eBay gets the BlackBerry treatment
Patent trolls are on stage again. But this time they're at the Supreme Court -- and the court's decision could change the law.
By Nicholas Varchaver, FORTUNE senior writer

NEW YORK (FORTUNE) - The lawsuit that nearly shut down the country's BlackBerry e-mail devices vaulted the normally obscure issue of patents into the national spotlight this winter.

But for all the attention that battle received, it pales in significance to a similar case -- entitled eBay v. MercExchange -- that will be argued at the U.S. Supreme Court on Wednesday.

Patent cases have always been costly. Could they now be fatal too? (more)

The stakes are huge for American business, says Todd Dickinson, a vice president in charge of intellectual property matters for General Electric and a former head of the U.S. Patent & Trademark Office: "You could even say it's the most important commercial law case before the Supreme Court so far this century."

The key issue in eBay v. MercExchange is the same as in the BlackBerry case: Should the holder of a valid patent have the nearly automatic right to an injunction shutting down the operations of a company that is found to infringe its patents? In this case, an appeals court upheld a jury's conclusion that eBay's buy-it-now service infringed a patent held by a tiny outfit called MercExchange.

An appeals court then imposed an injunction barring eBay (Research) from using the patented technology. And now the Supreme Court will decide how easy or hard it will be to win such injunctions.

"The BlackBerry case attracted a lot of attention because people are using it and the numbers are high, but there wasn't the prospect of changing the law," says Matthew Powers, who represents Microsoft, Intel and Cisco as head of patent litigation at the giant law firm Weil, Gotshal & Manges. "This case is being taken to address whether that part of the law that made the BlackBerry case so big is actually going to be changed."

The justices will be grappling with an issue -- injunctions -- that is as old as U.S. patent law. Some, including eBay, suggest that the federal appeals court devoted to patent cases has made it easier for plaintiffs to win injunctions. These days, they are virtually automatic, with an exception only for dire circumstances such as an extreme threat to public health.

Patent trolls

What has really changed the issue is the rise of the so-called patent troll, a derogatory term for entities that acquire patents with no intention of producing products, and then use them to squeeze big settlements out of companies whose products --which often contain thousands of patentable components -- might infringe on the patent.

In the past, says Powers, "You didn't have patent trolls who were buying up patents for $25,000 and then asking for $5 billion." (MercExchange adamantly denies that it is a "troll," insisting that it wanted to produce the technology involved in the eBay dispute.)

Granting trolls this power, eBay argues in its brief, hands them a power that "Congress never gave them: the tremendous in terrorem leverage of a permanent injunction in settlement negotiations."

In light of the advent of the troll, eBay and others argue that courts should weigh a variety of factors in patent cases before granting an injunction that could shut down a business.

Among the questions would be whether or not the patent-holder suffered an irreparable injury and "whether the public interest would be adversely affected" by the imposition of an injunction. Courts would be likely to examine whether or not the patent-holder actually attempts to commercialize the invention. (It's worth noting that, in the case of eBay, any potential injunction would apply only to the buy-it-now feature, but eBay says the injunction would be moot because it redesigned a mechanism to avoid infringing MercExchange's patent.)

The debate has provoked both an unusual amount of interest and an even more unusual schism in American business. Some 30 different friend-of-the-court briefs were submitted. Companies such as Yahoo, Intel (Research), Microsoft (Research), Cisco (Research) and Google (Research), as well as the Business Software Alliance -- which counts Apple, Dell, and HP among its members -- and even Shell Oil have supported eBay's arguments that injunctions should be less than automatic. (Time Warner, the corporate parent of FORTUNE and CNNMoney.com, has also weighed in on eBay's side.)

Meanwhile, a passel of pharmaceutical and biotech companies have offered support for MercExchange's position. Pharma companies, in particular, spend huge sums developing patented drugs and are afraid of anything that could potentially weaken their products' protections.

More surprising, GE (Research), Procter & Gamble (Research), DuPont, and Johnson & Johnson (Research) also submitted a brief supporting the current law, as did the American Bar Association.

"The issue of patent trolls needs to be dealt with," says GE's Dickinson. "The challenge is, do you deal with them by weakening the entire portfolio of patents somewhat, or do you deal with it in a more targeted way."

Dickinson argues that Congress should resolve the patent-injunction debate, but acknowledges that the corporate forces are so entrenched that supporters of the status quo were able to remove a provision on injunctions that tech companies had inserted in patent reform legislation that has been under discussion in Congress for more than a year. As often happens when Congress can't agree, the issue will now be passed to the Supreme Court to decide.

Of course, handicapping how the court will vote is a fool's errand. But one intriguing suggestion comes from the U.S. Solicitor General, the Supreme Court lawyers for the federal government. Its brief tries to split the baby: It largely supports eBay's views that various factors should be considered before granting an injunction -- but then recommends upholding the injunction against eBay.

That approach seems odd at first glance. But it might just offer the Supreme Court the sort of wiggle room it often craves to adjust the law without appearing to overhaul it.

Says Robert Merges, a leading patent authority at the University of California-Berkeley school of law, and the author of a brief for Yahoo (Research) in this case: "In some ways, the [government's brief] points to the fact that, from the big-picture point of view, it's not that important who wins this case... What's most important is that the Supreme Court say to the lower courts, 'Hey, this troll problem is real. We're going to give you a tool to deal with it.'" Top of page

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