Supreme Court hears eBay's patent appeal

Some justices joke that patent related to "Buy it Now" feature in online auctions is too vague to be taken seriously.

Anne Broache Staff Writer, CNET News.com
Anne Broache
covers Capitol Hill goings-on and technology policy from Washington, D.C.
Anne Broache
5 min read
WASHINGTON--In a dispute that's part of a broader debate over the future of the patent system, some U.S. Supreme Court justices suggested Wednesday that the patent at the heart of a suit against eBay may be too vague and trivial to even be taken seriously.

During oral arguments that lasted about an hour, Justice Stephen Breyer suggested that if eBay's "Buy it Now" feature could be patented, "then maybe A&P could patent its process for a supermarket."

Patent holder MercExchange sued eBay in September 2001, accusing it of patent infringement through the "Buy it Now" feature, which allows shoppers to halt the auction process and purchase items at a fixed price. A federal appeals court sided with MercExchange and granted it an injunction against eBay. The injunction is currently on hold.

Chief Justice John Roberts drew laughter from the usually taciturn court audience when he made a quip about his interpretation of MercExchange's patent. "It's displaying pictures of your wares on a computer monitor and picking the ones you want. I might be able to do that.

"It's not (like the patent describes) the internal combustion engine," he added. "It's very vague."

The case has drawn an unusual amount of attention because it could have a profound influence on the way patent injunctions are issued. That question assumed a high profile in recent months when Research In Motion's wildly popular BlackBerry service, which was itself at the center of a heated patent dispute, faced the threat of a shutdown.

Many of the nation's largest software, hardware and Internet companies have sided with eBay in their own briefs, warning that "near automatic" injunctions threaten day-to-day business operations and give too much power to owners of patents of dubious quality.

Individual inventors and pharmaceutical giants, on the other hand, have opposed the online auctioneer, arguing that patent holders have an exclusive right to keep others from using their inventions and that allowing judges broader discretion to withhold injunctions will "water down" the entire system.

It's nearly impossible to discern how the justices will vote based on their remarks during oral arguments, and whether they agree with the validity of the disputed patent may not even come into play. Some members of the court did express sympathy with MercExchange's position, and most of them indicated that injunctions are an important right for inventors.

MercExchange a patent troll?
Justice Antonin Scalia questioned eBay's argument that companies should be treated differently if they don't actually use the patents they own in business--such companies are often derisively called "patent trolls."

"Why should we draw a distinction between the solo inventor who needs a patent speculation firm to market his invention and somebody else?" Scalia asked. "We're talking about a property right here, and a property right is the exclusive right to exclude others."

Because MercExchange was in the business of licensing, not commercializing, its patents, money damages are "a completely adequate remedy," eBay attorney Carter Phillips argued.

The appeals court ignored relevant information, Phillips said, including the fact that patent holder MercExchange does not actually use, but only licenses, its various patents related to electronic sales.

MercExchange attorney Seth Waxman rejected any claim that his client was simply stockpiling patents and using them to extort money from e-commerce companies.

"This is no patent troll," Waxman said, referring to MercExchange founder Thomas Woolston, who received the patent in question in 1998 after initial rejections. "He really did spend years of effort trying to build and license it himself."

But when licensing negotiations broke down, eBay "stole the technology" and willfully infringed on Woolston's patents, Waxman argued.

The question of whether infringers should escape injunctions only "absent exceptional circumstances," as the appeals court ruled, is now in the Supreme Court's hands.

Phillips argued for eBay that the U.S. Appeals Court for the Federal Circuit considered only whether an injunction against the auctioneer would harm the public interest and essentially ignored a "four-factor test" prescribed by patent law. That test involves weighing not only the public interest but also other circumstances of the case, such as whether the patent owner would experience irreparable harm if an injunction weren't granted and whether monetary compensation would be sufficient.

All eBay and its allies want is for the Supreme Court to clarify that all the factors must be considered before granting an injunction, Phillips said.

eBay was not alone in making that suggestion. Jeffrey Minear, assistant to the U.S. Solicitor General, said the government thought it "useful for this court to make clear there's a four-factor test" that should be applied in deciding patent injunctions. Despite that position, the Bush administration supported the injunction issued in eBay's case.

MercExchange, for its part, argued that any changes to the appeals court's ruling would "dramatically destabilize" the patent system. "It is so critical that the judgment be affirmed, not vacated, because this is a real inventor; this is somebody who did try to put the invention in place," Waxman said.

The injunction question before the high court may seem obscure, but it's actually one of several major points of contention in a larger debate about state of the U.S. patent system. Reform proposals under way in Congress have stalled amid fractures primarily along high-tech and pharmaceutical or biotechnology industry lines, which have surfaced again in this case.

A jury decided eBay had infringed on two of the patents in 2003, though one of the patents was later thrown out. The trial court ordered eBay to pay $35 million in damages, an amount that was later decreased to $25 million, but decided against issuing a permanent injunction. It cited several factors for justification, including MercExchange's "willingness to license" and non-practice of its patents and what it termed a "growing concern" from the public over key aspects of the current patent system.

The Federal Circuit found flaws in that reasoning. It ruled that a permanent injunction must follow all infringement findings unless cutting off the patent in question "frustrates an important public need," such as protecting public health. But the injunction remained on hold pending eBay's Supreme Court appeal.

The disputed patent, Patent No. 5,845,265, describes a "virtual presentment of goods to market and establishes a two tiered market of retail and wholesale sales."