vnunet.com analysis: US government sides against eBay in patent spat

The US government has sided against a request by eBay to change an automatic injunction provision

In a case before the US Supreme Court that could fundamentally change patent law, the US government has sided against a request by eBay to change an automatic injunction provision. 

The case seeks to overturn a prior ruling requiring a court to automatically issue a permanent injunction if they find that a party is infringing on a patent.

Current rules force a company that is found violating a patent to stop selling its disputed product or service, without paying attention to the circumstances.

The US government aired its objections to overturning the prior ruling in a so-called amicus curiae (literally 'friend of the court'), a filing in which groups that are not a party in the case can air their opinions.

A number of such briefs have been filed from companies including Research in Motion, General Electric and the Electronic Frontier Foundation (EFF). 

A jury in 2003 found eBay guilty of violating a patent owned by MercExchange and ordered the auction giant to pay $25m in damages. The court decided against imposing an injunction at the time, which was later overruled.

The eBay case is scheduled to be heard on 29 March before the Supreme Court.

The case has strong similarities to the RIM-NTP battle, in which the BlackBerry maker was forced to pay $612.5m to settle the lawsuit and purchase a licence for a patent that is likely to be invalidated.

"NTP was awarded $500m more than the jury thought it should get," Jason Schultz, a staff attorney with the EFF, told vnunet.com after the RIM settlement. "This is a clear example of what is wrong with the patent system." 

In the RIM case the injunction provision would have forced the company to suspend its service in North America. The eBay case could force the auction website to stop offering its 'Buy it now' feature.

The US Patent and Trademark Office awarded the disputed patent in 1998, three years after eBay was founded. 

The patent covers a technology in which a website acts as an intermediary between buyers and sellers which MercExchange claims to be happening with eBay's 'Buy it now' feature.

EBay countered that there are a key differences between its service and the system described in the patent. Sellers in the patent are part of a 'trusted network' of pre-screened sellers.

The patent also describes a system in which the website takes ownership of the item until it is sold. EBay does not screen its sellers and does not take ownership of the item.

MercExchange has never operated an e-commerce website, and eBay's infringing on the patent does not therefore cause any harm to MercExchange's business, according to eBay. The company also insisted that an injunction would be an overly blunt weapon.

The US Patent Office has started to re-examine the disputed patent. In a first ruling it has decided to invalidate the patent but a final ruling has yet to be made.

The current rules, however, require the courts to ignore all these facts and instead follow the jury's verdict and impose a permanent injunction.

Many consider this provision to be one of the major problems with the current patent system, because it does not allow time to challenge wrongfully awarded patents and gives the patent owner an unfair advantage.

"Once those patents are issued, there is so much downside for the defendant from the cost of litigation to the impact on business that the defendant will often settle even though the patent is completely bogus," Ira Rothken, a Silicon Valley lawyer specialising in high tech law who often defends clients in patent cases, told vnunet.com following the RIM settlement. 

A Supreme Court ruling in eBay's favour would alleviate some of the problems in today's patent system because it would grant the company time to have the disputed patent re-examined and invalidated if needed.