The US Supreme Court has agreed to hear a case in which eBay was successfully sued for patent infringement by a developer of a Web auction site.
The Supreme Court said Monday it will examine whether the US Court of Appeals for the Federal Circuit was correct in granting a permanent injunction against eBay's use of a technological process patented by MercExchange and its owner, Thomas G. Woolston. The appeals court had reversed a decision by US District Court for the Eastern District of Virginia, which declined to issue an injunction after a jury awarded Woolston US$35 million in May 2003.
The appeals court agreed to suspend the permanent injunction pending eBay's appeal to the Supreme Court.
The jury decided that eBay had violated two MercExchange patents related to software search agents and for selling fixed-price items by auction. The appeals court later trimmed the award to US$25 million and ruled one of the patents invalid, but upheld the patent infringement against eBay's "buy it now" feature.
Woolston began applying for auction-related patents in the mid-1990s, just before eBay was launched. As the court case unfolded, eBay asked the US Patent and Trademark Office to review Woolston's patents, and early this year, the office initially rejected the two patents covered in the lawsuit.
Ebay is "extremely gratified" that the Supreme Court agreed to take the case, said Hani Durzy, a company spokesman. "We've always said that MercExchange, which doesn't practice its own patents and only exists to sue others, shouldn't be allowed a permanent injunction," Durzy said.
A MercExchange spokesman wasn't immediately available for comment.
The case could have far-reaching implications for the software and pharmaceutical industries, both of which rely heavily on patents, said Steve Maebius, a patent lawyer with the Washington, D.C., office of the Foley & Lardner law firm. EBay and some other technology companies have argued that permanent injunctions can be too stiff a penalty, and the Supreme Court announcement Monday suggested it will broadly look at permanent injunctions in patent cases.
Critics of current US patent law say it's too easy for prospectors to receive bogus patents, and then attempt to use courts to collect judgments against other companies. As Congress has looked at patent reform this year, eBay has argued that a permanent injunction against using the patented invention, now the prevailing standard following a patent violation ruling, is not appropriate when the patent holder does not use the invention.
The Supreme Court decision to hear the case could lead to a move away from the permanent injunction standard, established in 1908, Maebius said. "The software industry really hopes to get them to modify the standard a little bit by considering some of these other factors, like the extent to which the patent holder makes use of the invention," Maebius said."So if you had an entity that exists solely to exploit patents and doesn't practice the invention themselves, they wouldn't be able to get an injunction against a company out there working hard to build a business."
The pharmaceutical industry, which relies on patents to recoup costs of drug development, may oppose any change to current law, Maebius said.
But Paul Stephens, a patent lawyer in the Chicago office of Marshall, Gerstein & Borun, said he doubts the Supreme Court will make any "sweeping changes" to patent law. A new direction, however, would have the "potential for affecting patentees across industries," he added.