Feb. 28, 2024

Hudson Institute: The Loss of Injunctions under eBay: Evidence of the Negative Impact on the Innovation Economy

I. Introduction

In 2006, the Supreme Court changed the landscape of patent law with its decision in eBay v. MercExchange,1 creating a new test for injunctions that significantly altered this longstanding remedy for patent infringement. Injunctive relief for patent infringement was no longer certain. In fact, some patent owners could be almost certain that they would not be granted a permanent injunction against an infringer, with courts instead setting “ongoing royalties” for the continuing infringement. Infringers, knowing that they are unlikely to be enjoined, are—in certain cases—taking the risk to “infringe now, pay later.” This mindset is known as predatory infringement.2

As the twentieth anniversary of this landmark opinion looms, evidence of a more insidious fallout from eBay is accumulating. Not only does the lack of injunctive relief no longer serve as a deterrent to infringement, but it also negatively impacts the functioning of efficient markets and negotiations of fair market value. As economists have long explained, injunctions are the legal means by which property owners are able to set terms in commercial negotiations that result in business deals and other economic activities in the innovation economy. Specifically, when an injunction is available, a patent owner, like any other property owner, can say during the course of negotiations, “No, I will not license my patent to you at the price you are offering to me.” Parties who wish to use the patented technology will either need to pay the patent owner’s asking price or will need to opt for different technology.

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