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High Court Considers EBay Case On Patent
[March 30, 2006]

High Court Considers EBay Case On Patent

(Newsbytes Via Thomson Dialog NewsEdge)The Supreme Court heard oral arguments yesterday in a crucial intellectual property case -- and the outcome could hinge on whether the justices think online auctioneer eBay Inc. is a larcenous corporate giant or the innocent victim of a greedy "patent troll."

At issue is the current rule in patent cases that patent holders who prove infringement get money damages and an injunction shutting down the businesses that violate their intellectual property rights. EBay, backed by tech firms such as America Online Inc. and Yahoo Inc., says the near-automatic injunction gives patent holders too much leverage, enabling patent holders who have no intention of using their inventions -- known as "patent trolls" -- to ambush companies with expensive lawsuits.

But MercExchange LLC, a Great Falls firm that says it created a process for selling goods at a fixed price online that eBay later infringed, argues that the real problem is the bullying of giants like eBay that refuse to pay patent holders for their intellectual property. Backed by the pharmaceutical industry, which has its own huge stake in patenting drugs that take years to develop, MercExchange argues that, without easy access to injunctions, small inventors would be helpless against the likes of eBay.

"This is not a patent troll case," MercExchange's lawyer, Seth P. Waxman, told the court. MercExchange came up with a legitimate invention that eBay offered to buy, he said, but when negotiations broke down, eBay "stole the technology." The invention is a method for allowing users to buy goods at a set price instead of bidding on them.

The case puts a spotlight on the nation's troubled patent system, which recent studies by the National Academy of Sciences and the Federal Trade Commission have described as plagued by questionable patents and costly litigation.

Research in Motion Ltd., the maker of BlackBerry wireless e-mail devices, recently settled a case brought by NTP Inc., a patent-holding company, for $612.5 million. RIM faced an injunction even though the U.S. Patent and Trademark Office had concluded that the patents were largely invalid.

Some patent experts said yesterday that , No. 05-130, is likely to spur action on Capitol Hill. A House bill introduced by Rep. Lamar S. Smith (R-Tex.) would essentially back software companies' interests by allowing permanent injunctions only in cases in which the patent holder could prove it would suffer irreparable harm without one. But the bill is on hold, stymied largely by opposition from the pharmaceutical industry.

"I think the biggest issue this is going to result in is a more urgent push for patent reform" among legislators, said Brian Ferguson, a patent attorney in Washington who did not represent either side in this case. "There is a concern that the patent office is overwhelmed and it isn't doing as good a job as it could" in reviewing existing technologies or issuing patents in new technology areas, he said.

The Bush administration, faced with a division within the business community, weighed in on MercExchange's side. But its cautious brief urged the court to address the specific issues in the case, instead of trying to address "general policy concerns respecting potential abuse of the patent system."

In 2003, eBay lost a jury trial to MercExchange. The jury awarded MercExchange $35 million, but the judge reduced the award by $5.5 million and denied MercExchange an injunction, saying the smaller company would not face "irreparable harm" without it.

The district judge reasoned that, among other things, MercExchange was not practicing the patents and was willing to license its technologies to other companies.

The judge also cited "growing concern over the issuance of business-method patents" as a reason that an injunction would not be in the public interest.

But the U.S. Court of Appeals for the Federal Circuit, which has nationwide appellate jurisdiction over patent cases, reversed that ruling last year, saying MercExchange was entitled to an injunction because a "general concern" about business-method patents did not justify "the unusual step of denying injunctive relief."

It said MercExchange was entitled to an injunction to shut down eBay's "Buy It Now" feature. "Buy It Now" continues to operate, though, pending the case's final outcome. EBay also said there is no need for an injunction because it is planning to install a work-around that would allow the feature to function without infringing on the patents.

At the hearing yesterday, eBay's lawyer, Carter G. Phillips, argued that the appeals court's ruling is too inflexible to encompass the fast-changing world of software technologies. Those realities demand that district courts be allowed to consider the circumstances of each case before determining whether shutting down a business is necessary to address the property concerns of companies like MercExchange, Phillips argued.

"The time has come for this court to say, 'No, this is not what the Patent Act protects,' " Phillips said. District judges should be empowered to limit the relief to patent holders to cash alone, he argued.

But Waxman countered: "It is critical that this judgment be affirmed, because this is a real inventor. . . . Any suggestion of uncertainty to come out of this case would dramatically destabilize settled law . . . and the investment-backed expectations of inventors large and small."

Chief Justice John G. Roberts Jr. challenged Waxman, noting that since the lawsuit began, the Patent Office has rejected MercExchange's patent claims. Can the district court take that into account? Roberts asked.

Waxman said allowing parties to file for review after litigating cases in court would be an "open invitation" to manipulations of the patent process by infringers like eBay.

Justice Antonin Scalia seemed to agree with Waxman, asking questions that suggested he did not consider this case different from others regarding private property rights.

"We're talking about property rights; all he's asking for is, 'Give me my property back,' " Scalia said to Phillips. "Why isn't the free market adequate to deal with the problems you're talking about?"

A decision is expected by July.

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