After eBay: Can the ITC Offer Better Remedies Than District Courts?

The Supreme Court’s eBay decision represents a turning point in how district courts approach permanent injunctions in patent cases.¹ Before eBay, most district courts permanently enjoined patent infringers as a matter of course. But as the Supreme Court decreed, not all successful patentees are entitled to an injunction. In eBay’s wake, the district courts have begun denying permanent injunctions in certain types of patent cases. But unlike the district courts, the International Trade Commission (“ITC”)—an increasingly popular patent litigation forum—is unaffected by the eBay decision. Although the ITC has its limitations, for some patentees, the ITC may be the best bet for equitable relief in the post-eBay world.

How eBay Has Changed the Injunction Landscape

Permanent Injunctions Are No Longer Automatic
In its eBay decision, the Supreme Court overturned the Federal Circuit’s general rule that courts will issue permanent injunctions against patent infringement absent “exceptional circumstances.”² The Supreme Court held that a patentee is entitled to a permanent injunction only if it satisfies the well-established permanent injunction test by establishing that: (1) it has suffered an irreparable injury; (2) money damages cannot adequately compensate for that injury; (3) the balance of hardships between plaintiff and defendant supports an equitable remedy; and (4) a permanent injunction will not disserve the public interest.³ In addition to rejecting the Federal Circuit’s categorical rule favoring injunctions, the Court also rejected the district court’s approach, which suggested that patentees who are willing to license their patents may not obtain permanent injunctions.⁴

Although the majority opinion did not suggest how courts should apply the four-factor injunction test in patent cases, two concurring opinions provided guidance. The first, written by Chief Justice Roberts,⁵ encouraged courts to apply the test with an eye to history, following the principle that “like cases should be decided alike.”⁶ In other words, courts should think twice about denying injunctive relief, which was routinely available before eBay. The second concurring opinion, written by Justice Kennedy,⁷ suggests that this historical approach has limited value in view of certain types of patent cases, which have no historical precedent.⁸ Justice Kennedy identified patent “troll” cases and weak business method patent cases as examples of historically unprecedented cases in which the injunction test may favor defendants.

Direct Competition Rule of Thumb
Although the eBay decision is less than two years old, some strong patterns have emerged in district court cases that have applied the decision. As Justice Kennedy’s concurring opinion predicted and later commentators have recognized,⁹ patentees who do not compete directly with the defendants (such as patent trolls) have found it difficult to obtain permanent injunctions. For example, on remand, the eBay district court denied the patentee’s request for an injunction partly due to its “willingness to license its patents” and “lack of commercial activity” in practicing the patents.¹⁰ Likewise, in Paice,¹¹ the district court denied injunctive relief where the plaintiff licensed the patent but did not compete in the market itself. Similarly, in z4,¹² the district court denied a permanent injunction because the defendant used the infringing technology only as a small component of its software. Since the patented component did not compete directly with the software product into which it was incorporated, the plaintiff did not compete directly with the defendant.

This “direct competition” rule of thumb is not limited to direct competition between the infringer and the patentee. In Novozymes,¹³ the district court granted a permanent injunction where the infringer competed directly with the patentee’s subsidiary rather than the patentee itself.

Proving direct competition alone, however, may not be enough to warrant an injunction. For example, although the parties in Praxair¹⁴ were direct competitors, the district court denied the injunction request because the patentee failed to provide sufficient evidence of irreparable harm. Similarly, in Sundance,¹⁵ although the parties were direct competitors, the district court denied an injunction because the patentee did not prove a nexus between the allegedly irreparable harm (i.e., the lost sales) and the infringing features of the accused product.

In contrast, in some cases, a patentee may be able to establish irreparable harm, and qualify for an injunction, despite the absence of direct competition. For example, in Commonwealth Scientific,¹⁶ the district court granted an injunction to a research institution that did not practice any of its patented inventions, but only licensed its patents to others. The court reasoned that the patentee relied on its reputation as an innovator to recruit top scientists. It held that the infringement harmed the patentee’s reputation, compromised its ability to recruit top scientists, and compromised its ability to control its licensing program. Accordingly, the district court granted the injunction.

ITC Remedies Should Be Unaffected by the eBay Ruling
ITC patent litigation is different in many ways from district court patent litigation.¹⁷ For present purposes, the most important difference is that damages are unavailable in the ITC; all ITC remedies are equitable in nature. In the ITC, a patentee may obtain either an exclusion order (which blocks excluded products from entering the U.S.) or a cease-and-desist order (which essentially prevents infringers from selling imported goods that were stockpiled in anticipation of an exclusion order). Since no damage remedy exists, the ITC never considers whether harm is irreparable or whether money damages may provide adequate compensation. Accordingly, a patentee that proves its case in the ITC is entitled to an exclusion order without having to prove the four-element injunction test required in the district courts after eBay. A victorious patentee need only establish: (1) what type of exclusion order applies (i.e., a “general” or a “limited¹⁸⁾; (2) what scope is appropriate for the order (e.g., whether the order should apply to downstream products¹⁹), and (3) how long the order be enforced.

Although victorious patentees are essentially guaranteed some form of equitable relief in the ITC, not every patentee that can file a patent action in district court can litigate in the ITC. First, the ITC is designed to remedy infringing imports; not domestic infringement. If an infringer is manufacturing the infringing goods in the U.S. without importing any infringing component, the ITC provides no remedy. Second, to obtain relief, an ITC “complainant” (i.e., the patentee) must prove that a “domestic industry” exists for the patented invention.²⁰ A complainant satisfies this requirement by proving that it has made significant U.S. investments in plant and equipment or in labor and capital.²¹ A complainant also may satisfy this requirement by proving that it made substantial investments to exploit its patent (i.e., by licensing).²²

Accordingly, an ITC complainant that merely licenses its patent may obtain ITC standing and an ITC exclusion order without ever competing directly with the infringer. In fact, in 1988, Congress expressly clarified that the ITC may enter exclusion orders absent direct competition.²³ Also, an ITC complainant may obtain an exclusion order even when a patented component’s value is small compared to that of the entire accused product (though this issue may affect the scope of the exclusion order).²⁴

In the wake of eBay, patentees who do not compete directly with infringers will find it very difficult to obtain a permanent injunction. If those patentees can obtain ITC standing, however, the ITC may provide the best opportunity for them to obtain equitable relief.

Endnotes
¹ eBay, Inc. v. MercExchange, LLC, 126 S.Ct. 1837 (2006).
² Id. at 1841 (quoting MercExchange, LLC v. eBay Inc., 401 F.3d 1323, 1339 (Fed. Cir. 2005)).
³ Id. at 1839.
⁴ Id. at 1840-41. 
⁵ Joined by Justices Scalia and Ginsburg.
⁶ eBay, 126 S.Ct. at 1841-42.
⁷ Joined by Justices Stevens, Souter, and Breyer.
⁸ eBay, 126 S.Ct. at 1842.
⁹ See e.g., Michael Stolarski & Uma Bansal, Injunctive Relief in Patent Infringement Cases after eBay, Intellectual Prop. Lit., Summer 2007 at 1, 22-24.
¹⁰ MercExchange, L.L.C. v. eBay, Inc., 2007 U.S. Dist. LEXIS 54642 (E.D. Va., July 27, 2007).
¹¹ Paice LLC v. Toyota Motor Corp., 2006 U.S. Dist. LEXIS 61600 (E.D. Tex., Aug. 16, 2006).
¹² z4 Techs, Inc. v. Microsoft Corp., 434 F. Supp. 2d 437 (E.D. Tex. 2006).
¹³ Novozymes A/S v. Genencor Int’l, Inc., 474 F. Supp. 2d 592 (D. Del. 2007).
¹⁴ Praxair, Inc. v. ATMI, Inc., 479 F. Supp. 2d 440 (D. Del. 2007); Voda v. Cordis Corp., 2006 U.S. Dist. LEXIS 63623 (W.D. Okla. 2006).
¹⁵ Sundance, Inc. v. Demonte Fabricating Ltd., 2007 U.S. Dist. LEXIS 158 (E.D. Mich., Jan. 4, 2007).
¹⁶ Commonwealth Sci. & Indus. Research Organisation v. Buffalo Tech. Inc., 2007 U.S. Dist. LEXIS 43832 (E.D. Tex., June 15, 2007).
¹⁷ These differences have been addressed in many articles. See, e.g., Steven E. Adkins & June E. Cohan, Not Mere Litigation: Remedies Available for IP Infringement At the International Trade Commission, Intellectual Prop. Lit., Winter 2005 at 1, 4-8.
¹⁸ A “limited” exclusion order blocks the entry of infringing imports from specific sources only (e.g., the infringers who were parties to the ITC action). A “general” exclusion order blocks the entry of infringing imports from all sources.
¹⁹ For example, should the ITC bar an infringing computer chip only when it is imported by itself, or should it also bar the cell phones, pagers, and other electronic devices in which the chip may be installed before it is imported?
²⁰ 19 U.S.C. § 1337(a)(2). For discussion of “domestic industry” requirement, see Adkins, supra note 12.
²¹ 19 U.S.C. § 1337(a)(3).
²² Id.
²³ See Commission Decision, Removable Electronics Cards & Electronic Card Readers, ITC Inv. No. 337-TA-396 (Aug. 13, 1998).
²⁴ Order 5, Static Random Access Memories, ITC Inv. No. 337-TA-341 (Dec. 30, 1992).