[Ecommerce] Justices Will Hear Patent Case Against eBay (Wed)

[Manon Ress]

Justices Will Hear Patent Case Against eBay
http://www.nytimes.com/2006/03/27/technology/27ebay.html?
_r=3D1&oref=3Dslogin


    By KATIE HAFNER
Published: March 27, 2006

The United States Supreme Court will hear arguments on Wednesday in a
protracted, closely watched patent case that pits a small company
called MercExchange against eBay, the online auction and marketplace.

While the grounds in the case appear narrow =97 the court will
reconsider the rules under which courts grant injunctions against a
company found to be infringing another's patent =97 it has attracted
enormous attention because of the public rancor between the two
companies, the supporters enlisted by both sides and the growing
issue of how large technology companies deal with the constant threat
of patent challenges.

The patent in question surrounds the "Buy It Now" feature that eBay
uses to allow processing of transactions for the Web site's fixed-
price purchasing option.

The Supreme Court will decide whether a federal appeals court was
correct in reversing a district court's decision to deny an
injunction against eBay's use of the feature. In doing so, it will
reconsider a precedent from 1908, which suggested that injunctions
were always an appropriate remedy for patent infringement.

Supporting briefs from third parties, including some unlikely ones,
have piled up for each side. A pharmaceutical industry trade group
filed a brief in support of MercExchange, as did General Electric,
Proctor & Gamble, the University of California, a group of venture
capitalists and the United States government. All argued in favor of
injunctions against those who infringe patents.

A brief filed jointly by Oracle, Microsoft and Intel in support of
eBay argued that the injunction rule "has transformed patents into a
powerful tool for litigation abuse" and "stifles innovation." EBay
has also hired Juleanna Glover Weiss of the Ashcroft Group, a
lobbying firm in Washington founded by John Ashcroft, the former
United States attorney general, to help with communications efforts
related to the case and patent issues in general.

The case began in 2001, when MercExchange sued eBay, accusing it of
willfully infringing three electronic commerce patents held by Thomas
Woolston, an engineer from Great Falls, Va., and the founder of
MercExchange, which he calls a network engineering firm. One of Mr.
Woolston's patents was a feature to sell fixed-price goods online,
and it included an automatic payment system.

In 2003, a federal court jury in Virginia, where MercExchange is
based, found that eBay was violating two of the three patents,
including the Buy It Now patent, and the court eventually ordered
eBay to pay $25 million in damages.

But the judge presiding over the case refused to issue an injunction
that would have barred eBay from continuing to use the patented
methods in its Web operations.

The Supreme Court agreed to hear the case after the United States
Court of Appeals for the Federal Circuit, a specialized court in
Washington that hears all appeals in patent cases, overturned the
lower court's decision and ruled that MercExchange was entitled to an
injunction.

The appeals court said that injunctions were the "general rule" in
patent infringement cases, and should be withheld only in such "rare
instances" as "the need to use an invention to protect public health."

At issue before the Supreme Court on Wednesday is whether the federal
circuit court's ruling correctly interpreted federal patent law,
which authorizes judges to grant injunctions but does not require
them to do so.

The case has attracted an unusual amount of public attention in part
because of recent attempts by large corporations to change patent law
to lessen the threat posed by so-called nonpracticing patent holders.

"Large companies like Microsoft and Intel get hit by weekly patent
infringement suits, the majority from smaller entities who may not be
practicing the inventions," said Dennis Crouch, a patent attorney in
Chicago who has been following the MercExchange case closely. "The
big guns behind eBay are trying to weaken the power of a patent and
lessen the ability of a patent holder to obtain an injunction."

In his decision to withhold the injunction, the district court judge
noted that MercExchange "exists solely to license its patents or sue
to enforce its patents, and not to develop or commercialize them."

Yet in a telephone interview, Mr. Woolston said that MercExchange had
indeed put its patents to commercial use. "Come to MercExchange.com
and buy a plasma TV," said Mr. Woolston. "We are practicing our
inventions."

The eBay case is similar to a recent patent case again Research In
Motion., the maker of the BlackBerry wireless device. Had an
injunction been enforced in the BlackBerry case, it might have caused
a shutdown of the system. Instead, in a last-minute settlement,
R.I.M., a Canadian company, agreed to pay $612.5 million to NTP, a
patent holding company based in Arlington, Va.

Yet, if an injunction is ordered in the eBay case, the day-to-day
workings of eBay are not likely to be affected, said Hani Durzy, a
spokesman for eBay. Mr. Durzy added that immediately after the
verdict in 2003, the company made changes to the Buy It Now feature.

Use of the feature has grown over the years. In the fourth quarter of
2005, it accounted for about a third of the $12 billion in
transactions on eBay.

************************************************
Manon Anne Ress
manon.ress@cptech.org,
www.cptech.org

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