Patent Strategy Questions Raised By the eBay Decision

In the unanimous eBay decision, the U.S. Supreme Court held that a plaintiff is not automatically entitled to a permanent injunction simply by proving infringement by the defendant. Prior to this, an automatic injunction was the de facto standard in the district courts, which granted injunctions in all but extraordinary circumstances. Instead, the Court affirmed a four-factor test to assess the appropriateness of a permanent injunction: 1) irreparable injury; 2) inadequacy of remedies at law; 3) balancing of hardships; and 4) the public interest. Because an analysis based on this framework requires some balancing of equities, in practice the decision is usually made by the presiding judge and not the jury. The concurring opinions issued in the eBay opinion address additional issues of importance to the business world. These relate to injunctions and P-LECs, university research, and business method patents.

In z4 Technologies v. Microsoft Corporation, heard before the traditionally pro-plaintiff Eastern District of Texas, the District Court issued an opinion in June 2006 denying z4's motion for a permanent injunction. It found that z4 would not suffer irreparable harm and also referred to the Justice Anthony Kennedy's concurrence that suggested a permanent injunction may be inappropriate in cases where the patented technology only relates to a small portion of the infringing product. In this case, the running royalty the court assigned for Microsoft's future use of the patented invention was equal to the reasonable royalty the jury awarded for past damages, simply applied to future sales. It is notable that the term of this compulsory license was a short one; as part of its argument against a permanent injunction, Microsoft cited the fact that the subject technology had already been designed out of its next generation product, which was due for release within the next year.