eBays Day In Court

    November 29, 2005

The Supreme Court of the United States (SCOTUS) has agreed to hear eBay’s appeal of an appellate court ruling. The decision is the latest in a drawn out patent infringement suit in which online auction house eBay may get the short end of the stick.

The online auction house is currently locked in a patent battle with patent holding firm MercExchange, based out of Great Fall, Virginia. Back in 2003, MercExchange won a hefty settlement to the tune of $25 million from a dispute over two of eBay’s operations, “Buy-It-Now” and their fixed-price business. These two features represent roughly a third of their revenues.

At issue here is the permanent injunction on eBay’s two features. The appeals court ruled the permanent injunction should be enforced in addition to the settlement. Also, one portion of the decision was remanded back to the lower court for retrial. In pretty much all infringement cases, the injunctions are issued while the cases are on appeal. eBay suggests this permanent injunction is inappropriate. SCOTUS has agreed, in the writ of certiorari, to consider this arrangement.

This could have a number of potential downsides for eBay however. First is the obvious issue on use of the patents and the sizeable fines. The $25 million could increase substantially depending on the outcome of the retrial. While eBay has pulled this technology from its sites for the moment other competitors are watching this case closely. If all this goes against eBay, and by the looks of things it will, then this could be a terribly expensive problem for the auction giant.

The U.S. Patent and Trademark Office is also reconsidering the patents of MercExchange. eBay feels like this will vindicate them because if the ruling would go in their favor, it would render most of this other legal wrangling moot.

If MercExchange wins the case, it’s expected they’ll fish out their patents to a few prospective companies now dabbling in online auctions including both Yahoo and Google.

Regardless, this will take some time to hammer out. eBay must file a brief with SCOTUS in January. The Supreme Court will likely hear the case in the spring session.

The permanent injunction status, which has been in place for nearly a century, remains controversial as patent infringement cases peppered the landscape in recent years. If SCOTUS lifts the rule, then it will redefine the way patent law is handled and it will go in favor of those who infringe on patents. While some companies may survive, many smaller, innovative companies could get squashed in an already lengthy and arduous task of going after infringers.

John Stith is a staff writer for WebProNews covering technology and business.