Landmark cases

eBay Inc. v. MercExchange (2006)

Pre-eBay, an injunction was a kill switch a patent holder could threaten. Post-eBay, the worst is monetary damages — and for an NPE that wants license fees anyway, the four-factor test usually fails on the irreparable-harm prong.

4 min read · Updated Apr 29, 2026

eBay Inc. v. MercExchange, L.L.C. is the Supreme Court ruling that ended the Federal Circuit's "general rule" of automatic injunctions in patent cases. After eBay, an injunction is discretionary — and a non-practicing entity rarely gets one.

Decided May 15, 2006, 547 U.S. 388.

Background

MercExchange owned patents on online auctions. It licensed broadly but didn't operate any auction site itself — a non-practicing entity. It sued eBay for infringement of the "Buy It Now" feature. After a jury trial, MercExchange won on infringement. The district court awarded damages but denied a permanent injunction, citing concerns about MercExchange's NPE status and the public interest.

The Federal Circuit reversed the injunction denial. Under its long-standing precedent, a permanent injunction was the general rule in patent cases absent exceptional circumstances. eBay would be enjoined from offering the "Buy It Now" feature.

eBay appealed.

The holding

Unanimous reversal. The Supreme Court held that the traditional four-factor test for permanent injunctive relief applies in patent cases just as in any other equitable matter. A plaintiff seeking an injunction must show:

  1. Irreparable injury that cannot be compensated by money damages.
  2. Inadequate remedy at law.
  3. Balance of hardships between plaintiff and defendant favors equitable relief.
  4. Public interest is not disserved by an injunction.

The Federal Circuit's "general rule" of automatic injunctions in patent cases was inconsistent with traditional equity. The Court rejected both the bright-line rule (always grant) and what it called the lower court's flirtation with a different bright-line rule (NPEs never get injunctions).

The takeaway: each case turns on its facts. Trial courts have discretion. Federal Circuit deference is owed under abuse-of-discretion review.

The concurrences

Two concurrences fleshed out the practical implications, in opposing directions:

  • Chief Justice Roberts (joined by Scalia and Ginsburg): noted that the historical "general rule" of injunctions in patent cases reflected the difficulty of compensating patent holders adequately with money. This suggested practicing entities should still expect injunctions in most cases.

  • Justice Kennedy (joined by Stevens, Souter, Breyer): pointed to the rise of NPEs that "use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees." For these entities, money damages are usually adequate, and injunctive threats can become tools of leverage rather than legitimate remedies.

The Kennedy concurrence has aged into something close to the de facto rule for NPE injunctions: rarely granted.

Aftermath: the post-eBay landscape

Twenty years on, the practical effect is clear:

  • NPEs almost never get injunctions. Their argument for irreparable harm fails because money damages are exactly what they want anyway. This collapses the "kill switch" leverage NPEs used to wield. (Browse our database by plaintiff to see which entities are filing the most cases.)
  • Practicing competitors often do. A direct competitor losing market share to an infringer makes a strong four-factor case.
  • ITC § 337 is the alternative. The International Trade Commission can issue exclusion orders (effectively injunctions blocking imports) using a different statutory framework. NPEs sometimes try to use the ITC to recover the leverage they lost in district court — though ITC requires a "domestic industry" showing the NPE may struggle with.

What it means for defendants

Pre-eBay, an NPE filing suit against a defendant whose product was hard to redesign held a real threat — license, settle, or be forced to pull product. Post-eBay, the threat is usually monetary. Defendants can negotiate from a stronger position knowing the worst-case is damages, not a sales injunction.

For practicing competitors, the threat is different and more serious. A competitor who wins infringement and clears the four-factor test can shut down the defendant's product. The defense playbook in those cases focuses harder on invalidity (§ 102 / § 103 under KSR — kill the patent before it can be used) and non-infringement (prove the product doesn't read on the claims).

What didn't change

eBay didn't change anything about damages calculations, willfulness, or treble damages. Those still operate the same way. The ruling is narrowly about equitable injunctive relief.

It also didn't change ITC procedure — the ITC operates under different statutory authority (19 U.S.C. § 1337), and exclusion orders there are not "injunctions" in the eBay sense.

Bottom line

eBay was the structural shift that made NPE litigation primarily a money game. NPEs can still extract settlements, but the apocalyptic threat of an injunction blocking a defendant's product is largely gone — except in the ITC, and except when a practicing competitor sues. For most defendants facing an NPE, the worst-case outcome is a check, not a shutdown. Combined with Octane Fitness (cheaper to win fees) and IPR (cheaper to win invalidity), eBay is one of three structural reforms that gave defendants the modern toolkit.

Related: What is a patent troll?, The patent litigation lifecycle.

Read the opinion: eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).

This article is for general education and is not legal advice.