10 Years Later—Impact Of eBay On Patent Injunctions In The Life Sciences

May 15, 2016 marked the 10th anniversary of the landmark eBay v. MercExchange decision, in which the United States Supreme Court held that permanent injunctions are not granted automatically in patent cases and that the traditional four-factor injunction test applies instead.1 For the life sciences industry, where the cost of developing and bringing to market a new drug or biologic may exceed $2.5 billion and the cost of developing and bringing to market a new medical device may reach $1 billion, eBay poses a real threat to the incentive to invest if the market exclusivity of successful products is at risk.2 With a decade of post-eBay case law to consider, we reflect on the impact the decision has had on the life sciences industry and the lessons learned along the way.

The eBay v. MercExchange Decision

Rejecting the "general rule" in patent cases "that a permanent injunction will issue once infringement and validity have been adjudged," the Supreme Court's May 2006 decision in eBay Inc. v. MercExchange, L.L.C. required district courts to apply the familiar four-factor test in deciding whether to grant injunctive relief in patent cases.3 Under this test, to obtain a permanent injunction, a patentee must demonstrate (1) that it has suffered irreparable injury, (2) that monetary damages are inadequate, (3) that considering the balance of hardships, an injunction is warranted, and (4) that the public interest would not be disserved by a permanent injunction.4

The Supreme Court relied on 35 U.S.C. § 283, which "expressly provides that injunctions 'may' issue 'in accordance with the principles of equity,'" even though in seemingly absolute terms 35 U.S.C. § 154(a) affords a patentee "the right to exclude others from making, using, offering for sale, or selling the invention."5 The Court noted that this was consistent with the treatment of injunctions under the Copyright Act, which also provides that a court "may" enter an injunction even though the copyright owner is granted the right to exclude.6 Thus, as with the Copyright Act, "the creation of a right is distinct from the provision of remedies for the violation of that right." 7

Although the district court in eBay purported to apply the proper test, the Supreme Court criticized the opinion for suggesting that in certain "broad classifications" of cases—such as where a plaintiff is willing to license its patents or does not practice its patents—a patent holder would not suffer irreparable harm in the absence of an injunction.8 The Court further noted that the Federal Circuit had swung the pendulum too far in the other direction by applying a standard under which permanent injunctions are entered automatically in patent cases except in "exceptional circumstances" and in "rare instances . . . to protect the public interest."9 In rejecting "categorical" rules regarding grants or denials of permanent injunctions, the Court emphasized that district courts have "considerable discretion" in determining whether injunctive relief is appropriate.10 Thus, the injunction inquiry is fact-dependent, with few bright-line rules to be applied from case to case.

Proving Irreparable Harm and Inadequacy of Monetary Damages post-eBay

Because proving that monetary damages are inadequate often equates with establishing irreparable harm, these first two injunction factors are frequently analyzed together. An analysis of post-eBay case law reveals that the irreparable harm and inadequacy of monetary damages factors are most easily satisfied in cases involving direct competitors in a two-player market.11 This is because direct competition in a two-player market is most likely to create harm to the patentee that snowballs into tangible and intangible harms that are impossible to fully understand or quantify.

While "lost sales standing alone are insufficient to prove irreparable harm because they are presumed compensable through monetary damages," they are a factor in the irreparable harm analysis when combined with other injuries.12 Lost sales mean lost customers and lost business opportunities that those customers could have provided, as well as lost market share and decreased revenue. Reduced revenue means less money available for employee attraction and retention and for research and development. For companies whose revenue streams, profitability, and continued research and development efforts depend on recouping costs through their commercially-successful products, a decreased revenue stream alone may cause irreparable harm. Moreover, where the patentee has to lower the price of its patented product due to the infringing competition (or risk harm to its goodwill and reputation), it would be nearly impossible to accurately calculate the actual economic loss through patent expiry. While high prices that follow from market exclusivity may harm the patentee's reputation, competition may irreparably harm the patentee's reputation as an innovator.

Sanofi-Aventis Deutschland GmbH v. Glenmark Pharmaceuticals Inc., USA, a patent dispute between two direct competitors, presents the quintessential fact pattern in which it should be relatively easy to establish irreparable harm and inadequacy of monetary damages.13 Sanofi-Aventis had market exclusivity for its patented Tarka® product until the defendants began marketing a generic version. The court noted that "Plaintiffs and Defendants are direct competitors in the Tarka market, prior to Defendants' launch, Plaintiffs had 100% of the Tarka market; now every sale made by Defendants is a sale lost by Plaintiffs."14 At the time of the litigation, Sanofi-Aventis had already lost two-thirds of its market share and expected to lose a total of 90% of the market to the generic competition.15 Moreover, Sanofi-Aventis had to reduce its price to compete with the infringing product and would not have been able to restore its price without hurting customer goodwill.16 Based on evidence of the loss of market share, price erosion, and the impact on the branded company's customer goodwill, the court found that Sanofi-Aventis had demonstrated irreparable harm and inadequacy of...