A Tepid Triumph for eBay

The online auctioneer carried the day, narrowly, in the high court. But that win will do little to crimp those pesky "patent trolls"

(see BW Online, 5/15/06, "Skype Goes for Broke")

The war between Big Tech and the often-irksome holders of patents made it all the way to the Supreme Court in the case of eBay Inc. et al v. MercExchange LLC. But anyone hoping that the high court would hand down a victory for one side or the other came away disappointed on May 15.

Make no mistake -- eBay was granted a reprieve. But the narrowly tailored and succinct, five-page opinion offered up no big winners, and no big losers, in a patent case that signifies a deep and long-simmering philosophical split in intellectual-property circles. At issue is the role of so-called patent trolls -- a derisive term applied to scrappy entrepreneurs who amass patents with the sole intent of extracting large licensing fees from alleged infringers, sometimes threatening court injunctions to help seal the deal.

Because the high court declined to take a side in the debate, choosing instead to hew to a narrow interpretation of existing statute, "both sides will find something to crow about in this opinion," says Sharon Barner, chair of the intellectual-property department at Foley & Lardner. And the opinion likely will take the wind out of efforts in Congress to reform a system that's granting patents on processes that are already in wide use or techniques so simplistic that avoiding infringement is nearly impossible (see BW Online, 1/13/06, "A Code Catalog for Software Patents").


  In 2001, MercExchange, a Virginia-based e-commerce company, claimed eBay was using patented MercExchange technology to power the auctioneer's "Buy it Now" function. A jury agreed, and awarded the patent holder $35 million, a figure later reduced to $5.5 million. But when MercExchange asked the judge to go a step further and block eBay's use of its technology, the judge declined, citing Merc's own "lack of commercial activity in practicing the patents." MercExchange, apparently, fit the description of a patent troll.

The Court of Appeals for the Federal Circuit, which hears patent appeals, took the opposite tack. Citing a "general rule" that it has applied for two decades -- that property owners have the right to deny anyone the use of their property -- the Federal Circuit granted MercExchange its injunction.

On May 15, a unanimous Supreme Court took both lower courts to task. While the court sided with eBay on the overriding, but narrow, question -- should courts automatically grant injunctions when a patent is infringed? -- it also gave heart to small inventors by reiterating long-standing principles that courts should follow when weighing injunctions. In short, the opinion will do little to rid Big Tech of those pesky patent trolls.


  The U.S. District Court for the Eastern District of Virginia, which heard the original MercExchange complaint, was wrong to deny an injunction based on MercExchange's "lack of commercial activity," Justice Clarence Thomas wrote for the high court. Some patent holders, including university researchers, "might reasonably prefer to license their patents rather than undertake efforts to secure the financing necessary to bring their works to market themselves." But the Federal Circuit also erred when it departed from an established four-part test that governs when injunctive relief is appropriate.

The upshot: Even while siding with eBay, the High Court simply took no side in the patent-troll debate. "The holding is truly narrow. It's a principle on which everybody can agree. It's like motherhood and apple pie," says William C. Rooklidge, a partner with Howrey and past president of the American Intellectual Property Law Assn.

Opportunistic patent holders, however, don't get off scot-free. In a concurring opinion, Justice Anthony Kennedy gave a nod to the powerful weapon at the disposal of patent holders: "An injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent." In a warning to lower courts, Kennedy notes that "an industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees."


  That's all well and good, and eBay deputy general counsel Jay Monahan said he was "extremely gratified" by the high court's decision: "The trial judge originally found in this case that money was sufficient, and denied an injunction. We are confident that when the District Court revisits this issue, particularly in light of the ongoing reexamination of the patents, that the result will be the same."

But Monahan's fight is far from over. The Supreme Court sent the case back to district court, which will have to apply that traditional four-pronged test to weigh MercExchange's request for an injunction. Among the questions the court will consider: Has MercExchange suffered an "irreparable injury"? And are monetary damages enough to compensate it for its loss?

While eBay has won a reprieve, the patent wars are far from over and a real winner remains to be seen.

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