EBay Case Could Change Patent Law

NEW YORK — Online auction giant eBay is headed to the U.S. Supreme Court, carrying with it a case that could eventually lead to a reassessment of how permanent injunctions in patent cases are handled in this country.

The case stems from an initial 2003 ruling against eBay for infringing on technology designed by MercExchange, a Great Falls, Va.-based company that builds patented systems for use in online auctions.

The decision in the initial case ordered eBay to pay $25 million to MercExchange, and lead to a permanent injunction in March of this year on eBay’s popular “Buy-It-Now” and fixed-price operations, both of which allegedly infringe on MercExchange’s technology.

According to eBay, these two segments of its business model account for more than one-third of the company’s revenue.

EBay has yet to close down these operations, however, and will argue to the Supreme Court that the March ruling was unfair. eBay will argue that even though the U.S. Court of Appeals for the Federal Circuit found eBay guilty of infringement, the court should not have issued a permanent injunction without looking more closely at the case, suggesting companies should be allowed to pay a service fee for infringement without having to close operations.

Normally, permanent injunctions automatically follow infringement rulings in copyright cases.

Representatives at MercExchange appeared at ease with Supreme Court’s decision to hear the case.

“Whichever way the Supreme Court rules on this precedent, eBay will owe MercExchange a lot of money for its intentional infringement,” Scott Robertson, a MercExchange attorney, told Forbes.com on Monday. “eBay has abandoned its argument that it was not an intentional infringer and we think that the precedent will stand, unless it involves cases of public interest. And selling Pez dispensers via the Internet is not a matter of public interest.”

Regardless of the Supreme Court’s decision in the case, eBay faces extended litigation from the initial MercExchange trial. Nearly all of its auction technologies may be called into question, with potential damages and penalties of hundreds of millions of dollars possible.

“The real question right now is: How much is 35 percent of eBay's business model worth?” MercExchange founder Thomas Woolston said. “Not just to eBay, but to other companies that could be a better home and management fit for our technology.”