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Supremes harry patent trolls

Permanent injunction on eBay to be reconsidered

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Judges in the US Supreme Court pointed the finger at patent trolls, firms that milk other people's inventions, with a ruling yesterday that saved eBay from having the rug pulled from under its auction site.

They also cast a cautionary eye over the controversial use of patents for business methods, which are allowed in US law and formed the basis of the patent lawsuit issued by software firm MercExchange against eBay.

eBay was charged with infringing a MercExchange patent for running an internet auction. The Court of Appeal had followed up by imposing an apparently arbitrary permanent injunction against eBay's use of the patent.

But in a unanimous ruling yesterday, the Supreme Court found that permanent injunctions should be carefully considered and the one against eBay was no done deal.

The patent infringement and consequent fine against eBay still stood, but the bar on its use of MercExchange patents can now be reconsidered.

"We take no position on whether permanent injunctive relief should or should not issue in this particular case," the ruling said.

eBay's counsel of record, Carter Philips of Sidley Austin Brown & Wood LLP, said the case would now be referred back to the Federal Courts for the injunction to be reconsidered.

A concurring opinion, provided by Justice Kennedy on behalf of himself and three other judges, which does not become law, warned that patent trolls ought to watch their step after the eBay vs MercExchange ruling.

Critics see patent trolls as firms that invent nothing, but hoard other people's patents for the sole purpose of hunting down inventors who infringe their intellectual property. Others see them playing an important role in acting as agents for small inventors in the protection of patents.

"For these firms, 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," Justice Kennedy said.

It was not, therefore, in the public interest that injunctions should be granted out of hand, particularly in a case where a patent is a small part of a more significant invention and an award of damages might be sufficient remedy for a dispute.

IP lawyers from Baker Botts said the "significant" ruling could harry patent trolls back into their caves.

"The ruling could considerably lessen the perceived ability of holding companies and others to aggressively assert patents...for the sole purpose of extracting settlements," Baker Botts said in a statement.

Justice Kennedy said there would also be consequences for the "burgeoning number" of business methods patents.

"The potential vagueness and suspect validity of some of these patents may affect the calculus under the four factor test."

The four factors being that a plaintiff should have suffered irreparable injury; remedies such as damages are inadequate compensation; the remedy is warranted considering the balance of hardships between the two parties; and a permanent injunction was not against the public interest.

The four factor test is what should be employed by courts when interpreting patent cases, reminded the unanimous Supreme Court ruling. The two previous rulings on MercExchange's attempt to impose an injunction on eBay (one of which ruled the injunction valid and the other having ruled it out) had both been taken automatically.

The four factor test, however, should be considered with the principle of equity before an award is decided. ®

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