For all you eBay hatersIn the world of patent disputes, the recently settled tiff between patent holding company NTP and Research In Motion, makers of the popular BlackBerry has dominated the scene for the past year or so. At the same time that battle was being played out, another case of infringement was wending its way through the federal court system. This one involves eBay and a company called MercExchange LLC, which says eBay's popular "Buy It Now" auction feature violates patents held by MercExchange.
The Office of the Solicitor General of the United States has filed a brief with the Supreme Court, taking the side of MercExchange. In it, the Solicitor General's Office argues that eBay should be barred from using Buy It Now due to the decision of two lower courts that upheld MercExchange's patents.
In 1995, MercExchange founder Tom Woolston filed three patent applications with the US Patent and Trademark Office covering online auctions and shopping, including a direct-buy patent that allowed shoppers to purchase an auction item at a fixed price. Later that same year, eBay started its own online auction service, which has since grown into the juggernaut it is today. The USPTO approved all three of Woolston's patents in 2000 and 2001, and at one point in time, Woolston and eBay had engaged in negotiations over the auction site's licensing the patents. Those negotiations broke down and Woolston subsequently filed suit against eBay, alleging patent infringement.
In 2003, a US District Court ruled that Buy It Now violated MercExchange's "direct buy" patent, but threw out the company's patent for the online auction process on the grounds that it wasn't sufficiently documented. Last year, the US Court of Appeals upheld the direct buy patent and the lower court's US$25 million award, and found that eBay had willfully infringed on the patent. In addition, the court recommended that an injunction be issued against the Buy It Now feature until eBay came up a noninfringing workaround or licensed the patent.
EBay filed an appeal with the Supreme Court, which will hear oral arguments later this month. In its filing with the Supreme Court, eBay argued that infringements should not automatically result in injunctions and shutdowns. The company also pointed out that MercExchange has not been in the online auction business since 2000, so eBay's use of Buy It Now was not sufficient to merit an injunction.
It appears that MercExchange has decided that licensing its patent could prove to be more lucrative than actually operating a business that utilizes it. MercExchange freely admits to having gotten out of the auction business itself, but says it currently licenses the patent to other companies. As we are all aware, patents can mean big money. RIM came close to settling its case against NTP for US$450 million in 2005, but got cold feet and was eventually on the hook for US$612.5 million. That's a nice revenue stream for piece of intellectual property, and it looks like MercExchange is hoping to cash in on eBay's popularity to obtain a similar windfall.
Aside from the obvious question of how and what kind of patents are issued—a topic that has been the cause of much litigation and endless discussion—comes the question of how to deal with infringement. Should companies that demonstrate infringement be granted automatic injunctions? Patent holding companies and small firms like Eolas and MercExchange would argue that when large companies infringe their patents, it deprives them of deserved revenue. On the other side of the aisle are the likes of eBay and RIM, which say that enforcing the patents and quickly granting injunctions would cause untold financial damages and hamper their operations. Until the US government decides to fix the patent process, companies will continue fighting high-stakes battles over patents and injunctions with often expensive results.