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Analysis: the eBay patent ruling

Mixed reaction from pundits

A US Supreme Court ruling last week favouring eBay in a patent dispute won praise from some technology vendors, but many intellectual property lawyers have questioned the long-term effects of the decision.

The Supreme Court set aside a lower court's decision to issue an injunction against eBay using its 'buy it now' auction feature, after a jury in May 2003 found that eBay had infringed the patent of another auction site.

The Supreme Court unanimously ruled against the US Court of Appeals for the Federal Circuit's practice of granting near-automatic injunctions in patent infringement cases. But it also ruled that a lower court had used flawed judgment when it refused to grant an injunction requested by patent holder MercExchange.

Many tech vendors sided with eBay in the case, saying court rulings for injunctions have made it too easy for patent holders to shut down entire product lines when one small piece of the product infringes a patent. Independent inventors and many pharmaceutical companies sided with MercExchange, saying injunctions are one of their strongest tools against well-funded competitors.

In the case, the US District Court for the Eastern District of Virginia had attempted to weigh four long-neglected factors in rejecting an injunction, but the Supreme Court, in a decision written by Justice Clarence Thomas, said the district court considered eBay's arguments against an injunction too broadly.

The Supreme Court left patent lawyers with a confusing middle ground between the near-automatic injunctions and the district court's refusal to grant the injunction for the wrong reasons, said Erik Puknys, a patent lawyer in the office of the Finnegan, Henderson, Farabow, Garrett & Dunner law firm.

"[The decision] says what the wrong approach is," Puknys said. "The answer is somewhere in between."

The Supreme Court action could eventually have a large impact on patent lawsuits, but it's too early to tell, Puknys added. "What the Supreme Court did, at least, is get rid of that [near-automatic injunction] threat," he said. "But it's replaced that with the threat of uncertainty."

The effect of the ruling will depend on how lower courts interpret the decision, added Stephen Maebius, an intellectual property partner with the Foley and Lardner law firm, in Washington. The ruling seems to leave courts with significant discretion in approving or rejecting injunctions.

The ruling clarifies that lower courts must use a four-factor test – including whether the plaintiff has suffered an irreparable injury through the infringement, and whether other remedies, including monetary damages, are inadequate – while considering patent injunctions. After two cases in the 1980s established the test, patent holders have continued to cite those four factors when arguing for an injunction, even though court have granted most injunctions, Maebius said.

"It's not such a major departure," he said of the Supreme Court ruling. "It's going to be interesting to see if courts move in a different direction."

eBay and tech trade groups the BSA (Business Software Alliance) and the Information Technology Industry Council praised the Supreme Court action.

eBay is "extremely gratified" by the decision, Jay Monahan, eBay's deputy general counsel for intellectual property, said in a statement. The company is confident the district court will deny an injunction again, Monahan said.

The BSA, which filed a brief in support of eBay, is "not in any way disappointed" by the Supreme Court decision, even though some observers have questioned its impact, said Emery Simon, the trade group's counsellor. "We think it's an opinion that begins to re-establish the balance in patent law," he said.

Tech companies, saying injunctions have gone too far, pointed to a threatened shutdown of the BlackBerry service after a patent ruling against device maker RIM (Research In Motion). RIM agreed in March to pay patent holder NTP more than $612m (about £325m) rather than face a potential injunction barring it from offering its mobile email service in the US.

But Ronald J Riley, president of the Professional Inventors Alliance, said the ruling will "embolden patent pirates" and large companies that steal small inventors' work.

Riley compared patent infringers to squatters who set up camp on someone else's property and refuse to leave. "What we need to do with some of these Supreme Court judges is find some homeless people, let them squat on their lawns, and see if [the judges] can evict them," he said.

Patent lawyer Puknys doubts that the ruling will have a huge impact on patent infringement negotiations. Courts can still issue injunctions, and the major threat of multimillion-dollar damage awards still exists, he said. "The threat of an injunction is very real," he added. "eBay has still got some litigating to do."


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