eBay v. MercExchange: Supreme Court Limits Automatic Patent Injunctions, Enabling Patent Troll Business Model to Flourish

The Supreme Court unanimously rules in eBay Inc. v. MercExchange, L.L.C. (547 U.S. 388) that patent injunctions are not automatic upon finding infringement, requiring plaintiffs to meet a four-factor equitable test: (1) irreparable injury, (2) inadequate legal remedies, (3) balance of hardships, and (4) public interest. Justice Thomas delivers the opinion eliminating the Federal Circuit’s ‘general rule’ of automatic injunctions. While presented as preventing patent holder abuse, the decision has the opposite effect: it enables the rise of non-practicing entities (NPEs or ‘patent trolls’) who don’t manufacture products and thus cannot obtain injunctions, making monetary damages their exclusive remedy. Justice Kennedy’s concurrence explicitly notes the ‘recent rise of patent-holding companies that do not use patents as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees,’ warning they can use injunction threats ’to charge exorbitant fees.’ The four-factor test ironically makes trolling more profitable: NPEs can’t get injunctions blocking products, but can extract settlements through litigation cost threats. Following this decision, NPE litigation explodes—growing from 336 cases in 2011 to 61% of all patent cases by 2012. MercExchange itself was a non-practicing entity; the case settled for undisclosed terms after six years. This represents judicial doctrine inadvertently enabling systematic rent extraction through the patent system.