Update: Supreme Court overturns injunctions against eBay

The U.S. Supreme Court has set aside a lower court decision to stop eBay Inc. from using a prominent feature on its Web site because of a patent dispute.

The Supreme Court decision effectively overturns a long-held U.S. court practice of issuing injunctions against infringing products in nearly all patent cases. Much of the U.S. tech industry had sided with online auction site eBay, which, in May 2003, was found guilty of infringing a “buy it now” patent held by MercExchange LLC, a small auction site.

The Supreme Court on Monday unanimously ruled against an appeals court decision saying injunctions must be generally issued against companies found guilty of infringing patents, according to a decision written by Justice Clarence Thomas. The case now goes back to a U.S. district court, which will consider several factors in weighing whether it should grant the injunction requested by MercExchange.

The Supreme Court did not decide whether an injunction was appropriate in this case, Thomas wrote. Instead, the high court said the injunction decision “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,” Thomas said.

The U.S. District Court for the Eastern District of Virginia declined to issue an injunction after a US$35 million jury award, later reduced by more than $5 million, but the U.S. Court of Appeals for the Federal Circuit reversed that decision, saying an injunction against eBay using the “buy it now” feature was appropriate.

The court of appeals did not fairly apply a four-factor test for issuing an injunction, Thomas wrote. Courts should weigh factors such as whether the plaintiff has suffered an irreparable injury through the infringement, and whether other remedies, including monetary damages, are inadequate, Thomas said. Although two cases from the 1980s established the four-factor test, most U.S. courts have granted injunctions in nearly all patent infringement cases.

Siding with MercExchange in the case were independent inventors and many pharmaceutical companies, which spend millions of dollars developing new drugs and want to protect their patents.

The ruling will likely shift the balance of power between inventors — some of them one-person operations or small businesses — and large companies that sell products such as software and hardware, said observers of the case. A court ruling for eBay could make it harder for inventors to collect patent damages and easier for large vendors to market their products without fear of a court shutting them down.

Tech companies argued the near-automatic injunctions go too far, citing the eBay case, as well as a threatened shut-down of BlackBerry service when device maker Research In Motion (RIM) Ltd. faced patent ruling earlier this year. RIM agreed in March to pay patent holder NTP Inc. more than $612 million rather than face a potential injunction barring it from offering its mobile e-mail service in the U.S.

But Ronald J. Riley, president of the Professional Inventors Alliance, said the Supreme Court’s decision forces patent holders to license their products to competing companies. He called on the U.S. Congress to pass new laws protecting inventors.

“This cannot stand,” he said. “It amounts to a compulsory license at the whim of a judge. It will allow vested interests to take the very essence of what makes an upstart startup viable.”