Leslie T. Grab1

Within the past decade, companies seeking to purchase intellectual property for the purpose of generating licensing fees have become a major concern for U.S. businesses.  These companies are often identified as “patent trolls,” and are perceived to take advantage of successful companies that utilize the technology by demanding often exorbitant licensing fees.  The Supreme Court's recent decision in eBay v. Mercexchange2 rejected the “automatic injunction” rule and thus weakened one of the patent troll's leveraging tools, the permanent injunction.

Cite as 8 N.C. J.L. & Tech. 81 (2006) | Download PDF

This Recent Development discusses the effect the Supreme Court's recent decision in eBay v. Mercexchange3 has had on modern patent practice.  Part I provides an explanation of the history of patent trolls and their business practices.  Part II is a review of the eBay decision and cases decided after eBay to determine how lower courts are applying the new standard for permanent injunctions.  Part III explores the potential effects of the eBay balancing test on patentee and patent troll behavior.  

In eBay, the Supreme Court adopted the traditional four-factor test that courts of equity consider when determining whether a permanent injunction should be issued.4  These factors are:  (1) whether the plaintiff has suffered irreparable injury; (2) whether the remedies available at law, such as money damages, are inadequate to compensate the plaintiff for the injury; (3) the balance of hardships between the plaintiff and the defendant; and (4) whether public interest would be disserved by an injunction.5  Application of the four-factor test necessitates the balancing of interests between the plaintiff and defendant to determine whether a permanent injunction or some alternate remedy is warranted.6  The adoption of this balancing test overruled the more categorical rule of granting permanent injunctions favored by the Court of Appeals for the Federal Circuit.7

A major objective for courts who hear patent infringement cases is to balance the right of the patentee to exclude all others from practicing their invention8 with the delivery of new and useful technology to the public.9  Cases where the plaintiff is a non-practicing patentee and wishes to exclude others by requesting a permanent injunction may be in conflict with this goal.  

The purpose of the four-factor test is to differentiate between those patentees who do not practice their invention because of inadequate capacity or insufficient capital, such as start-up companies or independent inventors, as opposed to patent trolls who exist solely to license the technology to those who use it.10  Differentiation between these two groups is critical for maintaining the correct balance between “promot[ing] the progress of science and the useful arts”11 and preventing the exploitation of the patent system.  With eBay, the Supreme Court has provided courts with the tools necessary to maintain the proper balance of the patent system.