IP Lawyers Await Supreme Court's eBay Hearing

by Glen Shapiro, LawAndTax-News.com, New York

20 March 2006

The Supreme Court is due to hear arguments in eBay Inc. v. MercExchange LLC later this month, and has received a number of amicus curiae briefs, including from the Pharmaceutical Research and Manufacturers of America, the Patent and Trademark Office, and a group of technology companies including Time Warner and Amazon.

The immediate issue is whether a federal judge should have handed down an immediate injunction barring eBay from infringing on patents held by MercExchange, a Great Falls, Va., patent-holding company covering 'Buy It Now' functions used in online auctions.

The Supreme Court indicated when it granted eBay's appeal that it will specifically try to decide whether the current standard for patent injunctions should be changed or, at a minimum, clarified.

The Pharmaceutical Research and Manufacturers of America and the Patent and Trademark Office want the Court to keep the general rule that injunctive relief will be granted against patent infringers absent exceptional circumstances, while the technology companies say that the current rules on injunctions invite abuse of the system.

eBay has asked the Supreme Court to re-instate the traditional 'four factor' test for injunctive relief for patent infringement after the Court of Appeals for the Federal Circuit said that infringement should normally result in an injunction.

In eBay v. MercExchange, a Virginia District Court ruled in 2003 that with its 'Buy It Now' function, eBay had infringed upon a patent for direct online buying held by MarcExchange founder and former CIA engineer, Tom Woolston. Federal Judge Jermone Friedman also stated that that auction portal had violated a patent held by Mr Woolston for searching the internet for merchandise from other vendors, but dismissed a violation claim regarding the entire online auction process, arguing that MercExchange had not made an effective case.

However, the district court declined to issue an injunction against eBay, finding that MercExchange’s willingness to license, failure to practice the patents itself and comments to the media regarding its intent to enforce patent rights all weighed against any presumption that it would suffer irreparable harm without an injunction.

In March, 2005, the appeals court upheld the earlier ruling on the direct buy patent, and recommended an injunction to prevent eBay from using it, meaning that the firm will either have to remove the 'Buy It Now' function, create a substantially different version, or license the technology from MercExchange. In its March 2005 ruling, the Federal Circuit outlined its views regarding injunctions: "The general rule is that a permanent injunction will issue once infringement and validity have been adjudged." The court concluded that "the district court did not provide any persuasive reason to believe this case is sufficiently exceptional to justify the denial of a permanent injunction."

In the four-factor test, says eBay's petition to the Supreme Court, the court should consider (i) irreparable harm from not issuing an injunction; (ii) whether an adequate remedy exists in law (damages); (iii) whether the injunction would be in the public interest; and (iv) whether a balance of hardships would tip in the plaintiff’s favor.

eBay has asked the Court to decide "whether the Federal Circuit erred in setting forth a general rule in patent cases that a district court must, absent exceptional circumstances, issue a permanent injunction after a finding of infringement."

However, the TRIPs Agreement requires that countries offer the remedy of injunctions to patent owners suffering infringement, and the Federal Circuit's rule is consistent with TRIPs. Commentators were therefore surprised when the the Supreme Court agreed to hear the petition. The result is eagerly awaited.

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