eBay v. MercExchange - Oral Argument

Argument of Carter G. Phillips

Chief Justice Roberts: We'll hear argument next in eBay v. MercExchange.

Mr. Phillips.

Mr. Phillips: Thank you, Mr. Chief Justice, and may it please the Court--

The fundamental question that's posed in this particular case is whether or not the court of appeals by adopting a rule that declares categorically that three out of the four traditional factors for deciding whether or not to grant permanent injunctive relief will be irrebuttably presumed to be satisfied whenever a jury has found that a patent is valid and has been infringed.

The rule in the Federal Circuit for at least 20 years has been that if you have validity and infringement decided by the jury, that then there is irrebuttable finding of... of irreparable injury, of inadequate remedy at law, and that the balance of harms decidedly favors the plaintiff, and that the only issue that remains available to the defendant in that circumstance is a heightened scrutiny on the standard of whether or not the... the public interest commands that an injunction be denied in a particular case.

And even in that context, the Federal Circuit's rule is extraordinarily stringent because not just any public interest can... will satisfy, but instead, it has to be a public interest that endangers the public health.

Justice Ginsburg: Is that all in Judge Bryson's decision?

I certainly didn't see it there.

Mr. Phillips: That... that is precise... I think it's the only way to read Judge Bryson's decision, Justice Ginsburg, where the court says, at page 26a, that a permanent injunction will issue once infringement and validity have been adjudged, and then say, to be sure, it will not be so to protect the public interest.

And we all know the traditional rule with respect to the grant of injunctive relief is that it's a four factor test.

Justice Ginsburg: I didn't see anything about irrebuttable presumption.

Mr. Phillips: Well, the point is that if an injunction follows with a finding of... of validity and infringement, then that means that there has to be... there has to be irreparable injury, inadequate remedy at law, and that the balance of hardships has to tilt in... in favor of the plaintiff.

And then the only issue that remains is whether or not the public interest justifies not granting an injunction under the circumstances of this case.

It seems to me there's no other way to read that.

And if you read it in the context of the... of the previous 20 years of decisions from the Federal Circuit, it is absolutely clear.

We don't have the opportunity to come back as a defendant in an infringement action and say, Your Honor, in the specific facts of this case, this is someone for whom money damages is a completely adequate remedy.

And... and it seems to me quite clear that section 283 is designed to be exactly the opposite of the way the Federal Circuit has interpreted this... this scheme.

Section 283 says explicitly... and this is at page 1 of the blue brief... district courts, quote, may... not shall... grant injunctions in accordance with principles of equity.

And principles of equity, as Justice Story said almost 200 years ago, systematically reject the idea that you will act on a categorical basis in deciding whether or not to grant or withdraw the injunctive relief in... in particular circumstances.

And to the contrary, you have to look at each specific issue.

And in that regard--

Justice Scalia: Is... is that so with... with respect to someone else's use of... of your property?

It seems to me very rare where... where someone takes your property, that the court wouldn't... wouldn't give you the property back and... and simply say, you know... I can think of a few extraordinary examples.

If somebody makes a statue out of stolen gold, you know, the... the old classic, I guess you'd get the money back.

But ordinarily we're talking about a property right here, and... and the property right is... is explicitly the right to exclude others from... from use of that.

That's what the patent right is.

And all he's asking for is give me my property back.

Mr. Phillips: --Right.

And... and Congress already made the... the balance, Justice Scalia, with respect to that because Congress obviously identified the property right as the right to exclude.

And then Congress did not confer upon the district courts no discretion to act in... in a situation where the property right has been violated.

Instead, Congress expressly adopts in 283 a very broad grant of equitable discretion.

To be sure, in the ordinary case, you... you very well may have irreparable injury proved, but the question is, do you... do you eliminate any inquiry and any specific facts of the case and instead not only presume it, which I think is a mistake, although the district court did that and found that in this case the presumption was rebutted, but to... but to say irrebuttably it's presumed that you have irreparable injury, irrebuttably presumed that you don't have an adequate remedy at law, and irrebuttably presume that the balance of equities tilt in favor of the plaintiff.

And that, it seems to me, cannot be squared with the language of the statute.

And, indeed, on that score, the United States sort of magically ends up on our side of the... of the table because the United States says the same thing.

There is no way--

Justice Breyer: On Justice Scalia's question, I was trying to think of some, and I was trying to think the analogy might... you might find some analogy in the public utilities field, the... or a ferris wheel or something.

What you want is a person who uses his property not at all himself, but licensed the public generally.

And now would a... would a court issue an injunction there?

And as I think about that, I don't realize I don't know the answer.

Mr. Phillips: --I don't know of any.

I mean, I certainly wouldn't categorically declare that you have to I guess is the way I would respond to that.

Justice Breyer: Yes, that's what... I mean, that... that's what you're trying to analogize this case to, I guess, is a person who licenses others to use his property and never uses it himself.

Mr. Phillips: That's precisely what this case involves.

Justice Breyer: And there, I don't know how courts do normally act in other areas of property law.

Mr. Phillips: Well, I don't know that there are a whole lot of them like that, but the one thing that... I mean, there are two things to think about the property concept in the statute.

First of all, Congress does not declare that the property interest here is a real property interest, which traditionally has been protected differently.

It's a personal property interest, which is traditionally given... accorded less protection under this kind of a scheme.

And so there... and... and again, Congress in any event struck the balance.

It didn't say, as it could have, that there is presumed... there's a presumption that we have an injunction.

It didn't say, as it could have, that we shall have a... shall have either a presumption or an injunction in any particular case.

And so under the statutory scheme here, it seems to--

Chief Justice Roberts: Well, but... but the exercise of discretion is channeled over time, as... as judges apply it in... in similar cases.

You're not suggesting that in a typical run of the mine patent case, no special considerations, it would be wrong to say that in those cases you typically would grant an injunction?

Mr. Phillips: --I think in those cases, the irreparable injury and the inadequacy of the remedy at law will be... will be easy to demonstrate, as they have been for hundreds of years.

The... the fundamental difference... this is important to have this in mind.

The Federal Circuit adopted this rule of law some 20 years ago.

That's before the high tech boom, before the explosion in the number of patents.

And so the opportunity to deal with these issues on an individualized basis that might give rise to some kinds of rules that you could, in fact, apply to the generality of cases based on an experience has never been there.

We have been dealing with an irrebuttable presumption for 20 years in a way that has... has completely stultified the ability to develop any of those kinds of rules.

And what we're asking this Court to do at this point is to say, no, enough is enough.

We need to go back to a time where the... go back to the language of the statute, confer the discretion on the district courts.

And it's important not just for a case like this one, but it... but it distorts tremendously the settlement value and the process and the relationship between the patent holder and all of the potential licensees because we're in a... in a world... and I don't think the Court can ignore this because it's in the amicus briefs.

We're in a world where if a patent holder files a lawsuit in Marshall, Texas, no patent has ever been declared invalid in that jurisdiction, and no patent has never been found not to infringe.

And then you take that finding automatically and you turn it into an injunction.

Any person who has been threatened under those circumstances and told that we're going to face a lawsuit in Marshall, Texas is going to have a very different negotiating posture than in a situation where--

Justice Scalia: You know, I mean, that's... that's a problem with Marshall, Texas, not with the patent law.

I mean, maybe... maybe we should remedy that problem.

Mr. Phillips: --Well, I hope you--

Justice Scalia: But I don't think we should write... write our patent law because we have some renegade jurisdictions.

Why... why isn't the... the free market normally adequate to solve any problems you're talking about?

Everybody is in this for the money.

Nobody is going to hold off giving the license beyond the point where... where it makes financial sense.

Mr. Phillips: --Well--

Justice Scalia: Why can't... why can't we let the market take care of the problem?

Mr. Phillips: --Well, I think the... the market will take care of the problem.

The question is under what standards are you going to apply.

Are you going to say that there is no effective check on the jury system, that it goes automatically from a jury's finding to injunctive relief, or are you going to implement it against the backdrop of what Congress specifically provides, which is that the district courts should exercise equitable discretion in deciding how best to proceed.

Justice Ginsburg: One of the problems with the district court exercising equitable discretion without a close review by the Federal Circuit is just the thing that the Federal Circuit was created to handle, that is, to get a tremendous disparity among district judges.

I don't know that it's only in Marshall, Texas that you have a tilt in one direction or in the other.

So the Federal Circuit is put there not to say that the district judges have no discretion, but to try to rein it in somewhat so that you won't have wide disparities, which you very well might have if you just say discretion to the district judges and very light review on appeal.

Mr. Phillips: But, Justice Ginsburg, the... the problem with that is that that's not the scheme that Congress created with respect to the remedial aspects of... of the patent laws.

I mean, it is surely the case that Congress meant, as... as substantive patent law is generally enforced and implemented, that the Federal Circuit would play a significant role in ensuring some kind of uniformity, but Congress didn't then go the extra step and say, and when it comes time to decide whether or not injunctive relief ought to be granted, that it will... that we will presume it or that we will deal with it in a categorical way.

Congress granted that discretion to the district courts and with good reason because district--

Justice Scalia: I think maybe you exaggerate the... the extent of equitable discretion.

I mean, it wasn't as though it's just left up to the judge, seems like a good idea or not a good idea.

There are a lot of rules for when... when you would give injunctive relief and not.

And... and I... you know, I'm not sure you're going to get into the kind of wide ranging allowance that... that you seem to be arguing for.

Mr. Phillips: --Well, I don't know that I need a wide ranging allowance with respect to this.

What I need is elimination of the irrebuttable presumption that doesn't allow any consideration of whether money damages are adequate in a particular case.

And... and here, it's very important to focus.

The... the district judge didn't just say, I woke up this morning and I felt really good about the defendant, and therefore, I'm not granting an injunction.

The district court here said, I'm making specific findings of fact with regard to the adequacy of money damages to deal--

Chief Justice Roberts: Well, but he said other things too, and one thing he said is, I don't like business method patents very much, and so I'm not going to give an injunction here.

Mr. Phillips: --Well, that's--

Chief Justice Roberts: Do you think that was proper or improper?

Mr. Phillips: --That's... that's not precisely what he said, Mr. Chief Justice.

What he said was that business method patents stand on a somewhat different footing because they're subject--

Chief Justice Roberts: He said there's a growing concern over the issuance of business method patents.

Mr. Phillips: --Right.

Chief Justice Roberts: Is that an appropriate consideration to take into account in determining whether to grant an injunction or not?

Mr. Phillips: I think probably, at the end of the day, it wouldn't be, but the bottom line is that he did that in the context of analyzing the public interest consideration and he said that didn't--

Chief Justice Roberts: Well, then he went on and he said--

Mr. Phillips: --tilt in favor.

Chief Justice Roberts: --another... another consideration is that this patentee does not practice its patents.

But, I mean, isn't that just saying he's, you know, the... the guy in the garage and he's an inventor and the way he's going to market his discoveries is by getting some firm that basically speculates on patents.

Mr. Phillips: Sure.

And--

Chief Justice Roberts: And if he's denying that inventor, you know, the... what he'd give to Bell Labs... or whatever Bell Labs is these days... that does practice the inventions--

Mr. Phillips: --I should know that actually, but--

[Laughter]

But, Mr. Chief Justice, I... I think you can... it's... it's not fair to pick apart each one of his findings and say does that finding enough or is that finding enough.

The truth is the district court made a series of four findings that overlap, and one of which was, obviously, he doesn't... he doesn't practice his patent.

He also doesn't effectively license.

He's willing to license his patent to eBay.

He's willing to license this patent to anybody under these circumstances.

Justice Kennedy: Well, but--

Mr. Phillips: And candidly, most of the licensing arrangements don't even exist, and they're... I'm sorry, Justice Kennedy.

Justice Kennedy: --Well, I'm... I interrupted you.

But the... the business process point you give away fairly quickly.

I... I thought that was rather substantial.

The whole point is, is that a business process patent is... is difficult to define and could be very... it can be very restrictive.

Mr. Phillips: I... I think in... in a proper case... and I don't think you can do it under the... under the public interest analysis.

I think you'd probably end up doing it under the balance of the hardships.

But in any event... and... and what you... you know, obviously, this case is... is more complicated because--

Justice Kennedy: My concern is if you take that away, I don't know if you've got a lot left for the... saying no injunction in this case.

Mr. Phillips: --Well, I... I mean, there's plenty left because he doesn't practice this invention.

He has no intention of practicing this invention beyond the receipt of money.

Money damages are a completely adequate remedy under these particular circumstances, given... given especially the fact that if... if the infringement continues... and remember, this is not a situation where he proposes to continue to infringe.

We propose to work around it, but if the infringement continues, we're then subject to enhanced damages and all of the deterrent power that that has, plus the possibility, obviously, down the road that the district court could, on a rule 54 motion, now come back and say, well, no, now I've decided that injunctive relief is warranted under these circumstances.

Justice Ginsburg: Well, isn't it a concern that Congress didn't provide for compulsory licensing which this seems to have a very strong resemblance to?

It says eBay wants to do this, so they're going to have to pay for it, but the patentee can't stop them.

It just has... in effect, has to license them to do it.

Mr. Phillips: But... but we're not asking for a compulsory license because it is not our intention, going forward, to infringe this patent.

We've made it very clear to the district court and the district court recognizes that we not only intend to but have, in fact, implemented a design around or a work around to this particular patent.

And that's what we expect will happen.

So we're not asking for the right to continue to infringe and the willingness to pay as we go.

Our concern... and this does go to the business method patent because it does go to the... to the uncertainty.

The problem we have here is we don't know where the line is going to be drawn.

That's why the district court said specifically, you know, there's going to be unending litigation on this because it's very difficult to define the metes and bounds of this particular patent, and we're going to have to fight over that, so that the traditional reason for injunctive relief, which is to bring peace, isn't available in this case.

We're not going to have peace under these circumstances.

And when you have that situation and you have the kind of uncertainty, not because of business method patents generally... that's... that's where I was I think probably giving up too much immediately.

I don't think the fact of a business method patent is per se a problem, but I think analyzing the specific business method patent and its uncertainty is a legitimate consideration for the district court to take into account in deciding whether or not, in a particular circumstance, we are better off saying, pay the plaintiff the money for the past injury, let's see how the work around develops, and take it into account, but without the sort of--

Justice Kennedy: Well... well, tell me how... how this works.

It seems to me that an injunctive hearing is... might be the cheapest, most effective way to... to sort out whether there's going to be a violation.

You call the parties in and they indicate what... what they propose to do, and the judge says, well, this is within it or it's without it.

It's... it's much cheaper than a... a new lawsuit.

Mr. Phillips: --Well, of course, the consequences of the... of the process are significantly different because, obviously, the remedies for... for contempt are significantly more draconian than... than just a finding of a... of a violation.

But more... more important than that, Justice Kennedy--

Justice Kennedy: Well, but this gives you the advantage of coming in in advance saying, I want... I... I want a ruling in advance that I'm not going to violate the injunction.

You've got a cheap lawsuit.

Mr. Phillips: --Well, and the reality is the district court already looked at this and said that it... it is the district court's judgment that they're going to require full infringement trials.

I mean, that was the finding it made with respect to the balance of hardships.

And... and neither the court of appeals nor the... nor the respondent in this case has... has challenged that particular finding.

So the reality is the district court has made the determination that that's not... that process is either not available or not practical in the context of this particular case, which of course, goes back to why it's important to make sure that you look at each of these cases on their individual facts rather than across the board on a... on these... on an irrebuttable presumption basis.

The... the additional point that I think it's important I at least spend a minute on, because the Court asked for us to deal with Continental Paper Bag, is that it does seem to me quite clear that, at least at this stage, the parties are pretty much in sync, that... that the Court need not revisit Continental Paper Bag.

The holding in that case is actually almost a sort of quintessential situation where you have two participants in the market, one of whom would like to take advantage of a patent that will improve that participant's ability to produce a product.

The patent holder is not ready yet to develop that product using that particular method and, therefore, sues to stop his competitor from entering into that market.

I mean, that's the classic kind of situation where you have a... you know, where you... where you've got the potential infringer is looking at what's going on and making a decision and copying it and then trying to implement it.

And the Court said, under those circumstances, you get an injunction.

But here, of course, we're dealing with a vastly different situation, as we... as we point out that... in our brief, where the... at page 9 where the district court specifically found that not any of eBay's success is attributable to anything in the patents of the plaintiff in this case and that nothing in the patents that were put forward by the plaintiff in this case provide any basis on which anyone could build a business model.

So this is, to my mind, the antithesis of the situation in Continental Paper Bag.

But in any event, the holding there is clearly not implicated here.

It's been codified by Congress.

There's no basis for the Court to reconsider it.

To the extent that there is... is dicta in there that talks about the right to exclude, Justice Scalia, I think, in general, the right to exclude is one that you do, in fact, enforce with injunctive relief in many cases, but the question here is whether or not the Federal Circuit should have adopted a rule that says you... you enforce it in every case irrebuttably as to three of the four factors, and as to the fourth factor, you don't go any further than requiring the plaintiff to show that there's a... an imminent public health crisis.

Under those circumstances, it seems to me the Court should reverse the court of appeals.

And, indeed, if there were ever a case in which the Court ought to uphold the district court on a... under the abuse of discretion standard, it is this case.

Chief Justice Roberts: --Why should we... if I can get back to one of the factors.

Why should we draw a distinction between the... the sole inventor who needs a patent speculation firm to market his discovery and... and somebody else?

Why... why should he lose the leverage of the normal injunction and have substituted for that a duel of experts over what a reasonable royalty should be?

Mr. Phillips: Because the... because Congress didn't dictate that he gets that leverage in every situation.

And... and it's quite possible that the... there are going to be a lot of situations.

And the Solicitor General's brief identifies four of them in which an inventor, who doesn't plan to practice the invention, engages in... in various kinds of licensing schemes that create all kinds of interrelationships among the way the patent is going to be developed, and I think all of those are perfectly legitimate and could easily justify injunctive relief in precisely the kind of case that you pose, Mr. Chief Justice.

But that's not this case.

Chief Justice Roberts: Can I... maybe I don't understand what it means to practice the invention.

If... if I... does that... if... if I invent something, you know, a new... better way to make a car engine work and I want to sell that to somebody, that's... you'd say that's not practicing the invention because I don't build cars?

Mr. Phillips: Right.

But again, you've licensed it and there are certain rights that, obviously, arise out of the licensing.

None of these factors is alone, I don't believe, sufficient to say you don't get injunctive relief.

But I think what the district court said, and I think that this is why the Court ought to affirm the district court's under... under an abuse of discretion standard, which never been applied to this case... what the Court should say is, look, and where you have no practicing of the invention by the inventor, where you have a complete willingness to license not only to the world, but also to eBay specifically, and where you've never sought preliminary injunctive relief, under all of those... and where... and where there's serious question about the lines to be drawn, there's no benefit to be had by... in the way of trying to eliminate the amount of litigation on an ongoing basis, under all of those circumstances, all of which the district court identified, then it's not appropriate to grant injunctive relief.

We'll allow enhanced damages in the interim and even the potential down the road, obviously, of... of an injunction to serve as enough of a deterrent to protect the right to exclude that the plaintiff has under the statute.

Justice Scalia: Why... why does the fact that... that you're not practicing the invention make a difference?

I mean, why... why should I be in better shape, as far as getting an injunction is concerned, if I produce an automobile engine and... and make some undeterminate profit--

Mr. Phillips: Right.

Justice Scalia: --from the use of this particular invention in the engine than I would be if I licensed it with a royalty based upon the number of sales of engines?

I mean, they're both risking, you know, the same future use of the... of the device.

Why... why does one situation justify an injunction more than the other?

Mr. Phillips: Yes, I think... I think I ought to modify it slightly because it's not just simply that you don't practice the invention.

It's that you're not in the market itself because that's... that's the Continental Paper Bag case.

You know, in Continental Paper Bag, they don't want to... they don't want to practice the invention either because they want to hold it back in order to be able effectively to use it.

If they had wanted to license it, that would have made sense too.

But this is not a competitor in the market.

If they were a... it seems to me you have a much better claim to a need to occupy space.

That's what the injunction is trying to say.

This is my space.

I want to occupy it.

But if you choose not to occupy it, it's not to say that you abandon your right to an injunction, but that that ought to be a legitimate, individualized consideration, among other considerations--

Justice Scalia: By not occupying it, you mean including not licensing it to somebody else.

Mr. Phillips: --Well, if you didn't license it... and actually we have no relevant licenses here too... that would be another factor that ought to be... that ought to count in the mix.

Again, it's not... I'm not looking for a presumption the other way and I'm not looking for categorical rules that say that if you... if you're a nonperforming entity, that you don't get a license, or even if you're a troll, as that term gets bandied around, that you're never entitled to a... to an injunction.

Justice Kennedy: Well, is... is the troll the scary thing under the bridge, or is it a fishing technique?

I... I want--

[Laughter]

Mr. Phillips: For my clients, it's been the scary thing under the bridge, but--

[Laughter]

Justice Kennedy: I mean, is that what the troll is?

Mr. Phillips: Yes, I believe that's the... I think that's what... what it is, although you... maybe we should think of it more as Orks, now that we have a new generation, but at this point troll is the word that gets... that gets used.

If there are no further questions, I'd like to reserve the balance of my time, Your Honors.

Argument of Jeffrey P. Minear

Chief Justice Roberts: Thank you, Mr. Phillips.

Mr. Minear, we'll hear from you.

Mr. Minear: Thank you, Mr. Chief Justice, and may it please the Court--

The United States submits that the right to a patent is an important matter, but it must be considered in the context of the remedies as well.

And the United States further submits the patentee's right to an injunction should be covered by the familiar four factor test this Court has applied in cases such as Weinberger v. Romero Barcelo.

This Court's express endorsement of the four factor test would provide disciplined guidance and a framework for the lower courts to evaluate whether or not a patent should issue in any particular case.

The court of appeals in this case did not make express reference to the four factor test.

Nevertheless, it did identify the difficulties with the... the district court's decisions.

Chief Justice Roberts: You don't think Mr.... you don't think Judge Bryson forgot about the four factor test, do you?

Mr. Minear: Absolutely not.

Chief Justice Roberts: Sure.

And... and he was just reflecting the reality that in a typical case, this is what happens.

It seems to me all you want us to do is edit his opinion and stick in this formulaic paragraph about there are four factors and here they are.

Mr. Minear: Not exactly, Your Honor.

We think that there is some legitimate confusion among the patent bar and in the community about whether or not this test issues nearly automatically or not.

Certainly there are many amicus briefs on both sides.

And we think it's useful for this Court to make clear that this is an exercise of equitable discretion.

Now, Judge Bryson, I think, was aware of the four factor test.

In fact, both parties cited the four factor test before the district court.

He was also aware of the abuse of discretion standard.

That's a well established standard and the parties cited that standard to the Federal Circuit in the course of briefing this case below.

But what we think this Court can do is it can provide guidance on how those factors are applied in the patent context in this very important area.

We think the court of appeals decision is correct.

The judgment is correct.

But we think that there's some benefit to this Court explaining why that is so, and I'd like to--

Chief Justice Roberts: Can I ask you about one factor in particular?