assistant Solicitor General

asserted, “[D]amages are not an adequate remedy . . . the

injunction harnesses the market to determine what the market

value of that patent is. It forces negotiation between the

parties . . . .”

110

This reiterated a point Justice Scalia made at the

beginning of the argument to eBay’s counsel: “[W]hy isn’t

the . . . free market normally adequate to solve any problems

you’re talking about? Everybody is in this for the money. Nobody

is going to hold off giving the license beyond the point where—

where it makes financial sense.”

111

The government’s argument

ended with emphasis that “there should not be an automatic

distinction between a party that practices the patent and one

that licenses it.”

112

Generally speaking, the government

continued to emphasize the need for injunctions in patent cases,

but only after a consideration under the four-part equitable test.

3. Supreme Court Opinion and Two Concurrences

The Supreme Court issued its decision in the case on May

15, 2006.

113

Justice Thomas delivered the opinion for a

unanimous Court; Chief Justice Roberts filed a concurring

opinion (joined by Justices Scalia and Ginsburg), as did Justice

Kennedy (joined by Justices Souter and Breyer).

114

The unanimous opinion held that a federal court considering

whether to award permanent injunctive relief to a prevailing

plaintiff in a dispute arising under the Patent Act must apply the

four-factor test “historically employed by courts of equity.”

115

The

109

Id. at 28.

110

Id. at 31–32.

111

Id. at 11.

112

Id. at 36.

113

eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).

114

Id.; see id. at 394 (Roberts, C.J., concurring); see also id. at 395 (Kennedy, J.,

concurring).

115

Id. at 390 (majority opinion). Some have argued that this “historical” or

“traditional” notion for a permanent injunction test was not actually historical or

traditional. Doug Rendleman, The Trial Judge’s Equitable Discretion Following eBay

v. MercExchange, 27 REV. LITIG. 63, 76 n.71 (2007) (“Remedies specialists had never

heard of the four-point test.”); LAYCOCK, supra note 2, at 426 (arguing that there was “no

‘traditional’ four-part test” and that the Supreme Court majority’s citations supporting

the four-part test are misplaced in cases related to preliminary injunctions). But see

Rachel M. Janutis, The Supreme Court’s Unremarkable Decision in eBay Inc.

v. MercExchange, L.L.C., 14 LEWIS & CLARK L. REV. 597, 597 (2010) (“eBay is not a

remarkable break from equitable practice. Indeed, the principles outlined by the Court in

its decision are neither novel or surprising when viewed in light of previous precedents.”);

Samuel L. Bray, The Supreme Court and the New Equity, 68 VAND. L. REV. 997, 1029

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700 Chapman Law Review [Vol. 18:3

Supreme Court held that the Federal Circuit failed to recite and

apply the correct test:

The [Federal Circuit] articulated a “general rule,” unique to patent

disputes, “that a permanent injunction will issue once infringement

and validity have been adjudged.” . . . Because we conclude that

neither [the Federal Circuit nor the district court] correctly applied

the traditional four-factor framework that governs the award of

injunctive relief, we vacate the judgment of the Court of

Appeals . . . .

116

The Court accordingly vacated the judgment of the Court of

Appeals, which applied the general rule that courts will issue

permanent injunctions, and held in favor of petitioner-eBay.

117

Finally, the unanimous opinion contained the following limiting

disclaimer: “We hold only that the decision whether to grant or

deny injunctive relief rests within the equitable discretion of the

district courts, and that such discretion must be exercised

consistent with traditional principles of equity, in patent

disputes no less than in other cases governed by such

standards.”

118

Between 2000 and 2010, the eBay case stands as

the only patent case where the party supported by the Solicitor

General did not win.

119

Worthy of note in the unanimous opinion are two guidance

points regarding how courts should address equitable principles,

specifically regarding non-commercializing patentees like

MercExchange. First, regarding the district court’s discussion of

MercExchange’s “lack of commercial activity in practicing the

patents,”

120

the Court stated:

[T]raditional equitable principles do not permit such broad

classifications. For example, 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. Such patent

holders may be able to satisfy the traditional four-factor test, and we

see no basis for categorically denying them the opportunity to do so.

121

(2015) (“The test in eBay is not ‘the traditional four-factor test,’ but it is ‘a traditional

four-factor test.’ Even so, the most fundamental objection to eBay from scholars of

remedies is not to the Court’s overclaiming. It is to the Court’s entrenchment of doctrinal

formulations that distinguish legal and equitable remedies: the irreparable injury rule

and ‘no adequate remedy at law’ requirement.”) (citations omitted).

116

eBay, 547 U.S. at 393–94 (citations omitted).

117

Id. at 390.

118

Id. at 394.

119

Duffy, supra note 67, at 538. Prof. Duffy notes, “[E]ven in [the eBay] case, the

Court adopted the legal analysis applied by the Solicitor General . . . .” Id.

120

eBay, 547 U.S. at 393.

121

Id.

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On this point, the Court concluded that the district court’s

“analysis cannot be squared with the principles of equity adopted

by Congress.”

122

Second, the Court explicitly affirmed Continental

Paper Bag, the 1908 case which held that courts can grant

injunctive relief in favor of patent holders who “unreasonably

decline[] to use [their] patent.”

123

In short, while technically

reversing the Federal Circuit’s opinion in favor of MercExchange,

and not taking any “position on whether permanent injunctive

relief should or should not issue in this particular case,”

124

the

unanimous opinion spoke very kindly of the four-factor equitable

test favoring injunctions for non-practicing patent owners.

125

Indeed, the affirmed 1908 Continental opinion stated: “Standing

alone, non-use is no efficient reason for withholding injunction.

There are many reasons for non-use which, upon explanation, are

cogent . . . . Anything but prevention takes away the privilege

which the law confers upon the patentee.”

126

Chief Justice Roberts’ concurring opinion was only two

paragraphs in length and focused on the historical precedent of

injunctions in patent cases. After beginning his opinion by noting

that the Court’s majority holding rested upon the traditional

notions of equity, he went into a discussion of that tradition

vis-à-vis patent cases: Since the early nineteenth century, “courts

have granted injunctive relief upon a finding of infringement in

the vast majority of patent cases.”

127

In his opinion, this

traditional practice was not surprising “given the difficulty of

protecting a right to exclude through monetary remedies that

122

Id.

123

Id.

124

Id. at 394.

125

See Janutis, supra note 115, at 617 (“Moreover, Justice Thomas emphasized the

district court’s overreliance on MercExchange’s willingness to license its patent and its

lack of commercial activity to explain the error in the district court’s reasoning. Justice

Thomas expressly acknowledged that ‘traditional equitable principles’ would not support

a categorical presumption that a non-practicing patent holder was not entitled to an

injunction. Further, Justice Thomas pointed to the non-commercial research institution

and ‘self-made inventors’ as examples of patent holders whose failure to practice and

willingness to license might still warrant an injunction. Justice Thomas noted that such

patent holders might be entitled to an injunction because they ‘might reasonably prefer to

license their patents, rather than undertake efforts to secure the financing necessary to

bring their works to market themselves.’”); see also Jaideep Venkatesan, Compulsory

Licensing of Nonpracticing Patentees After eBay v. MercExchange, 14 VA. J.L. & TECH. 26,

32 (2009) (“[W]hile holding that courts must review the four-factor test, Justice Thomas’

opinion for the unanimous Court was officially agnostic on the question of whether

nonpracticing patentees were entitled to injunctive relief.”).

126

Cont’l Paper Bag Co. v. E. Paper Bag Co., 210 U.S. 405, 427, 430 (1908). Despite

the Court explicitly affirming Continental, some commentators have argued that the

opinion’s generalities about equities stand in significant tension with the argument and

holding from Continental. Eric Claeys, The Conceptual Relation Between IP Rights and

Infringement Remedies, 22 GEO. MASON L. REV. (forthcoming 2015).

127

eBay, 547 U.S. at 395 (Roberts, C.J., concurring).

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702 Chapman Law Review [Vol. 18:3

allow an infringer to use an invention against the patentee’s

wishes . . . .”

128

Chief Justice Roberts concluded by citing Justice

Holmes: Regarding the application of equitable standards in

patent cases in favor of granting injunctive relief, “a page of

history is worth a volume of logic.”

129

Justice Kennedy’s three-paragraph concurring opinion—of

mere “observations,”

130

as he referenced it—first supported the

majority opinion’s “well-established, four-factor test . . . in

deciding whether to grant injunctive relief in patent cases.”

131

Second, Justice Kennedy agreed with Chief Justice Roberts’

“lesson of the historical practice”; however, he distinguished this

instruction to “when the circumstances of a case bear substantial

parallels to litigation courts have confronted before.”

132

Justice

Kennedy went on to cite to a single Internet-posted 2003 FTC

report summarizing a panel discussion concerning “The Rise of

Non-practicing Entities” in the computer hardware industry.

133

With this citation, he stated:

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.

134

Applying the FTC report details to the patent injunction

issue at hand, Justice Kennedy concluded that “legal damages

may well be sufficient to compensate for the infringement,” “an

injunction may not serve the public interest,” and the “potential

vagueness and suspect validity of [business method patents] may

affect the calculus under the four-factor test.”

135

Regarding these

128

Id.

129

Id.; see also Jay Dratler, Jr., eBay’s Practical Effect: Two Differing Visions,

2 AKRON INTELL. PROP. J. 35, 43 (2008) (“The thrust of the[] concurrence was that the

results of permanent-injunction hearings in patent cases need not change drastically as a

result of the Court’s unanimous insistence on a four-factor equitable analysis.”).

130

eBay, 547 U.S. at 397 (Kennedy, J., concurring).

131

Id. at 395.

132

Id. 396.

133

Id. (citing FTC, TO PROMOTE INNOVATION: THE PROPER BALANCE OF COMPETITION

AND PATENT LAW AND POLICY 38–39 (2003), available at http://www.ftc.gov/sites/default/

files/documents/reports/promote-innovation-proper-balance-competition-and-patent-law-

and-policy/innovationrpt.pdf).

134

Id.

135

Id. at 396–97. But see Mulder, supra note 44, at 69 (concluding that the Roberts

and Kennedy concurrences were intended by their authors to articulate rules regarding

when emerging issues should be considered—or not considered—when determining

whether granting an injunction is appropriate). Regarding Justice Kennedy’s concerns, it

is important to note that patent law already contains many safeguards regarding the

control of patent owners. See, e.g., Samuel F. Ernst, Patent Exhaustion for the Exhausted

Defendant: Should Parties Be Able to Contract Around Exhaustion in Settling Patent

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conclusions, however, given that the Kennedy concurrence was

self-described as “observations,” the FTC report citation was

simply a summary of testimony related to an off-subject

discussion (computer hardware). The briefing and oral argument

before the Court deeply considered injunctions for specific classes

of patents, and the unanimous opinion of the Court explicitly

affirmed Continental—the concurrence can truly only be

considered a general “observation” by a minority of the Court,

with no precedential value or citation intended.

136

4. Media Attention During and After Supreme Court Appeal

Beyond the usual coverage of Supreme Court cases during a

Term, to properly analyze the eBay opinion and its impact, it is

necessary to note the most active media details regarding patent

issues during the eBay timeframe. First, while the case was

pending at the Supreme Court, there was widespread publicity

and media discussion regarding another patent injunction case,

NTP, Inc. v. Research In Motion, Ltd., that was reported to have

the potential to result in the shutdown of all BlackBerry wireless

Internet service.

137

This case had a certiorari petition denied by

the Supreme Court during the same Term as eBay and was a

very hot story in the day-to-day press, receiving more press

coverage than any other patent case within the 2005–2007 time

period.

138

Indeed, “[m]any of the briefs in eBay urged the Court to

do something about this [BlackBerry phone shutdown]

problem,”

139

and one empirical study regarding the press

coverage of the NTP and eBay cases together concluded:

[The study] clearly illustrates not only the relative prevalence of the

coverage of NTP vs. that pertaining to eBay over the course of the

study period, but also the high concentration of NTP coverage during

(1) the weeks (weeks 41 through 48) leading up to the grant of

certiorari in eBay (week 49), and (2) the period between the grant of

certiorari in eBay (B) in November, 2005 (Week 49) and the oral

argument in eBay (E) on March 29, 2006 (Week 66).

140

Litigation?, 2 U. ILL. J.L. TECH. & POL’Y 445, 479 (2014) (“[P]atent exhaustion may also

play a role in preserving room for innovation because it limits the right of exclusion from

being passed down the chain of production and distribution.”).

136

Justice Kennedy’s concurrence was also likely influenced by increased negative

patent injunction press coverage. For a further discussion of this issue, see Dolak

& Bettinger, infra note 140.

137

LAYCOCK, supra note 2, at 427–28.

138

NTP, Inc. v. Research In Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005), cert. denied,

546 U.S. 1157 (2006) (No. 05-638).

139

LAYCOCK, supra note 2, at 428.

140

Lisa A. Dolak & Blaine T. Bettinger, eBay and the BlackBerry®: A Media

Coverage Case Study, 2 AKRON INTELL. PROP. J. 1, 24 (2008).

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704 Chapman Law Review [Vol. 18:3

That same study also noted that “eBay received more

coverage than any of the other Supreme Court cases pending or

decided during the [two year] study period.”

141

Second, after the Supreme Court opinion was issued, eBay

released a statement saying the following:

eBay Applauds Supreme Court Ruling

San Jose, Calif., May 15, 2006—eBay . . . applauds today’s Supreme

Court decision in eBay v. MercExchange, which reversed the ruling by

the United States Court of Appeals for the Federal Circuit Court

requiring that an injunction must be issued in this case. eBay argued

that trial judges ought to have the discretion—expressly granted by

Congress—to award money damages to patent owners, instead of

injunctions, if the facts of a particular case warrant it. The Supreme

Court agreed with eBay that the injunction rule applied by the

Federal Circuit was unduly narrow. “We are extremely gratified by

the Supreme Court’s unanimous decision,” said Jay Monahan, eBay’s

Deputy General Counsel, Intellectual Property. “The trial judge

originally found in this case that money was sufficient, and denied an

injunction. We are confident that when the District Court revisits this

issue, particularly in light of the ongoing reexamination of the

patents, that the result will be the same.”

142

Following up on this “win” for eBay within its own press

release, many other media sources reported in similar fashion

141

Id. at 12. The study period included the 2005–2006 and 2006–2007 Supreme Court

Terms. The patent cases in those terms are: KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398

(2007); Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007); MedImmune, Inc.

v. Genentech, Inc., 549 U.S. 118 (2007); eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388

(2006); Illinois Tool Works v. Independent Ink, Inc., 547 U.S. 28 (2006); and Unitherm

Food Sys., Inc. v. Swift-Eckrich, Inc., 546 U.S. 394 (2006). Dolak & Bettinger, supra note

140, at 2, n.10.

142

eBay Applauds Supreme Court Ruling, EBAY INC. (May 15, 2006),

http://investor.ebay.com/common/mobile/iphone/releasedetail.cfm?releaseid=197425&Com

panyID=ebay. It is interesting to compare this press release language to eBay’s July 2006

SEC quarterly filing, which stated:

In May 2006, the U.S. Supreme Court reversed the Court of Appeals’ decision

on whether an injunction should have been issued and remanded the case back

to the district court for further action. . . . Even if successful, our litigation of

these matters will continue to be costly. In addition, as a precautionary

measure, we have modified certain functionality of our websites and business

practices in a manner which we believe would avoid any further infringement.

For this reason, we believe that any injunction that might be issued by the

district court will not have any impact on our business . . . Nonetheless, if the

district court were to issue an injunction on remand, and if the modifications to

the functionality of our websites and business practices are not sufficient to

make them non-infringing, we would likely be forced to pay significant

additional damages and licensing fees and/or modify our business practices in

an adverse manner.

eBay Inc., Quarterly Report (Form 10-Q) 37–38 (July 21, 2006), available at

http://www.sec.gov/Archives/edgar/data/1065088/000095013406014091/f223 71e10vq.htm.

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during and after the opinion. For example, Forbes reported the

following:

Supreme Court Buries Patent Trolls

In a victory for eBay, the justices ruled unanimously that federal

courts must weigh several factors before barring a patent infringer

from using a contested technology or business method. . . . Now the

case will be sent back to the U.S. District Court where eBay originally

won the right to continue operating “Buy It Now” while it designs

around the patent it infringed. . . . The high court’s decision deals a

blow to patent trolls, which are notorious for using the threat of

permanent injunction to extort hefty fees in licensing negotiations as

well as huge settlements from companies they have accused of

infringing. . . . Recall the $612.5 million that Canada’s Research in

Motion forked over to patent-holding company NTP to avoid the

shutting down of its popular BlackBerry service. . . . In accepting the

case and ruling as they did, the justices seemed to have had it in mind

to hem in their power.

143

Indeed, much of the press coverage during the time the case

was pending at the Supreme Court, and after the opinion was

issued, carried on the anti-patent troll message.

144

Legal

empiricists have even put forth data regarding anti-patent troll

press coverage during the time eBay was pending to suggest that

the increased negative patent injunction message related to the

NTP case was relevant to the Court’s resolution—or at least

Justice Kennedy’s concurrence specifically—in the eBay case.

145

II. EBAY V. MERCEXCHANGE AFTER THE SUPREME COURT

After the May 2006 Supreme Court opinion, the case was

remanded to Judge Friedman in the Eastern District of Virginia.

However, there were almost two years of contentious litigation

between the parties, at both the district court and the Federal

Circuit, before the case would finally settle.

143

Jessica Holzer, Supreme Court Buries Patent Trolls, FORBES (May 16, 2006, 6:00

AM), http://www.forbes.com/2006/05/15/ebay-scotus-patent-ruling-cx_jh_0516scotus.html.

144

Dolak & Bettinger, supra note 140, at 27 (“Additionally, beyond descriptive

references to the NTP plaintiff as a ‘patent-holding company,’ and mentions that a

BlackBerry®-service ending injunction could issue/might have issued, the media coverage

leading up to and during the pendency of eBay at the Supreme Court also delivered the

(negative) message that such companies should not be entitled to enforce their patents, or

to enforce them on the same terms as other patentees . . . .”).

145

Id. at 31 (“That coverage, which was heavily concentrated in the seven weeks

leading up to the grant of certiorari in eBay, and in the several months between the

certiorari grant and the oral argument, contained significant discussion of particular

considerations that were potentially relevant to the resolution of the question at issue in

eBay, and ultimately expressly regarded as relevant by four of the Justices.”). The study

included anti-patent message coding, including “negative message 13,” and stated,

“[P]atents are (and shouldn’t be) awarded to/enforceable by those who don’t develop

products/practice the invention.” Id. at 18, n.83.

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706 Chapman Law Review [Vol. 18:3

A. eBay v. MercExchange in Further Proceedings Before the

District Court

1. Additional District Court Proceedings Before

Reconsideration of the Injunction

The case was officially remanded to the district court,

through the Federal Circuit, on July 13, 2006.

146

Within a few

weeks, on August 28, 2006, eBay filed for a motion to stay

proceedings pending PTO reexamination of the patents-in-suit,

and MercExchange again filed for a permanent injunction.

147

In its renewed motion for permanent injunction,

MercExchange noted that after the Federal Circuit appeal,

judgment of validity and infringement of the ’265 patent was

final.

148

Regarding the legal standard for the injunction, in

addition to the Supreme Court majority opinion, MercExchange

cited the same Eastern District of Virginia case cited by eBay in

its 2003 injunction opposition brief, also cited by Judge Friedman

in his 2003 denial of an injunction—essentially the same factors

as before.

149

MercExchange again went through the four-factor

analysis discussed in its 2003 briefing, emphasizing that

“because eBay is a virtual monopolist, commanding 90 percent of

the online auction market, no potential competitor can gain a

foothold to compete against eBay so long as eBay is not enjoined

from infringing MercExchange’s technology.”

150

Finally,

146

Order Vacating the Judgment of the Dist. Court and Remanding for Further

Proceedings Consistent with the Op. of the U.S. S. Ct., MercExchange, L.L.C. v. eBay,

Inc., 500 F. Supp. 2d 556 (E.D. Va. 2006) (No. 2:01-cv-736) (on file with author).

147

Motion to Stay Proceedings in View of Ongoing Patent Office Reexamination

Proceedings by eBay, Inc., Half.com, Inc., MercExchange, 500 F. Supp. 2d 556

(No. 2:01-cv-736).; Motion for Permanent Injunction by MercExchange, L.L.C.,

MercExchange, 500 F. Supp. 2d 556 (No. 2:01-cv-736) (on file with author).

148

Plaintiff MercExchange, L.L.C.’s Brief in Support of Renewed Motion for Entry of

a Permanent Injunction Order at 6, MercExchange, 500 F. Supp. 2d 556 (No. 2:01-cv-736),

2006 WL 5359293 [hereinafter Renewed Motion for Injunction Brief] (on file with author).

149

Id. at 9 (citing Odetics, Inc. v. Storage Tech. Corp., 14 F. Supp. 2d 785, 794–97

(E.D. Va. 1998)); see also Defendant’s Opposition to Plaintiff MercExchange, L.L.C.’s Brief

in Support of Motion for Entry of a Permanent Injunction Order, supra note 20. Compare

Odetics, 14 F. Supp. 2d at 794 (“Issuance of injunctive relief . . . is governed by traditional

equitable principles, which require consideration of (i) whether the plaintiff would face

irreparable injury if the injunction did not issue, (ii) whether the plaintiff has an

adequate remedy at law, (iii) whether granting the injunction is in the public interest, and

(iv) whether the balance of hardships tips in the plaintiff’s favor.”), with eBay Inc.

v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006) (“A plaintiff must demonstrate: (1) that

it 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 defendant, a remedy in equity is warranted; and

(4) that the public interest would not be disserved by a permanent injunction.”).

150

Renewed Motion for Injunction Brief, supra note 148, at 16. But the harm to

MercExchange is particularly severe on the record here. MercExchange, and

MercExchange’s licensees or potential licensees, are (or aspire to be) competitors of eBay—

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regarding the Supreme Court concurrences, MercExchange cited

both Chief Justice Roberts and Justice Kennedy in emphasizing

that the “historical practice . . . [is] still important in the court’s

weighing of the four equitable factors.”

151

Former United States Solicitor General Seth Waxman joined

the MercExchange legal team at the district court in September

2006

152

—presumably in expectation of oral argument on the

injunction issue—however, in December 2006, Judge Friedman

ordered additional discovery before considering the renewed

injunction motion or the stay pending reexamination.

153

During

the additional discovery, tensions between the parties increased

and in March 2007, Judge Friedman issued a six-page order

summarizing, inter alia:

Presently before the court are too many letters and motions for the

court to list, all are tangential to the two primary motions that the

court has endeavored to address for over six months: MercExchange’s

Motion for an Injunction and eBay’s Motion to Stay . . . the parties

have on several occasions revealed their belief that the instant matter

is the only case pending in this district as the parties demanded

almost constant attention from the Magistrate Judge . . . At some

point during what this court thought was supposed to be a brief

period of limited discovery, that parties’ inability to conduct five

one-day depositions became almost comical . . . Most of the motions

and letters are either a request to strike prior filings or an attempt to

advance additional argument in support of prior filings; such

duplicative arguments result in an exponential growth to the

mountain of paperwork which frankly mystifies the court . . . the court

does not and is frustrated by not only the sheer volume of unnecessary

paperwork and speed in which counsel expect the court to respond,

but also counsel’s inability to work together to complete what the

court views as a relatively simple task: take five depositions and serve

associated document requests to bring the record up to date on recent

factual developments.

154

The conclusion of Judge Friedman’s order, and the tensions

between counsel, was that the court would also consider

cross-motions regarding “unclean hands” at the same time it

an entity that commands 90 percent of the relevant market. Id.

151

Id. at 10, n.5 (“Justice Kennedy noted that the right to exclude does not inexorably

dictate injunctive relief; rather, the four-factor test, applied in the context of analogous

historical practice, governs.”).

152

Motion for Seth Paul Waxman to Appear Pro Hac Vice by MercExchange, L.L.C.,

MercExchange, 500 F. Supp. 2d 556 (No. 2:01-cv-736) (on file with author).

153

Order and Op. Permitting Both Parties until March 2, 2007 to Perform Additional

Discovery, MercExchange, 500 F. Supp. 2d 556 (No. 2:01-cv-736) (on file with author).

154

Order and Op. at 1–3, 5, n. 4, MercExchange, 500 F. Supp. 2d 556 (No. 2:01-cv-

736) (emphasis in original) (on file with author).

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708 Chapman Law Review [Vol. 18:3

considered the motions for injunction and to stay pending

reexamination.

155

2. District Court Injunction Oral Argument

Following the additional discovery and updated briefing, the

district court held oral arguments on the injunction issue June

12, 2007.

156

After arguing the injunction issue for MercExchange

before the Supreme Court, Seth Waxman argued the same issue,

on remand, before the district court.

157

There are four key points,

important to Judge Friedman regarding MercExchange, worth

noting.

First, regarding the Supreme Court opinion, Mr. Waxman

made the point: “[N]either the chief justice’s concurring opinion

nor Justice Kennedy’s concurring opinion garnered five

votes . . . So what a majority of the Supreme Court genuinely

thinks, other than that the four-factor test should be applied, is

yet to be determined.”

158

To this assertion, Judge Friedman

questioned Mr. Waxman regarding the “patent troll”

159

issue at

length and whether MercExchange was a “troll.”

160

Second, Judge Friedman had many questions regarding

MercExchange’s alleged exclusive license arrangement with

Internet auction company uBid,

161

eBay’s largest competitor.

162

Specifically, Judge Friedman emphasized the recent suspect

timing of the uBid contract, subsequent to the jury trial.

163

this point, Mr. Waxman emphasized that eBay “utterly

mischaracterized the deposition testimony of the uBid witness”

164

and further noted: “[L]ook at the three licenses that are in the

record, not only the uBid license but the Aden license and the

AutoTrader license, each one has unique and uniquely bargained

for terms, and it’s that factor plus the factor that we have a

155

Id. at 5.

156

See generally Transcript of Oral Argument, MercExchange, 500 F. Supp. 556

(No. 2:01-cv-736) (on file with author).

157

Id. at 3.

158

Id. at 7.

159

Id. at 8 (question from Judge Friedman).

160

Id. at 10 (question from Judge Friedman questioning MercExchange only having

two employees).

161

Id. at 10–11.

162

Id. at 90 (“uBid is eBay’s largest competitor . . . albeit it has only about 2 perhaps

3 percent of the market share . . . .”); MercExchange, 500 F. Supp. 2d at 575–76 (stating

that uBid obtained a non-exclusive license to MercExchange’s patent portfolio and

negotiated an exclusive license in exchange for a twenty-five percent interest in

MercExchange).

163

Transcript of Oral Argument, supra note 156, at 11.

164

Id. at 19.

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monopolist here [eBay] that makes this case genuinely cry out for

an injunction.”

165

Third, Judge Friedman had many questions regarding a

hedge fund which had invested in MercExchange.

166

referenced the fund as “speculators . . . gamblers,” to which Mr.

Waxman responded: “They have basically made a determination

that this is a valid investment on the probability . . . that an

enforceable injunction will issue in favor of this patent holder.”

167

Lastly, Judge Friedman addressed the issue of eBay

allegedly designing around the patent. This detail, originally

raised by MercExchange in prior briefing, was based on eBay’s

SEC quarterly reports stating to investors: “[W]e have modified

certain functionality of our websites and business practices in a

manner which we believe would avoid any further infringement.

For this reason, we believe that any injunction that might be

issued by the district court will not have any impact on our

business.”

168

On this issue, Judge Friedman stated: “I thought it

was ludicrous when counsel, after or during the trial, said we

could design around this patent in a couple of hours . . . for, like,

$8,000, and the first thought I had was why in the world didn’t

they do it to avoid this whole mess.”

169

Mr. Waxman agreed with

the hypocrisy and Judge Friedman stated further: “What

concerns me, Mr. Waxman, is no matter what this Court does

today . . . what happens at that point? It’s going to go on and on

and on, and I never could understand why we were ever placed in

this position, but there is nothing that I can do about that.”

170

Regarding eBay’s argument before the court, there were two

key points impressed to Judge Friedman by counsel. First, eBay’s

counsel asserted the notion that Justice Kennedy’s concurrence

in the Supreme Court’s opinion allows district court judges to

prevent patent holders from asserting “undue leverage” with the

165

Id. at 15.

166

Id. at 19.

167

Id. at 20; see also id. at 41 (“[T]he [MercExchange investment money] was given to

them by a speculator, hoping that maybe [the money] will turn out to be a sound

investment.”).

168

eBay Inc., Quarterly Report, supra note 142, at 15. As noted at oral argument,

eBay’s non-infringing design around consisted of: “The main issues are, Your Honor, that

we changed our log-in process. When you sell an item, we changed it. We simply removed

all of the evidence that they relied on to indicate, and anything else that they rely on to

indicate that we are authorizing a particular computer . . . .” Transcript of Oral

Argument, supra note 156, at 65.

169

Transcript of Oral Argument, supra note 156, at 23.

170

Id. at 24. Judge Friedman’s comments most likely relate to the issue of ongoing

contempt hearings related to continued infringement even if an injunction issued. See

supra Part I.B. (regarding Judge Friedman’s consideration of those issues in the initial

post-trial injunction denial).

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710 Chapman Law Review [Vol. 18:3

threat of an injunction in licensing negotiations.

171

Pushing

MercExchange as a troll, counsel further stated: “Justice

Kennedy was alluding to it . . . that companies like

MercExchange go around and they threaten litigation with their

patents.”

172

Since MercExchange had not proven “irreparable

harm or inaccuracy of legal remedy,” there was no reason for an

injunction.

173

Second, and during questions from Judge Friedman

regarding “what harm would there be for . . . an injunction if

[eBay] [is] no longer infringing [due to a design around],”

174

eBay’s counsel responded that the damage from an injunction “is

a big thing to the public, to [eBay’s] investors.”

175

Counsel went

on to detail eBay’s position that despite allegedly designing

around MercExchange’s patent, if an injunction were to issue,

the financial damage to eBay’s investor perception, general

business operations in the marketplace, and stock price, would

likely be nonreversible. Regarding MercExchange’s potential

harm, eBay’s counsel countered that if an injunction were denied

at the district court and later reversed on appeal, or if eBay did

not actually design around the patent and was later found as a

continued infringer, the only harm to MercExchange would be

time delay in damages recovery.

176

Weighed with the two options

in terms of greater risk, eBay’s counsel suggested to the court

that “MercExchange does not have any products, any services,

does not practice [the patent] . . . there is no evidence that any

other entity practices this invention”—the greater harm under

any circumstance would be to issue an injunction that

permanently damages eBay’s business and takes the patent

entirely out of the public marketplace.

177

3. The District Court’s Second Denial of a Permanent

Injunction

Judge Friedman issued his thirty-six page order and opinion

denying MercExchange’s renewed motion for entry of a

171

Transcript of Oral Argument, supra note 156, at 20 (“And I suggest to Your Honor

that they want to do that to create the undue leverage that Justice Kennedy talked

about.”); see also id. at 63 (“That’s why they want [an injunction], because they want what

Justice Kennedy cautioned against is illegitimate leverage.”).

172

Id. at 46.

173

Id. at 62.

174

Id. at 58.

175

Id. at 80.

176

Id. at 62–63 (“You do get the harm issue. And that’s like what would it harm Bill

Gates if we asked him to give us $5 million? Probably nothing, right. But what would it

harm eBay if you got out and say that we are enjoined and we can’t do this anymore? It

does hurt. It hurts us in the marketplace.”).

177

Id. at 72–73.

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permanent injunction on July 27, 2007. Detailed discussion of the

opinion has already been provided by other scholars,

178

but a few

key points regarding the holding, and unique facts related to the

parties, are worthy of mention.

First, Judge Friedman lent much discussion to the separate

concurrences within the Supreme Court opinion. There were

three citation and discussion points regarding Chief Justice

Roberts’ concurrence, and four citation and discussion points to

Justice Kennedy’s concurrence.

179

Regarding Chief Justice

Roberts’ concurrence, Judge Friedman noted the historical

frequency of a “plaintiff . . . establishing irreparable harm in the

wake of establishing validity and infringement.” However, Judge

Friedman distinguished the Chief Justice’s notions due to the

Supreme Court majority holding “a permanent injunction shall

only issue if plaintiff carries its burden of establishing

that . . . the case specific facts warrant entry of an injunction.”

180

Regarding Chief Justice Roberts’ “page of history . . . worth a

volume of logic” point, Judge Friedman rebutted:

[W]hether the court is considering the injunction calculus, the

likelihood that a criminal defendant with five prior felonies will be a

recidivist, or whether a non-practicing patent holder with a track

record for pursing monetary recovery through litigation is merely

seeking an injunction as a bargaining chip to increase the bottom line.

The factual history of this matter indicates that MercExchange has

never sought to defend its right to exclude; to put credence in such

claim at this late stage would not serve equity nor the public

interest.

181

Conversely to the treatment of Chief Justice Roberts’

concurrence, Judge Friedman’s take on Justice Kennedy’s

concurrence was far more agreeable, if not precedential. Judge

Friedman cited Justice Kennedy for the proposition that “if the

application of the case specific facts to the four-factor test reveals

that equitable relief is warranted, the nature of such [business

method] patents may be considered by the court when balancing

the equities.”

182

He went on to cite Justice Kennedy for the

proposition that “[u]tilization of a ruling in equity as a

178

See generally, e.g., Robert I. Reis, Rights and Remedies Post eBay

v. MercExchange - Deep Waters Stirred, 2 AKRON INTELL. PROP. J. 133 (2008).

179

See generally MercExchange, L.L.C. v. eBay, Inc., 500 F. Supp. 2d 556 (E.D. Va.

2007). In his opinion, Judge Friedman cited seven total times to the separate

concurrences compared to ten total cites to the majority’s opinion. Id.

180

Id. at 569.

181

Id. at 588.

182

Id. at 574 (citing eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 396 (2006)

(Kennedy, J., concurring)); see also Reis, supra note 178, at 149 (citing this portion of

Judge Friedman’s opinion in an “extended blend and tracking of notations” regarding the

district court’s analysis of “‘irreparable harm’ and ‘adequate remedy at law’”).

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712 Chapman Law Review [Vol. 18:3

bargaining chip suggests both that such party never deserved a

ruling in equity and that money is all that such party truly seeks,

rendering monetary damages an adequate remedy in the first

instance.”

183

Judge Friedman concluded on this

stating: “Participation in such [patent licensing] industry lessens

the impact of MercExchange’s plea for equitable relief . . . .”

184

other scholars have noted, “[There are] a number of issues

regarding [Judge Friedman’s] use or abuse of discretion and

conformity with the principles set forth in the [eBay] opinion and

concurrence . . . of Justice Kennedy.”

185

Beyond discussion of the Supreme Court’s concurrences, a

second point within the opinion was that Judge Friedman cited

numerous case-specific facts, many of which were uncovered

during the additional discovery after remand from the Supreme

Court. These facts mentioned in the opinion all seemed to work

against MercExchange’s motion for injunction. Judge Friedman’s

notes include mention of emails between MercExchange’s

founder and inventor, Tom Woolston, and the CEO of uBid, the

eBay competitor which licensed MercExchange’s patents. Those

emails, according to Judge Friedman,

reveal that uBid chose to obtain the license [from MercExchange] in

lieu of spending money ‘on a detailed legal opinion as to [the] patents

and [their] impact on uBid’ . . . . [The uBid CEO] stated that ‘in

return’ for a license to MercExchange’s patents he would ‘work

directly with [Woolston] and [his] group to secure [their] eBay

position’ and any other challenges.

186

Further emails from Woolston “indicate[] that such a [uBid

content auction] website could likely be constructed but that

Woolston should ‘do some upfront assessment of will this model

work and can it make $. Otherwise, this is another make

Friedman semi happy and piss away some $.’”

187

To these

exchanges, Judge Friedman concluded, “[T]he court recognizes

that MercExchange’s negotiations with uBid appear just as likely

to be an effort to placate the court as they do an effort to develop

the ’265 patent.”

188

Regarding MercExchange’s hedge fund

investors discussed at length at oral argument, Judge Friedman’s

opinion noted:

183

MercExchange, 500 F. Supp. 2d at 582 (citing eBay, 547 U.S. at 396 (Kennedy, J.,

concurring)); see also Reis, supra note 178, at 150.

184

MercExchange, 500 F. Supp. 2d at 582; see also Reis, supra note 178, at 150.

185

Reis, supra note 178, at 151.

186

MercExchange, 500 F. Supp. 2d at 561–62.

187

Id. at 576–77.

188

Id. at 577.

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Altitude Capital’s post-trial investment of $6.25 million in

MercExchange . . . [was] to purchase an interest in MercExchange’s

litigation recovery. . . . $4 million of such investment was distributed

to MercExchange’s three members, and a large portion of the

remainder was used to fund litigation[;] . . . little appears to have been

devoted to developing the patents . . . .

189

Judge Friedman concluded, “[I]t nevertheless appears to

represent a bypassed opportunity to attempt to develop

MercExchange’s patents.”

190

Finally, regarding the parties

specifically, Judge Friedman described it as “a company of two

employees, the inventor of the patents a former patent

attorney”

191

as compared to “eBay . . . a multibillion dollar

corporation whose online marketplace brings together tens of

millions of buyers and sellers around the world and eBay

unquestionably has a substantial impact on the United States’

economy.”

192

A third point within the opinion was Judge Friedman’s

emphasis on MercExchange’s ’265 patent being invalidated by

the PTO and an injunction unnecessarily harming eBay. Judge

Friedman stated there was a “distinct possibility that the ’265

patent [would] be invalidated through reexamination as two PTO

interim office actions rejected all claims . . . as obvious.”

193

went on to note that issuing an injunction against eBay would

result in “irreparable harm . . . should the PTO later invalidate

the ’265 patent” and that the “far more substantial risk of harm

to eBay is the potential for eBay to lose customers if forced to

remove the buy-it-now option from its website, potentially

impeding millions of transactions, only to later discover that the

’265 patent was never valid . . . .”

194

Lastly, Judge Friedman’s opinion analysis seemed to rest on

MercExchange’s continued desire to not practice the

patents-in-suit.

195

Specifically, he noted “MercExchange has

189

Id. at 587 n.30.

190

Id.

191

Id. at 572.

192

Id. at 587 (suggesting that eBay may be “necessary to the public, such as medical

devices”).

193

Id. at 591. Judge Friedman’s speculation was incorrect as within less than three

months MercExchange’s ’265 patent was allowed by the PTO. Brief of Appellant at 52,

MercExchange, L.L.C. v. eBay, Inc., 273 F. App’x 857 (2008) (No. 07–1531), 2007 WL

3338911 at *52 (“In an October 2, 2007 Office Action, the PTO . . . has now confirmed the

patentability of claims 1-25 of the ’265 Patent.”).

194

MercExchange, 500 F. Supp. 2d at 585.

195

See Reis, supra note 178, at 149–51; see also id. at 149 n.66 (contrasting the utility

of self-made inventors or university researches with Judge Friedman’s analysis of

MercExchange and noting “the majority of the utility achieved by [self-made inventor or

university] licensing programs results from the fact that patent holders are still seeking to

develop their patent, they are just opting to do so in partnership with others”);

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714 Chapman Law Review [Vol. 18:3

virtually no presence in the online auction industry and has

little, if any, name recognition, customer base, market share or

licensing program spurring patent development.”

196

In almost

direct defiance of the Supreme Court majority opinion, Judge

Friedman reasoned that despite “the Supreme Court’s

admonishment to avoid categorical rules . . . [a plaintiff patent

owner] offering a license to the defendant [patent

infringer] . . . plainly weighs against a finding of irreparable

harm as it illustrates the patent holder’s willingness to forgo his

right to exclude.”

197

4. Judge Friedman and Other Patent Cases

The seemingly strong lean of anti-patent holder sentiment

regarding consideration of an injunction against eBay was

perhaps standard anti-patent holder practice in Judge

Friedman’s courtroom. A review of the forty cases assigned to

him while on the bench (November 1997 to August 2011) reveals

a strong disfavor of patent holders. While eBay was the longest

patent case pending before Judge Friedman,

198

of the other

twelve cases pending for over 300 days on his docket,

199

four were

cases concluded through summary judgment of

non-infringement,

200

and eight cases were dismissed without

substantive opinion.

201

No case decided by Judge Friedman could

arguably be characterized as in favor of a patent owner.

Venkatesan, supra note 125, at 43 (“There could not be a clearer exposition and adoption

of the Second Circuit’s doctrine of denying nonpracticing patentees’ monopoly rents from

their patents.”).

196

MercExchange, 500 F. Supp. 2d at 583; Reis, supra note 178, at 149 (concluding

that Judge Friedman’s listing of these factors constituted key elements in his

consideration of injunction relief).

197

MercExchange, 500 F. Supp. 2d at 573.

198

MercExchange, L.L.C. v. eBay, Inc., No. 2:01-cv-00736, Dkt. at 1, 763 (E.D. Va

2007) (MercExchange’s complaint was filed on Sept. 26, 2001, (Dkt. 1) and ended on Feb.

28, 2008, with an agreed order dismissing case (Dkt. 763), totaling 2841 days of

litigation).

199

Cummins Eagle, Inc. v. Bakery Holdings, No. 2:98-cv-00945 (E.D. Va. 1998); Jacob

v. Columbia-Arlington, No. 2:98-cv-01474 (E.D. Va. 1998); Bell-Atlantic Net. v. Covad

Commc’ns, No. 2:99-cv-00712 (E.D. Va. 1999); Fantasy Sports v. Sportsline.Com, Inc., No.

2:99-cv-02131 (E.D. Va. 1999); Fantasy Sports v. Time Warner, Inc., No. 2:00-cv-00179

(E.D. Va. 2000); Microstrategy Inc. v. Bus. Objects, S., No. 2:01-cv-00826 (E.D. Va. 2001);

Nystrom v. Trex Co., No. 2:01-cv-00905 (E.D. Va. 2001); Colt Def. L.L.C. v. Heckler

& Koch Def., Inc., No. 2:04-cv-00258 (E.D. Va. 2004); AU Optronics v. Sharp Corp., No.

2:04-cv-00333 (E.D. Va. 2004); Audio MPEG, Inc. v. Creative Labs, Inc., No. 2:05-cv-00185

(E.D. Va. 2005); Bid for Position, L.L.C. v. AOL, L.L.C., No. 2:07-cv-00582 (E.D. Va. 2007);

Osmose, Inc. v. Arch Chem., Inc., No. 2:10-cv-00108 (E.D. Va. 2010).

200

Bell-Atlantic, No. 2:99-cv-00712; Microstrategy, No. 2:01-cv-00826; Nystrom, No.

2:01-cv-00905; Bid for Position, No. 2:07-cv-00582; see also Dynamic Brands, L.L.C. v. Sun

Mountain Sports, Inc., No. 2:08-cv-00244 (E.D. Va. 2008) (an additional decision adverse

to the patent holder but related to ownership of the patent itself, was only pending for

eighty-two days, and was voluntarily dismissed).

201

Cummins Eagle, No. 2:98-cv-00945; Jacob, No. 2:98-cv-01474; Fantasy Sports, No.

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5. Procedural Notes and Press Before Second Federal Circuit

Appeal

Before the second Federal Circuit appeal, and case

settlement, it is important to note one procedural point, and one

press communications point. Regarding case procedure, after

Judge Friedman’s July 2007 denial of MercExchange’s renewed

request for an injunction, MercExchange immediately motioned

the court for post-verdict accounting and bond.

202

In turn, eBay

motioned the court for judgment as a matter of law or new trial

on the ’265 patent, and summary judgment that eBay’s current

operations do not infringe.

203

In December 2007, Judge Friedman

issued an order granting MercExchange’s motion to certify the

judgment and ordering the clerk of court to enter judgment in the

amount of $25 million, with interest, on the ’265 patent.

204

Accordingly, eBay posted a bond in the amount of $31 million on

December 19, 2007.

205

Regarding press communications, in contrast to the active

release of communications at the time leading up to the Supreme

Court decision, and regarding the Supreme Court decision, eBay

did not issue any press releases regarding Judge Friedman’s

denial of the renewed motion for injunction in July 2007. The

first post-Supreme Court press communication came from eBay

in December 2007, when Judge Friedman entered judgment on

the ’265 patent. In that release, eBay stated:

We are disappointed with the court’s order and we plan to appeal

it. . . . [T]he court concluded that it did not have the legal right to

consider the merits of our arguments concerning the ’265 patent, but

rather was required to reject our motions based on the procedural

posture of the case. . . . Additionally, our motion for summary

judgment that our 2003 design-around was effective and there is no

ongoing infringement of the ’265 patent, and that no further damages

are due, also remains pending before the court. We remain pleased

with other developments in this ongoing case, including the decision

by the United States Court of Appeals to invalidate another patent in

2:99-cv-02131; Fantasy Sports, No. 2:00-cv-00179; Colt, No. 2:04-cv-00258; AU Optronics,

No. 2:04-cv-00333; Audio MPEG, No. 2:05-cv-00185; Osmose, No. 2:10-cv-00108.

202

Motion for Post-Verdict Accounting by MercExchange, L.L.C., MercExchange, 500

F. Supp. 2d 556 (ECF No. 696); Motion for Bond by eBay, Inc., Half.com, Inc.,

MercExchange, 500 F. Supp. 2d 556 (ECF No. 699).

203

Motion for Judgment as a Matter of Law or for New Trial on 256 Patent by eBay,

Inc., Half.com, Inc., MercExchange, 500 F. Supp. 2d 556 (ECF No. 706); Motion for

Summary Judgment that Defendants’ Current Operations Do Not Infringe by eBay, Inc.,

Half.com, Inc., MercExchange, 500 F. Supp. 2d 556 (ECF No. 708).

204

Order Granting 693 Motion to Certify the Judgment Under FRCP 54(b),

MercExchange, 500 F. Supp. 2d 556 (ECF No. 752); Judgment on the 265 Patent Under

FRCP 54(b), MercExchange, 500 F. Supp. 2d 556 (ECF No. 759).

205

Supersedeas Bond in the Amount of $31 Million, MercExchange, 500 F. Supp. 2d

556 (ECF No. 761).

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716 Chapman Law Review [Vol. 18:3

this case; the May 2006 unanimous Supreme Court decision in eBay’s

favor on MercExchange’s request for an injunction; and the District

Court’s subsequent affirmation in September 2007 that no injunction

is called for.

206

B. Second Appeal to the Federal Circuit and Settlement

The eBay litigation, lasting through trial, appeal—including

to the Supreme Court—and then on remand and a second appeal,

was a great anomaly for any patent case.

207

Federal Circuit

briefing on Judge Friedman’s denial of MercExchange’s renewed

motion for permanent injunction occurred between October and

December 2007.

208

No new legal arguments were made during

the briefing; however, there was much discussion regarding the

October 2007 PTO post-KSR

209

office action allowing claims one

through twenty-five of the ’265 patent.

210

Indeed, Judge

Friedman was incorrect in his assumption that the ’265 patent

would soon be invalidated by the PTO. Sometime after briefing,

likely January 2008, the case was referred to the Federal

Circuit’s mediation office.

211

Settlement of the case was

announced February 28, 2008, when eBay released the following

statement:

eBay Inc. announced today that it has agreed to a settlement with

MercExchange, L.L.C. to dismiss all claims and appeals stemming

from the patent lawsuit filed by MercExchange in September of

2001 . . . As part of the settlement, eBay will purchase all three

patents involved in the lawsuit, as well as some additional related

technology and inventions and a license to another search-related

patent portfolio that was not asserted in the lawsuit. These assets will

allow eBay to further enhance its operations and trust and safety

efforts on its ecommerce sites . . . [eBay Senior Vice President and

General Counsel stated] “In addition to resolving the litigation, this

206

eBay Inc. Statement on District Court Ruling in MercExchange v. eBay Case, EBAY

INC. (Dec. 12, 2007), http://files.shareholder.com/downloads/ebay/0x0x151224/fdee3cd4-38fc-

4a75-ad79-aee05ea38b64/EBAY_News_2007_12_12_General.pdf.

207

See Megan M. La Belle, Against Settlement of (Some) Patent Cases, 67 VAND. L.

REV. 375, 381 (2014) (discussing studies of patent case settlements and noting that the

vast majority of patent suits settle, patent cases that do settle generally involve the most

litigated patents, and cases that do not settle generally result in a patent being

invalidated; none of these factors can be found in the eBay litigation).

208

Brief of Appellant, MercExchange, L.L.C. v. eBay, Inc., 500 F. Supp. 2d 556 (No.

07-1531), 2007 WL 3338911 (on file with author); Brief of Defendants, MercExchange, 500

F. Supp. 2d 556 (No. 07-1531), 2007 WL 4618645 (on file with author); Reply Brief of

Appellant, MercExchange, 500 F. Supp. 2d 556 (No. 07-1531), 2007 WL 4984843 (on file

with author).

209

The Supreme Court decision in KSR was issued April 30, 2007. KSR Int’l Co.

v. Teleflex Inc., 550 U.S. 398 (2007).

210

Reply Brief of Appellant, supra note 208, at 13.

211

Memorandum from Michael Morthland for Professor Ryan T. Holte regarding

communications with the Federal Circuit records office (Oct. 28, 2014) (on file with

author).

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settlement gives us access to additional intellectual property that will

help improve and further secure our marketplaces.”

212

While the settlement details are confidential between the

parties, it has been confirmed that eBay purchased all patents

owned by MercExchange and continued to prosecute pending

MercExchange patent applications.

213

Further, after a review of

eBay’s quarterly SEC earnings filings, it appears that the total

settlement amount could likely have been somewhere between

the $31 million bond amount and $55 million.

214

While the confidential reasons for case settlement are only

known to the parties, the February 2008 timing can likely be

explained. First, given the Federal Circuit’s previous treatment

of the case, with almost automatic reversal of Judge Friedman’s

injunction denial, it was likely the Federal Circuit would again

reverse Judge Friedman. Beyond specific errors in his reasoning

that would potentially result in any patent-owner-licensor being

denied an injunction

215

(at a minimum in violation of the eBay

Court’s affirmance of Continental Paper Bag), the Federal

Circuit’s treatment of permanent injunction appeals post-eBay

has not likely changed. While additional comprehensive research

into post-eBay injunction appeals at the Federal Circuit is

needed—and forthcoming

216

—review of the fifty-two Federal

Circuit injunction appeals applying the eBay analysis reveals

nine appeals where a district court denied entry of a permanent

injunction,

217

with the Federal Circuit affirming on only two

occasions, both related to medical devices.

218

212

eBay Inc. and MercExchange, L.L.C. Reach Settlement Agreement, EBAY INC. (Feb.

28, 2008), http://investor.ebay.com/releasedetail.cfm?ReleaseID=296670.

213

Holte, supra note 4, at 29−30.

214

The $31 million to $55 million settlement range was calculated as follows. The $31

million bond posted to the district court was returned to eBay on February 29, 2008.

MercExchange, L.L.C. v. eBay, Inc., No. 2:01-cv-00736, Dkt. 763 (E.D. Va. 2007).

According to eBay’s SEC filings, between December 31, 2007, and March 31, 2008, eBay

general and administrative operating costs increased in the amount of $76,903,000. That

is roughly a $25 million increase over the next two quarters’ increases of $50 million and

$44 million. See SEC Filings, EBAY INC. (last visited April 11, 2015), http://investor.

ebayinc.com/sec.cfm?view=all. By conjecture, a weak conclusion can be drawn that the

$25 million increase was partially due to a MercExchange settlement disbursement added

to the previously paid and returned $31 million bond amount (the original jury award

with interest). This is only conjecture based on publicly available information; the true

settlement amount could have been paid in future installments, or some other means that

cannot be independently verified.

215

Reis, supra note 178, at 149−51 (2008); Venkatesan, supra note 125, at 43 (“There

could not be a clearer exposition and adoption of the Second Circuit’s doctrine of denying

nonpracticing patentees’ monopoly rents from their patents.”).

216

This author and Chris Seaman, Assistant Professor of Law, Washington and Lee

University School of Law, are currently compiling data on all Federal Circuit permanent

injunction appeals post-eBay and plan to release their data and findings in the fall of

2015.

217

Voda v. Cordis Corp., 536 F.3d 1311 (Fed. Cir. 2008); Ecolab, Inc. v. FMC Corp.,

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A second likely reason supporting the pre-Federal Circuit

opinion timing of the settlement is that any strategy by eBay to

delay until MercExchange ran out of litigation funds was likely

thwarted by the ’265 patent claims being allowed at the PTO and

a district-court-held bond of $31 million seemingly locked in the

future for MercExchange. As Judge Friedman’s opinion detailed,

over $6 million had already been invested by one hedge fund

before patent allowance and bond posting; after those

benchmarks, it is likely MercExchange’s attractiveness to

litigation investors would only increase.

Third, and discussed in greater detail infra, eBay likely

found value in its public efforts for the Supreme Court opinion to

appear as an affirmance of Judge Friedman’s initial denial of

MercExchange’s request for injunction, a much broader reversal

of the Federal Circuit’s opinion, and an image of Justice

Kennedy’s separate concurrence as the takeaway future law

against any non-practicing patent owner. To this end, eBay likely

preferred Judge Friedman’s denial of MercExchange’s renewed

motion for a permanent injunction as the last opinion in the case,

and likely placed great value in the Federal Circuit not creating

adverse precedent in reversing Judge Friedman a second time.

III. WHAT THE EBAY V. MERCEXCHANGE OPINION HAS

COME TO MEAN

Despite the unanimous Supreme Court opinion

characterizing eBay as merely following “well-established

principles of equity,”

219

the “opinion has had cataclysmic

effect . . . a remarkable legal juggernaut.”

220

Fewer than five

years after the opinion was issued, “eBay had been cited more

than 4,100 times. Before eBay, courts presumed irreparable

injury in intellectual property cases on the ground that damages

569 F.3d 1335 (Fed. Cir. 2009); Robert Bosch L.L.C. v. Pylon Mfg. Corp., 659 F.3d 1142

(Fed. Cir. 2011); Bard Peripheral Vascular, Inc. v. W.L. Gore & Assoc., Inc., 670 F.3d 1171

(Fed. Cir. 2012); Whitserve, L.L.C. v. Computer Packages Inc., 694 F.3d 10 (Fed. Cir.

2012); Edwards Lifesciences AG v. CoreValve, Inc., 699 F.3d 1305 (Fed. Cir. 2012);

Presidio Components, Inc. v. Am. Tech. Ceramics Corp., 702 F.3d 1351 (Fed. Cir. 2012);

Douglas Dynamics, L.L.C. v. Buyers Prods. Co., 717 F.3d 1336 (Fed. Cir. 2013); Apple Inc.

v. Motorola, Inc., 757 F.3d 1286 (Fed. Cir. 2014).

218

The patents in Voda and Bard Peripheral Vascular are both related to medical

devices. The Bard decision relied on a strong public interest allowing market competition

between the parties. Bard Peripheral, 670 F.3d at 1192 (affirming the district court’s

“finding that it was in the public interest to allow competition in the medical device

arena”). Voda held the patent owner improperly argued irreparable injury on the part of

its exclusive licensee instead of itself. Voda, 536 F.3d at 1329 (“Voda had attempted to

prove irreparable injury by alleging irreparable harm to his exclusive licensee, rather

than himself.”).

219

eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).

220

Gergen et al., supra note 2, at 205–06.

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in such cases are notoriously difficult to measure. Now courts are

split on whether any such presumption is permissible.”

221

During

hearings before the FTC, one university research professor,

inventor of over twenty-five patents, and founder of numerous

technology startups stated:

[E]ven though the ruling in eBay may not have expressly commanded

that one looks at whether it’s a practicing or non-practicing entity to

decide whether they’re entitled to enjoin the infringer . . . the reality

is . . . courts understand the eBay decision to actually mean that. That

is if you’re a licensor and do not practice, your ability today to have a

meaningful power in the negotiation is greatly diminished . . . .

222

A. Fewer Permanent Injunctions Granted Post-eBay

Looking at empirical case data post-eBay, the rate of

permanent injunctions in patent infringement disputes has

changed dramatically. A sampling of district court permanent

injunction decisions between May 2003 and May 2005, just prior

to eBay, revealed between 0% and 6% of patentee motions for

injunction denied.

223

In great contrast, sampling district courts

after the eBay decision, between 2006 and 2011, reveals 25% to

40% of patentee motions for injunctions denied.

224

Indeed, in the

most recent and comprehensive study of the 217 district court

permanent injunction decisions post-eBay, Professor Chris

Seaman finds permanent injunctions were granted in only 158

cases—or a denial rate of 27.2%—where the parties contested the

issue.

225

In short, post-eBay injunction denial rates have, at a

minimum, quadrupled.

226

221

LAYCOCK, supra note 2, at 427.

222

Ron Katznelson, Hearing on the Evolving IP Marketplace: The Operation of IP

Markets, Remarks at the Federal Trade Commission 5, 62 (Mar. 18, 2009) [hereinafter

Hearning on the Evolving IP Marketplace], available at http://www.ftc.gov/sites/default/

files/documents/public_events/evolving-ip-marketplace/09 0318transcript.pdf.

223

Eric Maughan, Protecting the Rights of Inventors: How Natural Rights Theory

Should Influence the Injunction Analysis in Patent Infringement Cases, 10 GEO. J.L.

& PUB. POL’Y 215, 224 (2012); Benjamin Simler & Scott McClelland, A Model for

Predicting Permanent Injunctions After eBay v. MercExchange, BLOOMBERG LAW

REPORTS 1 (2011) (finding in the year prior to eBay 100% of the courts to consider

permanent injunctions granted the injunction).

224

Maughan, supra note 223; Simler & McClelland, supra note 223 (finding

injunctions granted only 60% of the time between the years 2006 and 2010).

225

See generally Christopher B. Seaman, Property Rules vs. Liability Rules in Patent

Litigation After eBay: An Empirical Study (forthcoming 2015). The percentage of total

contested permanent injunctions granted by district courts from May 15, 2006 (date of

Supreme Court’s decision in eBay v. MercExchange) through December 31, 2013 is 72.8%

(158 of 217 cases). The 217 cases include one case where the district court denied motions

for permanent injunctions by both plaintiff and defendant/counterclaim plaintiff. This

figure is in line with previous studies. See Colleen V. Chien & Mark A. Lemley, Patent

Holdups, the ITC, and the Public Interest, 98 CORNELL L. REV. 1, 9–10 (2012) (finding an

injunction rate of 75% for cases through December 2011); FED. TRADE COMM’N, THE

EVOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE AND REMEDIES WITH

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For patentees that do not practice the patents they own, the

rates for injunctions are even lower post-eBay. Professor

Seaman’s recent study found competition in the marketplace to

be an important consideration in deciding whether a given

patentee would receive an injunction against an infringer.

227

Others have found that “when courts [find] no direct competition

between the plaintiff [patentee] and infringer, they denied

permanent injunctions in more than half [] of the cases.”

228

Professor Seaman’s study found where parties were not market

competitors, injunctions were denied in 78.4% of cases (29 of 37

cases), and for non-practicing entities (which MercExchange was

classified as), injunctions were denied in 84.0% of cases (21 of 25

cases).

229

For inventors and patent owners who do not themselves

manufacture or otherwise produce a product related to their

patent, the opportunity for preventing another from using the

patent was almost completely destroyed by the eBay decision.

230

Finally, as many industries are beginning to realize, the

eBay injunction analysis, and change in rate of injunctions, is

beginning to reach far beyond just patent infringement cases.

“[F]ederal courts now commonly accept the eBay test as the test

for injunctions in virtually all types of cases, from constitutional

challenges under 42 U.S.C. § 1983, to actions under various

federal regulatory or antidiscrimination statues, to diversity

actions centered on state tort, contract, or statutory law.”

231

For

these areas of the law, following eBay precedent with district

courts reviewing patent injunction issues, courts have similarly

reduced presumptions in favor of injunctions, “including

presumptions that continuing rights violations entail irreparable

COMPETITION 217 (2011), available at https://www.ftc.gov/sites/default/files/documents/

reports/evolving-ip-marketplace-aligning-patent-notice-and-remedies-competition-report-

federaltrade/110307patentreport.pdf (reporting an injunction rate of 72% to 77%).

226

Maughan, supra note 223.

227

See generally Seaman, supra note 225. Percentage of cases where district court

granted permanent injunction when the parties competed in a product market during the

term of at least one patent-in-suit: 83.3% (150 of 180 cases). If Hatch-Waxman cases are

excluded from this tally, the grant rate is slightly lower: 81.4% (127 of 156 cases). Id.

228

Douglas Ellis et al., Economic Implications (and Uncertainties) of Obtaining

Permanent Injunctive Relief after eBay v. MercExchange, 17 FED. CIR. B.J. 437, 442–43

(2008); see also d’Incelli, supra note 13, at 360 (“Plaintiffs who were awarded injunctions

tended to practice their patents and functioned as market competitors with the

defendants.”).

229

See generally Seaman, supra note 225. Percentage of cases where district court

granted permanent injunction when the parties were not market competitors: 21.6% (8 of 37

cases). Id.

230

An important point regarding many patent owners who do not practice the

patents they own is that they very likely formerly practiced the patents they owned. See

Kristen Osenga, Formerly Manufacturing Entities: Piercing the “Patent Troll” Rhetoric, 47

CONN. L. REV. 435, 440 (2014).

231

Gergen et al., supra note 2, at 215.

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injury.”

232

After eBay, the ability to receive an injunction in all

areas of the law has been reduced dramatically.

B. Courts Improperly Using Justice Kennedy’s Concurrence as

Precedent

One reason for the change in jurisprudence regarding

issuance of permanent injunctions post-eBay, is that district

court judges are citing Justice Kennedy’s concurrence to support

holdings that deny injunctions.

233

As other scholars have noted,

“[p]luralities and concurrences” can often times result in

“vagueness and uncertainty that . . . leave[s] us wondering what

the controlling rule is . . . .”

234

The eBay precedent seems to be

just that situation.

In reviewing post-eBay injunction cases, many other scholars

have concluded “a review of post-eBay federal district court

decisions shows that though it is not the opinion of the Court,

[Justice] Kennedy’s concurrence has proven to be highly

persuasive.”

235

Specifically to non-practicing patentees, the

“increase in denied injunctions to NPEs reflects a reliance by

many courts upon Justice Kennedy’s concurring opinion in eBay

and its general disapproval of NPEs.”

236

“District courts have

responded in apparent lockstep to Justice Kennedy’s concerns

about trolls.”

237

And as found empirically regarding competition

as the greatest factor in injunction denials, “focusing on direct

competition [between parties in patent injunction decisions] is

really a proxy for focusing on a firm’s status as an NPE.”

238

Finally, dismissing the notion that courts are potentially placing

232

Id. at 216.

233

Despite there not being a “swing vote” with a unanimous opinion on the eBay

injunction issue, perhaps there is some conformity to be found in Justice Kennedy’s

singular control of the law in yet another case.

234

Berkolow, Much Ado About Pluralities: Pride and Precedent Amidst the Cacophony

of Concurrences, and Re-percolation After Rapanos, 15 VA. J. SOC. POL’Y & L. 299, 301

(2008) (discussing the confusion over Justice Kennedy’s concurrence in Rapanos, among

other things, and noting that justices are increasingly becoming aware of the power they

can hold in shaping the law where they cannot otherwise garner a majority in support of

their view).

235

Venkatesan, supra note 125, at 30. In support of this, some non-patent scholars

actually think it is best when courts consider Justice Kennedy’s concurrence. LAYCOCK,

supra note 2 (“The only hint of what should have been the real issue in eBay comes in the

penultimate paragraph of Justice Kennedy’s concurring opinion.”).

236

Maughan, supra note 223, at 225.

237

John M. Golden, “Patent Trolls” and Patent Remedies, 85 TEX. L. REV. 2111, 2113

(2007); see also Yixin H. Tang, The Future of Patent Enforcement After eBay

v. MercExchange, 20 HARV. J.L. & TECH. 235, 246 n.91 (2006) (discussing Judge Davis’

opinion in z4 Tech. v. Microsoft Corp., 434 F. Supp. 2d 437 (E.D. Tex. 2006) and stating

“Judge Davis quoted Justice Kennedy’s concurring opinion in eBay stating that ‘legal

damages may well be sufficient to compensate for the infringement’”(citation omitted)).

238

Maughan, supra note 223, at 225.

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722 Chapman Law Review [Vol. 18:3

equal weight or discussion to Justice Roberts’ “historical”

concurrence discussion, one scholar reviewing district courts

denying permanent injunctions found “[a]lthough several of the

courts cited Justice Kennedy’s concurrence . . . none have cited

Justice Roberts’ concurrence . . . .”

239

Another important point regarding the growth of Justice

Kennedy’s concurrence as precedent for eBay injunction analysis

is that many early district courts citing Justice Kennedy, and

denying injunctions, are themselves being “widely cited by

subsequent district courts.”

240

Simply looking at citations to

Judge Friedman’s 2007 denial of MercExchange’s renewed

motion for injunction reveals at least thirteen citations within

cases considering permanent injunctions for unrelated patent

infringement cases.

241

While these cases themselves are not

239

Benjamin Petersen, Injunctive Relief in the Post-eBay World, 23 BERKELEY TECH.

L.J. 193, 197 (2008).

240

Id.

241

Trading Techs. Int’l, Inc. v. eSpeed, Inc., No. 04C5312, 2008 WL 4531371, at *2

(N.D. Ill. May 22, 2008) (“The eBay district court, along with numerous other courts, has

since decided that no presumption can exist under relevant case law and the language of

the Supreme Court’s decision.”); Joyal Products, Inc. v. Johnson Elec. N. Am., Inc., No. 04-

5712(JAP), 2009 WL 512156, at *11 (D. N.J. Feb. 27, 2009) (citing Judge Friedman’s order

to distinguish an entity who largely licenses their patents for the utilization of the

patent); Arlington Indus., Inc. v. Bridgeport Fittings, Inc., No. 3:01-CV-0485, 2010 WL

817519, at *5 (M.D. Pa. Mar. 9, 2010) (citing Judge Friedman’s opinion that the public

interest factor favors the patentee in interest of maintaining the integrity of the patent

system); Enpat, Inc. v. Budnic, No. 6:11-cv-86-PCF-KRS, 2011 WL 1196420, at *3 (M.D.

Fl. Mar. 29, 2011) (“However, ‘the [c]ourt is not blind to the reality that the nature of the

right protected by a patent, the right to exclude, will frequently result in a plaintiff

successfully establishing irreparable harm in the wake of establishing validity and

infringement.’” (citing MercExchange, L.L.C. v. eBay, Inc., 500 F. Supp. 2d 556, 568 (E.D.

Va. 2007))); ePlus, Inc. v. Lawson Software, Inc., No. 3:09CV620, 2011 WL 2119410, at *6

(E.D. Va. May 23, 2011) (explaining that ePlus’ first burden is to demonstrate irreparable

harm); Metso Minerals, Inc. v. Powerscreen Int’l Distrib. Ltd., 788 F. Supp. 2d 71, 74

(E.D. N.Y. 2011) (“On remand from the Supreme Court, [the district court] declin[ed] to

grant injunctive relief where it appeared that the patent holder was ‘merely seeking an

injunction as a bargaining chip to increase the bottom line.’” (citing MercExchange, 500 F.

Supp. 2d at 588)); Belden Techs., Inc. v. Superior Essex Commc’ns LP, 802 F. Supp. 2d

555, 578 (D. Del. 2011) (differentiating entities who use third-party licensing to bring

concepts to market, and “excis[ing] a tax from companies already participating in the

market” (citing MercExchange, 500 F. Supp. 2d at 583 n.24)); ActiveVideo Networks, Inc.

v. Verizon Commc’ns, Inc., 827 F. Supp. 2d 641, 648 (E.D. Va. 2011) (comparing the

plaintiff to MercExchange, who both use their patents to threaten litigation in order to

negotiate the maximum value of a license), aff’d in part, rev’d in part, vacated in part, 694

F.3d 1312 (Fed. Cir. 2012); Layne Christensen Co. v. Bro-Tech Corp., 871 F. Supp. 2d

1104, 1117 (D. Kan. 2012) (noting that “irreparable harm had not been shown in part

because the patentee had consistently licensed the patent instead of engaging in

commercial activity in practicing the patent” (citing MercExchange, 500 F. Supp. 2d at

570–71)); ePlus Inc. v. Lawson Software, Inc., 946 F. Supp. 2d 459, 467 (E.D. Va. 2013)

(noting the overlap between the factors of adequate remedy at law and irreparable harm),

vacated 760 F.3d 1350 (Fed. Cir. 2014); Smith & Nephew, Inc. v. Interlace Med., Inc., 955

F. Supp. 2d 69, 78 (D. Mass. 2012) (explaining that the PTOs preliminary rejection of the

patents weakens the plaintiff’s ability to show irreparable harm); Open Text, S.A. v. Box,

Inc., 36 F. Supp. 3d 885, 906. (N.D. Cal. 2014) (“[C]ase law is clear that the potential for

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necessarily citing Justice Kennedy’s concurrence as precedent

directly, as discussed supra, Judge Friedman’s reasoning to deny

an injunction was certainly in favor of following Justice

Kennedy’s concurrence as precedent.

One final point regarding the precedential citation of Justice

Kennedy’s concurrence in eBay injunction jurisprudence is that

the trend does not seem to be influencing Federal Circuit

decisions. Of the fifty-two Federal Circuit cases reviewing

appeals of permanent injunctions since eBay, only two cases cite

to Justice Kennedy, and one of those cases, Robert Bosch LLC

v. Pylon Manufacturing Corp., cites to Justice Kennedy for

comparison regarding the facts of that case being clearly

distinguishable from Justice Kennedy’s concerns in eBay.

242

Further, if any concurrence-following conclusion can be drawn

from Federal Circuit citations, it would actually be in the four

post-eBay cites to Chief Justice Roberts’ concurrence, noting his

discussion of the historical practice before analyzing the

injunction factors. For example: “the analysis by the district

court proceeds under the ‘long tradition of equity practice’

granting ‘injunctive relief upon a finding of infringement in the

vast majority of patent cases.’”

243

“This analysis proceeds with an

eye to the ‘long tradition of equity practice’ granting ‘injunctive

relief upon a finding of infringement in the vast majority of

patent cases.’”

244

As discussed supra, additional comprehensive

research into post-eBay injunction appeals at the Federal Circuit

is needed, and forthcoming.

245

Preliminary data suggests,

however, that the change in jurisprudence found in district

courts, and using Justice Kennedy’s concurrence as injunction

precedent, is not mirrored in Federal Circuit post-eBay injunction

jurisprudence.

C. Public Perception of Patent Injunctions Post-eBay: No

Injunctions Allowed

As discussed previously, during the time immediately

surrounding the eBay case pending before the Supreme Court,

loss of market share is insufficient.”).

242

Robert Bosch L.L.C. v. Pylon Mfg. Corp., 659 F.3d 1142, 1149–50 (Fed. Cir. 2011);

Apple Inc. v. Samsung Elecs. Co., 735 F.3d 1352, 1372–73 (Fed. Cir. 2013).

243

Broadcom Corp. v. Emulex Corp., 732 F.3d 1325, 1338 (Fed. Cir. 2013).

244

Presidio Components, Inc. v. Am. Tech. Ceramics Corp., 702 F.3d 1351, 1362 (Fed.

Cir. 2012). The other two Federal Circuit cases citing Chief Justice Roberts’ concurrence

are Robert Bosch L.L.C., 659 F.3d, at 1149 and Fresenius USA, Inc. v. Baxter Int’l, Inc.,

582 F.3d 1288, 1302 n.4 (Fed. Cir. 2009).

245

This author and Professor Chris Seaman are currently compiling data on all

Federal Circuit permanent injunction appeals post-eBay and plan to release their data

and findings in the fall of 2015.

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724 Chapman Law Review [Vol. 18:3

and after, “17% of all [patent case] related news and editorial

items in [newspapers] . . . included the negative message that

‘patents are (and shouldn’t be) awarded to/enforceable by those

who don’t develop products/practice the invention.’ This was the

most prevalent ‘message’ – positive or negative – in” patent

case-related news at the time.

246

Further, as discussed supra,

during the time eBay litigation was pending through the courts,

eBay systematically worked to create a public image that

expanded their “win” in the Supreme Court majority opinion:

 From eBay’s press release when the Supreme Court

issued its opinion:

eBay . . . applauds today’s Supreme Court decision . . . . eBay

argued that trial judges ought to have the discretion—

expressly granted by Congress—to award money damages to

patent owners, instead of injunctions, if the facts of a

particular case warrant it. The Supreme Court agreed with

eBay that the injunction rule applied by the Federal Circuit

was unduly narrow. “We are extremely gratified by the

Supreme Court’s unanimous decision,” . . . “The trial judge

originally found in this case that money was sufficient, and

denied an injunction. We are confident that when the

District Court revisits this issue . . . the result will be the

same.”

247

 From eBay’s press release when Judge Friedman entered

judgment: “We remain pleased with other developments

in this ongoing case, including . . . the May 2006

unanimous Supreme Court decision in eBay’s favor on

MercExchange’s request for an injunction; and the

District Court’s subsequent affirmation in September

2007 that no injunction is called for.”

248

246

Dolak & Bettinger, supra note 140, at 28. The study conducted focuses on news

related to the NTP case; however, the press coverage between that case and eBay during

the time period cannot be distinguished:

Given the characteristics in common between the two cases, we wanted to show

what a consumer of major newspaper content might have experienced from the

NTP-related coverage, in terms of quantity and quality, at and around the time

that the Supreme Court was deciding to hear – and deciding – the eBay case.

For this purpose, we regarded the coverage as monolithic, because we assumed

that even a sophisticated reader with a particular interest in the NTP case

would not systematically distinguish between pertinent news and editorial

coverage. Rather, we assumed that an interested reader would read every

NTP-related item in the paper or papers he/she reviewed in a routine,

unexceptional fashion, i.e., along with other items of interest to the reader in

those paper(s), as he/she happened upon them in casual fashion.

Id. at 10.

247

See supra Part I.C.4.

248

See supra Part II.A.5.

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 Even eBay’s press release regarding the Federal Circuit’s

decision to stay its mandate pending the Supreme Court’s

review of the writ of certiorari: “In granting eBay’s

petition to stay the case, the U.S. Court of Appeals

considered whether there was both a reasonable

probability that the Supreme Court would accept eBay’s

appeal and a fair prospect that the majority of the

Supreme Court would reverse one or more rulings

against eBay.”

249

After consideration of such misleading press releases by a

huge consumer-direct company, it’s no great surprise that even

when eBay finally settled with MercExchange, press coverage

continued to echo eBay’s Supreme Court “win” and the end of

non-practicing patentee injunctions. From CNET News February

2008:

The terms of the settlement announced Thursday are

confidential . . . . eBay appealed th[e] decision all the way to the

Supreme Court, which ruled in its favor in spring 2006. The justices

issued a landmark decision last May designed to make it more

difficult for patent holders to get courts to sign off on shutoffs of

infringing products.

250

From the Wall Street Journal February 2008:

Plaintiffs had all but automatically been granted injunctions in patent

cases, giving them strong leverage in pressing for large payments

from defendants. The Supreme Court in May 2006 issued a ruling that

put some limits on the practice, stating that judges should weigh such

factors as the public interest in deciding whether to grant

injunctions.

251

Indeed, there was never any popular media coverage related to

portions of the Supreme Court opinion regarding the affirmance

of Continental Paper Bag, the reversal of Judge Friedman’s

initial denial of MercExchange’s request for injunction, or Chief

249

See supra Part I.B.

250

Anne Broache, eBay, MercExchange End ‘Buy it Now’ Patent Feud, CNET NEWS

(Feb. 28, 2008), http://www.cnet.com/news/ebay-mercexchange-end-buy-it-now-patent-

feud/.

251

Don Clark, EBay Ends Patent Fight with MercExchange, WALL ST. J. (Feb. 29,

2008), http://online.wsj.com/news/articles/SB120422344163500365; see also Susan Decker

& Oliver Staley, eBay Agrees to Settle ‘Buy It Now’ Patent Lawsuit (Update4), BLOOMBERG

NEWS (Feb. 28, 2008), http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ao

OIDXjUOi8A (“On appeal, the U.S. Supreme Court ended patent owners’ automatic right

to block use of infringing products. . . . Since then, judges throughout the U.S. have denied

such orders in cases where the patent owner is not a competitor of the company making

the infringing products.”); Mark Schwanhausser, EBay Patent Case Settled, SAN JOSE

MERCURY NEWS (Feb. 29, 2008), http://www.mercurynews.com/breakingnews/ci_8397551

(“eBay took its case to the Supreme Court, where it prevailed. . . . Woolston also was

derided as a ‘patent troll’ . . . .”).

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726 Chapman Law Review [Vol. 18:3

Justice Roberts’ concurrence in contrast to Justice Kennedy’s.

Summarizing the media reports, it’s no great surprise that to the

average member of the public, technology entrepreneur,

corporate executive, and even some district court judges, “if

you’re a licensor and do not practice, your ability today to have a

meaningful power in the negotiation [of a patent business

transaction] is greatly diminished . . . one looks at whether it’s a

practicing or non-practicing entity to decide whether the [entity

is] entitled to enjoin the infringer.”

252

IV. MISINTERPRETATION OF EBAY V. MERCEXCHANGE AND WHY

“Precedent’s power in the legal system relies on it carrying a

weight” without confusion and often times “pluralities and

concurrences are contributory factors in that confusion.”

253

The

eBay majority opinion was neither meant to change the law of

injunctions nor serve as the ultimate test for injunction analysis.

“Alternative language in eBay, especially the Court’s concluding

disclaimer, suggests that a humbler reach for the opinion was

intended.”

254

Looking back at the eBay majority opinion, with the

MercExchange v. eBay litigation facts and procedure in hand,

reveals important points in understanding the opinion’s true

holding and precedent.

A. The Holding of eBay’s Unanimous Majority Opinion Has

Been Lost

Looking at the eBay case facts and procedure, it is important

to first note that the parties did not dispute the factors courts

should consider when analyzing permanent injunction issues in

patent cases. Indeed, both MercExchange in its opening brief

requesting an injunction in 2003, and eBay in its brief in

opposition, cited and discussed the four equitable factors courts

252

Hearing on the Evolving IP Marketplace, supra note 222, at 52. Perhaps one

reason for public sentiment against non-practicing patent owners receiving injunctions is

that public perception favors that courts apply the doctrine of accession to equitable

determinations in patent cases for “substantially improving” infringers. For further

discussion of the doctrine of accession applied to equitable patent remedies, see Peter Lee,

The Accession Insight and Patent Infringement Remedies, 110 MICH. L. REV. 175, 218–19

(2011) (“eBay itself already embraces this notion of comparing the relative values of

patented inventions and accused products. . . . which compels courts to compare the

relative values of an underlying patent and a broader, infringing technology when

determining the appropriateness of injunctive relief.”).

253

Berkolow, supra note 234, at 313–14.

254

Gergen et al., supra note 2, at 219 (citing the Supreme Court’s “disclaimer” within

the unanimous opinion). “We hold only that the decision whether to grant or deny

injunctive relief rests within the equitable discretion of the district courts, and that such

discretion must be exercised consistent with traditional principles of equity, in patent

disputes no less than in other cases governed by such standards.” eBay Inc.

v. MercExchange, L.L.C., 547 U.S. 388, 394 (2006).

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should consider when deciding an injunction.

255

After the initial

denial of the injunction, the disputed injunction issues focused on

(1) Judge Friedman’s seemingly categorical denial of injunctions

for business method patents or patentees that do not practice

their patents, and (2) Judge Friedman’s inappropriate discussion

of MercExchange not seeking a preliminary injunction or the

likelihood of eBay filing multiple contempt hearings should an

injunction issue.

256

After the Federal Circuit opinion, and

reversal of Judge Friedman, the Supreme Court’s disputed

injunction matters focused on one completely different issue—

whether the Federal Circuit erred in not considering the four

equitable factors but instead citing a “general rule” that

injunctions should issue.

257

The unanimous Supreme Court opinion holds only three

main conclusions that are clearly pronounced once placed into

perspective within the earlier case facts and litigation history.

First, the district court erred in discussing expansive principles

related to MercExchange that would result in injunctions not

issuing in a broad swath of cases. Second, the Federal Circuit

erred in not applying the traditional four-part equitable test but

instead citing a “general rule” that injunctions should issue once

validity and infringement have been adjudged. Third, the

Supreme Court affirmed the Continental Paper Bag case and

explicitly said that injunctions may issue to patent owners who

“unreasonably decline[]” to use the patents they own.

258

Understanding the unanimous Supreme Court opinion,

especially as it applies to Judge Friedman’s first denial of an

injunction, highlights that the Supreme Court rejected any

injunction analysis that would result in a broad class of patent

owners, or patents, being denied injunctive relief. Further, any

discussion within Justice Kennedy’s concurrence that lends to a

conclusion opposite that of the unanimous Court is of no

precedential value. While we might never know what Justice

Kennedy’s intent was with his concurrence as it relates to the

Court’s opinion, the use of the concurrence to hold a conclusion in

conflict with the Court’s unanimous opinion is entirely

255

See supra Part I.A.

256

See supra Part I.B.

257

See supra Part I.C.3.

258

See supra Part I.C (citing eBay, 547 U.S. at 393–94). Beyond the Supreme Court’s

own words in the unanimous opinion requiring a narrow reading of the conclusions, the

Court’s discussion and contemplation of the broader issues at oral argument enunciates

the notion that the unanimous opinion did not seek to change law regarding the “business

method” or “patent troll” issues belabored at oral argument. Even Chief Justice Roberts’

skepticisms of the patent’s complexity at oral argument were not part of any later written

holding or concurrence by the Court. See supra Part I.C.2.

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728 Chapman Law Review [Vol. 18:3

inappropriate, and “problems arise when subsequent courts are

confused.”

259

Further supporting the intended weakness of

Justice Kennedy’s concurrence is his self-description of it as mere

“observations,” and the single cite included to support the

statements—an online FTC report summarizing testimony from

a panel discussion regarding the computer hardware industry.

260

Indeed, Justice Kennedy’s opinion, when placed into perspective

with the case history and procedure, was most likely a

thought-drop in time for a future case and Court to consider, not

the spark to an anti-non-practicing entity conflagration resulting

in an 84% drop in injunction grants for those patent owners.

261

B. The eBay v. MercExchange Dispute Had Many Complications

Resulting in Bad Precedent for Patent Injunctions

The incorrect precedent eBay now stands for at district

courts can be explained through the case facts and procedure as

well. First, and potentially foremost, the parties were before a

district court judge who was decidedly anti-patent owner—every

single patent case before Judge Friedman was decided against

the patent owner.

262

MercExchange may have actually been the

most-favored patentee in Judge Friedman’s courtroom in that

they were the only patent owner to actually go to trial on a

patent. Further to the anti-patent lean is that Judge Friedman

was an early follower of Justice Kennedy’s concurrence as

precedent

263

and was later widely cited in his incorrect following

of that precedent.

264

In defense of Judge Friedman, but likely another unique

factor in the case history, is the harm an injunction, or injunction

denial, may have inflicted on each party. As discussed supra, and

argued directly to the Court at oral argument, should Judge

Friedman have issued an injunction against eBay, the company

stock price would have fallen, market share in its online business

259

For a detailed discussion of the importance of clear precedent for lower courts, see

Berkolow, supra note 234, at 306–14 (“Adherence to the rule of law is critical . . . problems

arise when subsequent inferior courts are confused.”).

260

See supra Part I.C.3.

261

Despite Federal Circuit injunction jurisprudence seemingly unchanged due to

eBay—to be confirmed in a forthcoming study—the outcome at the district court level is

most important when considering the timing of equitable remedies (immediately after

trial) and delay in appeals. The drastic decline in injunction grants at the district court

level underscores the importance of correcting eBay’s precedent given the impact the

decline has caused. See infra Part IV.C.

262

See supra Part II.A.4. Potentially adding to Judge Friedman’s frustrations with

patentees/patent cases was the contentious nature of this specific litigation between the

parties and the risk of the case continuing “to go on and on and on.” Transcript of Oral

Argument, supra note 156, at 24; see supra Part II.A.1–2.

263

See supra Parts II.A.3, III.B.

264

See supra Part III.B.

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would have dropped through loss in functionality, the patent

would have been taken entirely out of the public marketplace,

and long-term consumer confidence in eBay would have

decreased. Further—and as Judge Friedman himself noted in his

opinion—all that would have had a detrimental impact on the

entire U.S. economy.

265

Should the injunction later be reversed,

in all likelihood, a majority of that harm to eBay could not have

also been reversed. Alternatively, should MercExchange’s

request for injunction be denied, the non-practicing

MercExchange would simply continue to not practice. Should the

denial later be reversed, the only perceived harm to

MercExchange would be a delay in financial profits.

266

In short,

given the scale placed before him, perhaps Judge Friedman

viewed eBay as too big to fail.

In final defense of Judge Friedman, but likely another

unique factor in the case history, is that perhaps MercExchange

was a worthy patentee to be biased against. As Judge Friedman

noted in his opinion denying an injunction on remand,

MercExchange was a company founded by an

inventor-patent-lawyer, funded by litigation investment hedge

funds, and potentially engaging in licensing activity “effort to

placate the court as . . . [opposed to] develop[ing] the #265

patent.”

267

Further explaining the incorrect case precedent is that the

timing of the dispute, and anti-patent media attention, likely

played a role in the public and judicial outcome of what the

opinion would come to mean.

268

Intentionally adding fuel to these

flames was eBay and its many press releases misdirecting media

attention on the case procedure, skewing any court’s decision into

its favor, and attempting to show every procedural step—even

the Federal Circuit holding its mandate during cert filings—as

an “eBay win” and “patent holder loss.”

269

Perhaps this type of

public relations behavior is standard practice for large

corporations, but when the public relations of an unknown

265

See supra Part II.A.2–3.

266

While this reasoning appears rational, it is in direct conflict with the Continental

Paper Bag case—explicitly affirmed within the eBay opinion—and destructive of United

States patent law generally.

267

See supra Part II.A.3. If there is general policy concern over certain types, or

owners, of patents, congressional review of the issue is likely better suited to address the

problem. See William A. Drennan, The Patented Loophole: How Should Congress Respond

to this Judicial Invention?, 59 FLA. L. REV. 229, 235 (2007) (“The Federal Circuit has

stated that neither the courts nor the Patent Office should deny patent protection because

an invention violates public policy; instead, only Congress can prohibit patent protection

for a class of inventions on public policy grounds.”).

268

See supra Parts I.C.4, II.A.5, III.C.

269

See supra Part III.C.

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730 Chapman Law Review [Vol. 18:3

two-person company is forced to defend against a 35,000 person,

$16 billion per year revenue enterprise that was potentially

irrationally furthering litigation instead of making a single-case

economics based settlement decision,

270

it can be assumed that

eBay’s voice ruled. Finally, regarding press matters, not helping

MercExchange during the time of litigation was the ongoing and

very public NTP BlackBerry-phone-shutdown matter with a cert

petition pending during the same Court Term. With very

similarly situated non-practicing parties, there was much

anti-troll sentiment circulating throughout the media.

271

Lastly, some of the incorrect precedent may have been

caused by MercExchange. In the words of MercExchange’s lead

counsel, “[J]ustice is made by the litigants of a particular case

and what they consider to be a reasonable result.”

272

Should

MercExchange not have settled before the Federal Circuit had

opportunity to reverse Judge Friedman a second time, perhaps

the eBay Supreme Court opinion might be interpreted differently

based on the Federal Circuit explaining the case, and correcting

the precedent, as opposed to an anti-patentee district court judge

having the final word. Indeed, the likely surplus settlement

amount eBay offered (over the jury’s judgment) before the

Federal Circuit could rule on Judge Friedman’s second denial of

the injunction most likely included value in the precedent of

having Judge Friedman’s denial of the injunction on remand

being the final opinion in the case. This expansion of allowing

Judge Friedman’s opinion to be precedential—or at least not

forever cited as “reversed” by a court of appeals—would only add

to the “win” and change in precedent eBay public relations

worked so hard to create. Additionally, perhaps the non-public

270

See eBay Inc., YAHOO! FINANCE (Jan. 16, 2015), http://finance.yahoo.com/q/ks?

s=EBAY+Key+Statistics. Beyond eBay’s efforts to simply skew media attention in its

favor, there is evidence of eBay implying that the case was part of a larger plan for

anti-patent litigation messaging. For example, eBay’s post–verdict description of trial as

“‘Round One’ of an ongoing battle.” See supra note 25 and accompanying text. While there

is no way to conduct analysis on eBay’s decisions to litigate so vigorously—and at an

expense likely greater than the jury’s judgment—based on the press releases and amici

interest in the case, it can be assumed that there were much larger issues at stake for

eBay to draw-out litigation. See Donald J. Kochan, Corporate Social Responsibility in a

Remedy-Seeking Society: A Public Choice Perspective, 17 CHAP. L. REV. 413, 450 (2014)

(discussing rent-seeking by corporate litigation and how extortion like

techniques/leverage can be used to change the law); see id. (“When faced with a lawsuit or

the threat of a viable liability claim, it is entirely possible that the judgment value is far

exceeded by the external effects of the litigation on the corporation and the corporation’s

own interests in preserving its brand, image, reputation, customer base, investor interest,

and the like.”).

271

See supra Parts I.C.4, II.A.5, III.C. These examples of improper media attention

on the case draw the conclusion that notable publicly-notorious entities easily become

precedent-damaging parties within Supreme Court jurisprudence.

272

Interview with Greg Stillman, supra note 6.

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2015] The Misinterpretation of eBay v. MercExchange 731

litigation settlement amount MercExchange agreed to, if

negotiated to be public, could have added strength for the

non-practicing patentee community that one of their own

actually won the eBay litigation, despite a public injunction not

issuing. However, given the confidential settlement agreement

MercExchange signed, for future understanding of the dispute,

no conclusion can be drawn regarding the value eBay finally

placed in MercExchange’s patents.

273

C. Who Has Won and Lost in the eBay Confusion

The final analysis of eBay precedent concerns a review of the

true patent marketplace “winners” and “losers” based on how the

case has been incorrectly interpreted. As another scholar has

argued, the “eBay ruling further benefits large corporations.”

274

The true winners of the current eBay precedent are “large

corporations” who can afford the financial risk of willfully

infringing others’ patents. Since “eBay drastically reduced the

threat of permanent injunctions over large corporations’ core

products or services, these corporations now have even less

financial incentive to license.”

275

Regarding the losers in the eBay

aftermath, scholars have noted “legitimate small entities face a

difficult battle to win a permanent injunction because . . . [the

guidelines] provide lower courts with multiple avenues to

rationalize denying permanent injunctions to legitimate small

entities.”

276

Regarding Justice Kennedy’s concurrence

specifically, one author noted “Justice Kennedy’s

guidelines . . . [are a] tool [that] effectively grants large companies

a ‘license’ to willfully steal patented technology.”

277

Looking back at the eBay case facts and procedure before the

Supreme Court opinion was issued, it’s important to note the

parties who had concern over the outcome of the litigation. Amici

briefs filed in favor of eBay included Time Warner, Amazon.com,

Chevron, Cisco, Google, Shell Oil, VISA, Xerox, and America

Online—essentially a sampling of the largest companies in the

United States.

278

Some of these companies—Google, Chevron,

Cisco, Shell, and VISA—even signed on to multiple briefs in favor

273

Numerous attempts were made to contact eBay’s former chief counsel to discuss

the MercExchange litigation; no reply was received.

274

Tang, supra note 237, at 249.

275

Id. at 249–50.

276

William R. Everding, “Heads-I-Win, Tails-You-Lose”: The Predicament Legitimate

Small Entities Face Post eBay and the Essential Role of Willful Infringement in the

Four-Factor Permanent Injunction Analysis, 41 J. MARSHALL L. REV. 189, 205 (2007).

277

Id.

278

See supra Part I.C.1.

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732 Chapman Law Review [Vol. 18:3

of eBay’s position before the Court.

279

In contrast, the briefs filed

on behalf of MercExchange included association groups of much

smaller entities or individuals, including the American Bar

Association and the United Inventors Association.

280

While this

Article did not include research regarding the role of other

companies in the way eBay precedent has been misinterpreted, it

is telling that like eBay, the desired outcome for these large

corporate entities was achieved despite the Supreme Court not

actually adopting their amici-argued positions. While there is

certainly need for additional research, this correlation in the case

may be added support for what some scholars have noted as “a

cog in a grander project of curtailing injunctive relief in

general.”

281

Regardless of the true reasons for the outcome, the damage

to the “losers” is becoming increasingly clear. In the words of

MercExchange’s inventor and founder, Tom Woolston, testifying

before the Federal Trade Commission after the conclusion of

litigation in 2009:

I don’t know how you go out and raise money with a straight face on []

technology that is covered by a U.S. patent . . . [when] a faster better

capitalized competitor is[] going to move into your market . . . . [S]mall

companies don’t stifle innovation, right. Big companies stifle

innovation because they’ve got market share and market power and

they don’t need to innovate to maintain their profit margins so it’s

always the challenger to the market leader that’s going to be the

innovator because it has to be better, faster and cheaper . . . .

282

CONCLUSION

For future precedent, the eBay opinion should be

remembered, and cited, for what it is—the unanimous opinion.

This includes affirmance of the Continental Paper Bag case just

as strongly as a requirement for judges to apply the four-factor

equitable framework. The unanimous eBay opinion does not

279

Id.

280

Id. The exception to this bias is that large patent-intensive companies like

Qualcomm, General Electric, 3M, and pharmaceutical companies filed briefing on behalf

of MercExchange. See id.

281

Gergen et al., supra note 2, at 205 n.7 (“Those of suspicious mind might contend

that, regardless of the Supreme Court’s protestations, eBay is a cog in a grander project of

curtailing injunctive relief in general and possibly injunctive relief in institutional-reform

and environmental litigation in particular.”).

282

Hearing on the Evolving IP Marketplace, supra note 222, at 60–64. Should the

aftermath of the eBay precedent not change, perhaps this added level of frustration for

smaller companies is greater reason for new forms of patents or government grants to

support invention-commercialization for small entities. For a thorough discussion of

commercialization awards and commercialization patents, see Camilla A. Hrdy,

Commercialization Awards, 2015 WIS. L. REV. 13 (2015).

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allow courts to base permanent injunction decisions on broad

classifications disfavoring patent owners who lack commercial

activity in practicing their patents. While every case must be

reviewed individually, the post-eBay 78%–84% drop in post-trial

permanent injunction grants for patent infringers who are not

market competitors is a broad abuse of eBay practice that needs

to be further analyzed and potentially contained.

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