The Software Patent Mess

Why the eBay Supreme Court case matters so much.

In monetary terms, the Supreme Court case being heard next Wednesday -- pitting online retail giant eBay Inc. against its left-in-the-dust competitor MercExchange -- might seem trivial. MercExchange, which won the original suit in 2003, by proving to a Virginia jury that eBay's "Buy it Now" direct purchase feature had infringed on a 1994 patent filed by its founder Thomas Woolston, received $29.5 million in compensatory damages -- a mere rounding error measured against eBay's $4.5 billion in revenues last year. Consider that BlackBerry device manufacturer Research In Motion just agreed to pay $612.5 million to end its own long-running legal battle with Network Technology Partners (NTP).

But don't be fooled by the small stakes in eBay's appeal. By taking its case to the highest court in the land, the company is looking to even a playing field that many of its supporters say currently favors the plaintiff in almost every patent dispute. With patent reform still trudging through Congress, only a clear signal from the Supreme Court can keep a $612.5 million settlement from becoming the norm -- now that plaintiffs' patent attorneys have tasted blood.

"If eBay is successful, patent trolls will have one less weapon to use against legitimate firms," says University of Chicago law professor Douglas Lichtman, one of 52 legal scholars who have signed a friend of the court brief supporting eBay's position.

That "weapon," in both the original MercExchange filing and the more recent Research in Motion resolution, is the "general rule" observed by federal district courts in granting a permanent injunction -- a severe legal penalty, in which, in the wake of a successful plaintiff verdict, a judge orders a defendant to shut down a disputed technology pending appeal.

The roots of this general rule lie in the U.S. Constitution. According to Article I, Section 8, a U.S. patent holder enjoys not just ownership of an idea, but also the "exclusive right" to determine how that idea will be presented or marketed to the public. Over time, courts have come to interpret that "exclusive right" as a directive to err on the side of the plaintiff during the appeals process.

Proponents of the rule see it as a check against foot-dragging by a defendant. Without the threat of substantial revenue loss caused by an injunction, deep-pocketed defendants could tie up litigation, draining the monetary resources of small-time patent holders. Proponents also emphasize the limited time protection granted to U.S. patent holders -- 20 years from the date of the first application filing -- as another reason for the rule. "By its very nature, the patentee's loss of its finite exclusivity period is irreparable," notes a pro-MercExchange brief jointly filed by the American Intellectual Property Law Association and Federal Circuit Bar Association.

Those on the opposing side point to the increasing number of patent claims in software technology and Web services -- two realms where shared standards, haphazard documentation, and the recent convergence of once-independent technology platforms have created a target-rich environment for savvy patent plaintiffs. Given the U.S. Patent and Trademark Office's eagerness to hand out patents on broadly defined concepts, such as one-click Internet shopping, the automatic injunction threat has become a Sword of Damocles, hanging over not only defendants but also customers who rely on their services.