The EBay effect
THE SUPREME COURT’S RULING on patent law came a few weeks too late to help the company that makes the BlackBerry, but it is all the buzz among the BlackBerry set. And with any luck, the decision, announced Monday, will create some buzz in Congress for patent reform.
The case pitted auction giant EBay Inc. against MercExchange, a defunct e-commerce company. Inconveniently for the former, MercExchange holds patents related to EBay’s bread and butter: online auctions and fixed-price consignment sales. In 2003, a U.S. District Court jury found that the patents had been violated, and two years later, an appeals court ruled that MercExchange was automatically entitled to an injunction against EBay.
In a unanimous ruling, the justices disagreed -- not only with the appeals court but with a nearly 100-year-old Supreme Court precedent on patent law. That case, which stemmed from a dispute over paper-bag manufacturing techniques, held that an injunction was mandatory in almost all cases of patent infringement. Thus the scales were tilted in favor of patent holders, who could use the threat of an injunction to win disproportionately rich licensing deals.
The new decision relies on a more literal interpretation of federal patent law, which says courts “may” impose an injunction when appropriate. The standards for applying injunctions in patent cases are no different from any other case, Justice Clarence Thomas wrote in the decision. Courts will have to consider the facts and balance the interests involved.
The ruling won’t necessarily spare EBay from an injunction; that’s up to the lower courts to decide. But the balancing tests laid out for the courts will significantly reduce the negotiating leverage of firms whose sole business is amassing obscure patents and collecting fees from potential infringers.
Two months ago, the likelihood of an injunction helped prod Research in Motion Ltd., the maker of the BlackBerry, to pay patent-holder NTP Inc. (whose main business is collecting patents and suing over them) a $612.5-million settlement for violating patents related to wireless e-mail. Without a credible threat of its BlackBerry service being shut down, Research in Motion probably would have kept trying to get NTP’s patents revoked, as the U.S. Patent and Trademark Office had tentatively agreed to do.
The patent office is second-guessing itself on some MercExchange patents as well, which points to a fundamental problem that the Supreme Court didn’t address. The system yields too many bad patents, particularly when business methods are concerned. Proposals that would significantly strengthen the process have been bottled up in Congress. Now that the Supreme Court has started fixing the patent morass, lawmakers need to finish the job.
