Justices Back EBay in Patent Ruling

Times Staff Writers

The Supreme Court clarified the rules for 21st century patent cases Monday, siding with EBay Inc. and other high-tech companies by making it harder for judges to order disputed products off the market.

The 9-0 decision in the closely watched case reversed a federal court ruling that said judges must almost always order a halt to ordinary business whenever a company was found to have infringed a valid patent.

The high court ruled that a judge who found that a company had infringed a patent could order it to halt its operations, but only if the violation was extreme and financial damages would not remedy the harm.


Although the decision, written by Justice Clarence Thomas, was heralded as a victory for EBay, the high court left a major issue unresolved -- whether injunctions should be more difficult for so-called patent trolls. The term, coined by the high-tech industry, refers to firms that acquire patents simply to file cases against large companies in pursuit of cash settlements.

Intellectual property experts said the high court’s ruling probably would lead to more patent trials, as companies would no longer fear the effect of near-automatic injunctions if they lost.

“The threat of having your business shut down by a so-called patent troll, I think for the time being, is severely diminished, if not gone,” said Stephen J. Akerley, an intellectual property attorney at McDermott Will & Emery in Palo Alto.

The mixed nature of Monday’s decision was evident in the direct effect on EBay. The giant online auctioneer had appealed a federal court ruling that threatened the “Buy It Now” feature on its website because it violated the patent of a small Virginia company, MercExchange.

By throwing out the near-automatic injunction rule, the high court gave EBay and its allies a substantial, but not a final, victory. The case goes back to a trial judge to decide on the appropriate remedy for EBay’s patent infringement. An injunction still is possible.

The case pitted major high-tech companies, which complain they can’t possibly check the thousands of features on their complex products for patent infringement, against small inventors and biotechnology and pharmaceutical companies, which said strong patent laws were crucial to their survival.

The high-tech industry cheered the broader implications of the high court ruling as leveling a legal playing field that had become tilted too far in favor of small patent holders.

“You have something that contributed one ten-thousandth of a product but could kill the entire product,” said Bruce Sewell, senior vice president and general counsel for Intel Corp., the giant computer-chip maker, which backed EBay’s position.

Investors were less enthusiastic. EBay shares slipped 26 cents to $31.23.

Leading trade groups for the pharmaceutical and biotech industries said they were still analyzing the decision. But Ronald J. Riley, head of a group that represents small inventors, criticized the court as having watered down a major legal deterrent to the swiping of patented inventions by big companies.

“You know what turns inventors into patent trolls?” said Riley, president of the Professional Inventors Alliance USA. “It’s patent pirates trying to rip them off.”

In recent years, a wave of patent infringement cases has hit the courts. In some instances, highly successful companies have been sued by patent holders who have never sought to use or develop their invention.

Nonetheless, the threat of injunction gave challengers a club to hold over a successful business once they won a case.

The rule gained national attention recently when Research in Motion Ltd., maker of the BlackBerry hand-held wireless device, faced a court order that threatened to shut down its service. A tiny Virginia firm that consisted of an inventor and a few lawyers won a ruling holding that the BlackBerry had infringed one of its patents. Research in Motion agreed to pay $613 million in March to settle the case.

Although the Supreme Court did not come to the aid of Research in Motion, the justices agreed to hear EBay’s appeal, which raised the same issue: Having won its patent claim, MercExchange sought a court order that could have ordered EBay to halt part of its operation.

The trial judge ruled that financial damages would be appropriate because MercExchange had licensed the patent to other companies in the past and had indicated it was willing to do so with EBay. A federal appeals court overruled that decision, saying there was a “general rule” that courts should issue injunctions in such cases.

The Supreme Court said both courts were wrong and had improperly applied a four-part test for injunctions. The trial court went too far against an injunction, and the appeals court went too far in favor of one.

Thomas wrote that patent holders, such as universities, that license their inventions but do not make products should be allowed to seek injunctions.

But seven of the nine justices sent mixed messages to lower courts about how to interpret the decision.

Chief Justice John G. Roberts Jr., joined by justices Antonin Scalia and Ruth Bader Ginsburg, said the history of near-automatic injunctions should be taken into consideration. But Justice Anthony M. Kennedy, joined by John Paul Stevens, David H. Souter and Stephen G. Breyer, said some trial courts should keep in mind the trend of some small firms’ seeking injunctions “simply for undue leverage in negotiations” over licenses.

Congress ultimately may have to resolve those issues, intellectual property experts said.