eBay Takes on the Patent Trolls

A Supreme Court case looks at companies that obtain patents only to license them. Could a victory for the auction giant be a setback for innovation?

Patent trolls don't get much sympathy -- except maybe from the Supreme Court. On Mar. 29, justices heard arguments in a patent dispute between online auctioneer eBay and MercExchange. At issue is which party owns the rights to the technology behind an eBay tool that lets users make purchases instantly.

Some justices were skeptical of eBay's complaint that a lower court was too quick to block its use of the technology underlying the "Buy It Now" button. Justice Antonin Scalia pointed out the obvious: A person isn't allowed to take property away from someone who doesn't want to part with it -- even for a price.

The long-anticipated eBay (EBAY) case gets to the heart of the debate over so-called patent trolls -- companies that obtain patents only to license them, often using the threat of an injunction to extract a high price from infringers. The auction giant wants the high court to overturn the Federal Circuit Court's prohibition of its use of MercExchange technology. Lawyers for eBay and its allies say injunctions have become all-too-routine, upsetting a centuries-old principle that such strict remedies should be reserved for cases where money damages are inadequate.


  Like the patent-troll debate, eBay v. MercExchange pits Big Tech against the Little Innovator -- and also against Big Pharma, which likes the system just the way it is. Big tech companies rail against "opportunistic" intellectual-property owners that are amassing large numbers of business-method and software patents with the goal of licensing them for enormous fees.

The problem has escalated in wake of the dot-com bust, when patents proliferated as a sort of venture-capital collateral, only to be sold at bargain-basement prices by bankruptcy courts into the hands of entrepreneurial lawyers and limited partnerships. Patents once were a defense mechanism by big companies that used their massive IP portfolios to reach cross-licensing deals as a means of insuring against litigation from competitors. With more patents in the hands of small entrepreneurs, cross-licensing détentes are old hat, and patents have morphed into tools to extract licensing fees.

An eBay win at the high court would curb the courts' ability to grant injunctions, thereby "lessening the hijacking effect" of patent trolls, says Emery Simon, counselor to the Business Software Alliance. The tech industry's complaint has its merits, but there's a big catch. The Federal Circuit and its injunctions aren't the problem. And curbing those injunctions would only mask the symptoms tormenting the patent system, without curing the disease: a plague of bad patents issued by an underfinanced and hidebound Patent and Trademark Office -- with the tech industry's help.


  Tech companies eager to stake a claim on a snippet of code or bit of technology game the system by blithely filing thousands of patent applications, often for technology that's already in widespread use, or for code or methods that are so obvious that they can't pass the no-brainer test. Most often these applications cite no prior art -- that is, they claim that nothing on earth resembles what the patent would protect. The practice is so ludicrous that it's given rise to a vocal underground of patent watchdogs who have made a parlor game of calling out bad patent applications and pointing out obvious prior art.

The IT industry complains that it's not so simple, that prior art in software is difficult to analyze or impossible to dig up (see BW Online, 1/13/06, "A Code Catalog for Software Patents"). That argument implies information technology is more complicated than, say, pharmaceuticals, medical devices, and biotech.

Yet those industries are happy with the system the way it is. An eBay win "won't affect only the trolls, it's going to affect everyone," says Philip Johnson, chief patent counsel for Johnson & Johnson (JNJ). "It's a blunt instrument."


  Indeed, there's big money and technological progress at stake in that parlor game. Injunctions are an important tool for protecting and fostering innovation. Injunctions can be a great equalizer, especially for small IP owners, a point justices made when they questioned why small inventors should surrender for the benefit of wealthy companies that release products based on their inventions. "If we start watering down the patent system... I'm worried about the future of our country," Johnson says. "Beware of what you ask for, you might get it."

And a decision against MercExchange at the Supreme Court -- while a victory for the likes of eBay -- may end up becoming a strike against the innovation that set so many IT giants in motion.

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