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Supreme Court to hear eBay's patent challenge

Case divides biz community

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The US Supreme Court will hear eBay’s appeal tomorrow against an injunction imposed in a patent dispute over the auction site's fixed-price 'Buy it Now' service. eBay is challenging the same court practices that nearly shutdown the BlackBerry email service recently.

eBay has asked the Court to review the question of whether an injunction should always be imposed in cases where one party is found to infringe the patent of another.

At present, US courts may impose an injunction when infringement is proved – but have often taken the view that they must impose an injunction. The rule of the Federal Circuit is that an injunction should follow a finding of infringement unless there are "special circumstances".

eBay argues that patent holder MercExchange does not make use of its own patents and exists only to sue others. It says MercExchange should therefore not be entitled to an injunction, and a damages award should suffice. MercExchange denies the claims about its own business model; but regardless of the facts, the issue raised by eBay has divided the business community.

Oracle, Microsoft and Intel have supported eBay, filing a joint brief that argues that courts must have discretion to grant or refuse injunctions in patent disputes. The patent may relate to only a tiny part of a company's product or service, they point out; injunctions can be a disproportionate remedy. They say the injunction rule "has transformed patents into a powerful tool for litigation abuse".

The recent battle between BlackBerry-maker Research In Motion and patent holder NTP Inc put the issue in focus.

Following a patent infringement ruling, an injunction looked likely that would have closed the BlackBerry service for millions of US users; yet NTP makes no rival product and the validity of its patents had already been questioned by the US Patent Office. The risk was averted when RIM agreed to pay $612m to NTP. Critics see such payments as ransom money.

MercExchange and its supporters, including the Department of Justice, General Electric, and Proctor and Gamble, argue that too much discretion will chill innovation and drive up costs. They believe the ability to exclude others from using a patented invention is one of the fundamental reasons for patenting that invention.

A ruling is not expected for several months.

Background

The dispute between eBay and MercExchange has been running since October 2001, and hinges on an auction site patent application that was filed a few months before eBay was launched in 1995.

It relates to the 'Buy It Now' service on the eBay site, which deals with fixed-price sales, and a facility to search other online auction houses. In May 2003, a jury decided that these services did infringe on the patents, and ordered the online auction leader to pay $35m in damages.

The case then went back to the trial judge, who had the option of increasing the damages awarded – up to three times the existing award – and issuing a permanent injunction against the company, preventing eBay from using the patented technology.

In the end he did neither, and in August 2004 he reduced the award to $29.5m and refused to grant an injunction.

eBay appealed, and in March 2005 the US Court of Appeals for the Federal Circuit found that the comparison shopping patent was invalid. It reduced the damages imposed on eBay to $25m. But it imposed an injunction on the firm finding that, unless there were exceptional circumstances, a district court should issue a permanent injunction after a finding of infringement. The injunction was stayed pending the appeal to the Supreme Court.

eBay has previously reported that it changed its 'Buy It Now' service after the ruling in 2003 to avoid future infringement, so the Supreme Court's decision on the injunction may not affect the operation of its business.

See: Coverage of this case – with links to all the briefs – at Dennis Crouch's Patently-O Patent Law blog

Copyright © 2006, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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