Analysis: EBay patent ruling gets mixed reviews

The ramifications for other patent-infringement fights aren't clear

The U.S. Supreme Court ruling yesterday favoring eBay Inc. in a patent dispute won praise from some technology vendors, but its long-term efects were questioned by some intellectual property lawyers.

The Supreme Court set aside a lower court's decision to issue an injunction against eBay using its "buy it now" auction feature, after a jury in May 2003 found that eBay had infringed the patent of another auction site (see "Supreme Court sides with eBay in patent case").

The Supreme Court unanimously ruled against the U.S. Court of Appeals for the Federal Circuit's practice of granting near-automatic injunctions in patent-infringement cases. But it also ruled that a lower court had used flawed judgment when it refused to grant an injunction requested by patent holder MercExchange LLC.

Many technology vendors sided with eBay in the case, saying court rulings for injunctions have made it too easy for patent holders to shut down entire product lines when one small piece of the product infringes a patent. Independent inventors and many pharmaceutical companies sided with MercExchange, saying injunctions are one of their strongest tools against well-funded competitors.

In the case, the U.S. District Court for the Eastern District of Virginia had attempted to weigh four long-neglected factors in rejecting an injunction. But the Supreme Court, in a decision written by Justice Clarence Thomas, said the district court too broadly considered eBay's arguments against an injunction.

The Supreme Court left patent lawyers with a confusing middle ground between the near-automatic injunctions and the district court's refusal to grant the injunction for the wrong reasons, said Erik Puknys, a patent lawyer in the Palo Alto, Calif., office of law firm Finnegan, Henderson, Farabow, Garrett & Dunner LLP.

"[The decision] says what the wrong approach is," Puknys said. "The answer is somewhere in between."

The Supreme Court action could eventually have a large impact on patent lawsuits, but it's too early to tell, Puknys added. "What the Supreme Court did, at least, is they've gotten rid of that [near-automatic injunction] threat," he said. "But they've replaced that with the threat of uncertainty."

The effect of the ruling will depend on how lower courts interpret the decision, said Stephen Maebius, an intellectual property partner at the Foley & Lardner LLP in Washington. The ruling seems to leave courts with significant discretion in approving or rejecting injunctions, he said.

The ruling clarifies that lower courts must use a four-factor test -- including whether the plaintiff has suffered an irreparable injury through the infringement, and whether other remedies, including monetary damages, are inadequate -- while considering patent injunctions. After two cases in the 1980s established the test, patent holders have continued to cite those four factors when arguing for an injunction, even though courts have granted most injunctions, Maebius said.

"It's not such a major departure," he said of the Supreme Court ruling. "It's going to be interesting to see if courts move in a different direction."

EBay, along with the Business Software Alliance (BSA) and the Information Technology Industry Council, praised the Supreme Court action.

The online auction company is "extremely gratified" by the decision, Jay Monahan, eBay's deputy general counsel for intellectual property, said in a statement. The company is confident that the district court will deny an injunction again, Monahan said.

The BSA, which filed a brief in support of eBay, is "not in any way disappointed" in the Supreme Court decision, even though some observers have questioned its effect, said Emery Simon, the trade group's counselor. "It's an opinion which, we think, begins to re-establish the balance in patent law," he said.

Tech companies, saying injunctions have gone too far, pointed to a threatened shutdown of BlackBerry service after a patent ruling against device maker Research In Motion Ltd. RIM agreed in March to pay patent holder NTP Inc. more than $612 million rather than face a potential injunction barring it from offering its mobile e-mail service in the U.S.

But Ronald J. Riley, president of the Professional Inventors Alliance, said the ruling will "embolden patent pirates," large companies that steal small inventors' work.

Riley compared patent infringers to squatters who set up camp on someone else's property and refuse to leave. "What we need to do with some of these Supreme Court judges is find some homeless people, let them squat on their lawns ... and see if [the judges] can evict them," he said.

Patent lawyer Puknys said he doubts that the ruling will have a huge impact on patent-infringement negotiations. Courts can still issue injunctions, and the major threat of multimillion-dollar damage awards still exists, he said. "The threat of an injunction is very real," Puknys added. "EBay has still got some litigating to do."

Copyright © 2006 IDG Communications, Inc.

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