The US Supreme Court has unanimously allowed eBay’s appeal regarding the award of injunctive relief for patent infringement, and returned the case to the District Court for further consideration. Justice Thomas wrote the opinion of the court, which was characteristically short and to the point. The Chief Justice issued a concurring opinion joined by Scalia and Ginsberg, J.J., and Justice Kennedy issued a concurring opinion joined by Stevens, Souter and Breyer, J.J.

The procedural background was as follows: MercExchange held a number of patents which it attempted unsuccessfully to license to eBay and MercExchange then sued the two for patent infringement, and succeeded. In Thomas, J.’s words:

A jury found that MercExchange’s patent was valid, that eBay and had infringed that patent, and that an award of damages was appropriate. Following the jury verdict, the District Court denied MercExchange’s motion for permanent injunctive relief. 275 F. Supp. 2d 695 (2003). The Court of Appeals for the Federal Circuit reversed, applying its “general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.” 401 F. 3d 1323, 1339 (2005). We granted certiorari to determine the appropriateness of this general rule. 546 U. S __ (2005)

[note the typo, a mere missing period(!), in the original slip opinion :-)]

The Court observed that the Federal Circuit’s test of “injunction absent exceptional circumstances” differed from the traditional, discretionary equitable test for issuance of an injunction — as I have previously argued — and continued:

“These familiar [equitable] principles apply with equal force to disputes arising under the Patent Act. As this Court has long recognized, “a major departure from the long tradition of equity practice should not be lightly implied.” … . Nothing in the Patent Act indicates that Congress intended such a departure. To the contrary, the Patent Act expressly provides that injunctions “may” issue “in accordance with the principles of equity.” 35 U. S. C. §283.

The result is that the District Court will have to determine whether permanent injunctive relief is appropriate on the traditional equitable test; the American position (paraphrasing the Court’s formulation) is that (1) the plaintiff must have suffered an irreparable injury; (2) that the 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 is not dis-served by a permanent injunction.

This does not mean that MercExchange will not get injunctive relief; just that it will not be done according to the District Court’s original formulation that was too far in favour of infringers (some classes of patentee’s conduct, such as willingness to license, ruled out injunctive relief), or the Federal Circuit’s formulation that was too far in favour of patentees (injunctive relief almost as of right).

Indeed, given the facts, it may well be that eBay’s conduct in deliberating using the patented method after licensing talks failed might be enough to justify an injunction, if it were seen as effectively thumbing their nose at the patent-holder. (I leave aside the anterior question of whether the patent ought to have been upheld in the first place.) Equally, some larger businesses have complained that the threat of a permanent injunction has been used effectively as blackmail, and a failure to reach a deal or settlement at a reasonable royalty might be seen as conduct disentitling the patent-holder from an injunction (as opposed to an award of a reasonable royalty).

The Court’s decision is, with respect, correct, being no more than (as Thomas, J., put it) a holding “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. ”

The Chief Justice’s opinion, as seems often to be the case, also contains a great passage:

From at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases. This “long tradition of equity practice” is not surprising, given the difficulty of protecting a right to exclude through monetary remedies that allow an infringer to use an invention against the patentee’s wishes—a difficulty that often implicates the first two factors of the traditional four-factor test. This historical practice, as the Court holds, does not entitle a patentee to a permanent injunction or justify a general rule that such injunctions should issue. The Federal Circuit itself so recognized in Roche Products, Inc. v. Bolar Pharmaceutical Co., 733 F. 2d 858, 865–867 (1984).

At the same time, there is a difference between exercising equitable discretion pursuant to the established four-factor test and writing on an entirely clean slate. “Discretion is not whim, and limiting discretion according to legal standards helps promote the basic principle of justice that like cases should be decided alike.” Martin v. Franklin Capital Corp., 546 U. S. ___, ___ (2005) (slip op., at 6). When it comes to discerning and applying those standards, in this area as others, “a page of history is worth a volume of logic.” New York Trust Co. v. Eisner, 256 U. S. 345, 349 (1921) (opinion for the Court by Holmes, J.).

This is the perfect rejoinder to those who attack equity’s embrace of “discretion” on the spurious basis that it somehow leads to capriciousness or injustice. What they fail to see is that discretion is canalised by principle and precedent, the point that the Chief Justice makes so eloquently. Note also that Martin v. Franklin Capital Corp was the first opinion that Roberts, C.J., penned as Chief Justice.

Finally, Justice Kennedy’s opinion picks up on the theme of a patent-holder’s failure to license at a reasonable royalty in a very interesting passage, which suggests a degree of suspicion with the patent process:

When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.