Ruling in eBay patent-infringement case could be far-reaching

What looks to be a narrow point of law could have big implications for IT

When the U.S. Supreme Court hears arguments tomorrow in a patent infringement case, its examination of what may seem to be a narrow point of law could have far-reaching implications for the U.S. technology industry.

In eBay v. MercExchange, the court will examine whether near-automatic injunctions should be granted when a company is found to be infringing a patent (see "High court to hear landmark eBay patent case"). Much of the tech industry is siding with eBay Inc., which was found guilty in May 2003 of infringing a "buy it now" patent held by MercExchange LLC, a small auction site. An appeals court later ruled that an injunction against eBay's use of the "buy it now" feature was appropriate.

On the other side are independent inventors and many pharmaceutical companies, which spend millions of dollars developing new drugs and want to protect their patents.

The case could shift the balance of power between inventors -- some of them one-person operations or small businesses -- and large companies that sell products such as software and hardware, say observers of the case. A court ruling for eBay could make it harder for inventors to collect patent damages and easier for large vendors to market their products without fear of a court shutting them down.

In the eBay case, the U.S. District Court for the Eastern District of Virginia declined to issue an injunction after a $35 million jury award, but the U.S. Court of Appeals for the Federal Circuit reversed that decision, saying an injunction was warranted.

Both sides say their arguments support innovation. "I think everybody's right," said John Englander, a partner at law firm Goodwin Procter LLP who has represented pharmaceutical companies. "All of this is a balancing act."

If the Supreme Court rejects near-automatic injunctions, "that's perceived by inventors as devaluing the value of a patent," he added. "The long-term impact is, at some point there will be a drag on innovation, because there will be less of it."

Many large technology vendors disagree, saying injunctions issued in patent infringement cases hurt their ability to bring products to market. Many complicated tech products -- such as a laptop -- can contain hundreds of patented inventions, and if the vendor overlooks one patent, an injunction can stop the vendor from selling the total product, according to the Business Software Alliance (BSA) and other trade groups.

In the eBay case, the company would still be able to operate if the courts bar it from using its "buy it now" feature. But in another case earlier this month, BlackBerry device maker Research In Motion Ltd. agreed 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.

EBay supporters say "patent trolls," often defined as companies that exist solely to collect money by licensing patents, also hurt the ability of other companies to bring products to market.

"The Federal Circuit's automatic-injunction rule has transformed patents into a powerful tool for litigation abuse," said a brief supporting eBay, signed by Microsoft Corp., Intel Corp., Oracle Corp. and Micron Technology Inc. "Ultimately, it stifles innovation and poses a significant threat to high-tech businesses and the strength of the U.S. economy as a whole."

EBay backers argue that courts should weigh several factors before issuing an injunction, such as the public interest and the potential damage to both the patent holder and the accused infringer.

Technology companies want to limit the "whole cottage industry" of patent holders that exist only to license patents, said E. Patrick Ellisen, a partner specializing in intellectual property issues at law firm Foley & Lardner LLP. On the other hand, "there's a legitimate concern from inventors who build a better mousetrap and may lack the resources to exploit it," he said.

Inventors should have a right to decide to whom they license patents, and the eBay case could weaken that right, said Ronald Riley, president of the Professional Inventors Alliance. Large tech companies that get caught using someone else's intellectual property are "patent pirates," he said.

"The reason the great majority of patent disputes are settled short of lawsuits being filed or short of trial is the potential of an injunction," Riley said. "If the Supreme Court weakens the likelihood of getting an injunction, more cases will be litigated because patent pirates will have less to lose by pushing the envelope."

Copyright © 2006 IDG Communications, Inc.

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