Analysis: eBay patent ruling gets mixed reviews

A U.S. Supreme Court ruling Monday favoring eBay Inc. in a patent dispute won praise from some technology vendors, but some intellectual property lawyers questioned the long-term effects of the decision.

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.

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 tech 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, California, office of the Finnegan, Henderson, Farabow, Garrett & Dunner LLP law firm.

“[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, added Stephen Maebius, an intellectual property partner with the Foley and Lardner LLP law firm, in Washington, D.C. 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 court 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, and tech trade groups the Business Software Alliance (BSA) and the Information Technology Industry Council, praised the Supreme Court action.

EBay is “extremely gratified” by the decision, Jay Monahan, eBay’s deputy general counsel for intellectual property, said in a statement. The company is confident the district court will deny an injunction again, Monahan said.

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 impact, 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 shut-down of BlackBerry service after a patent ruling against device maker Research In Motion (RIM). RIM agreed in March to pay patent holder NTP Inc. more than US$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 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,” he added. “EBay has still got some litigating to do.”

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