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WASHINGTON, D.C. - The U.S. Supreme Court has tipped the balance in patent disputes ever so slightly toward the users of patented technology and away from inventors, owners of intellectual property and the hated "patent trolls"--companies that make money by suing for infringement of patents they own but don't use.
In a victory for eBay (nasdaq: EBAY - news - people ), the justices ruled unanimously that federal courts must weigh several factors before barring a patent infringer from using a contested technology or business method.
The online auction house had petitioned the Supreme Court to review the practice of automatically issuing a permanent injunction whenever a patent was found valid and infringed, arguing that the rigid standard was not grounded in the law.
At stake for eBay was the viability of the popular, fixed-price "Buy It Now" section of its Web site. MercExchange, a tiny Virginia-based patent-holding company, won millions of dollars in damages when it successfully sued eBay for violating one of its patents related to the fixed-price auction feature.
Now the case will be sent back to the U.S. District Court where eBay originally won the right to continue operating "Buy It Now" while it designs around the patent it infringed.
For years now, the U.S. Court of Appeals' Federal Circuit in Washington, D.C., which reviews all appeals of patent suits, has slapped infringers with permanent injunctions as a matter of course, except in the most extreme circumstances.
But the Supreme Court ruled that traditional "principles of equity" must be taken into account before such a drastic sanction is imposed. These principles include whether the patent holder has suffered irreparable damage or whether monetary awards might be enough to compensate for the harm done to the patent holder.
In this case, a U.S. District Court stopped short of forcing eBay to shut down the service entirely, saying that MercExchange wouldn't be harmed if eBay continues to offer the service while it tries to design around the patents. MercExchange hasn't used its patents, the court wrote, and could eventually be compensated with additional monetary damages if the infringing continued. But on appeal, the Federal Circuit stuck to its rule of always handing down injunctions and reversed the decision.
The high court's decision deals a blow to patent trolls, which are notorious for using the threat of permanent injunction to extort hefty fees in licensing negotiations as well as huge settlements from companies they have accused of infringing. Often, those settlements can be far greater than the value of the infringing technology: Recall the $612.5 million that Canada's Research in Motion (nasdaq: RIMM - news - people ) forked over to patent-holding company NTP to avoid the shutting down of its popular BlackBerry service.
Patent trolls have thrived as American industries have churned out more and more high-tech gizmos containing dozens or even hundred of patented bits of technology. In accepting the case and ruling as they did, the justices seemed to have had it in mind to hem in their power.
But doesn't the ruling also hurt bona fide inventors, not to mention the many universities that fund their research and own the patents? To be sure, it plainly erodes the power that has been typically bestowed by a patent. Patent law unambiguously grants owners of intellectual property the same rights as regular property holders, including the right to exclude others from using their property. But the law also clearly states that injunctions "may"--not "shall"--be issued "in accordance with the principles of equity."
"All this is saying is that District Courts are free to use their discretion and to be fair. And it takes away a little of the edge from those patent-licensing operations," says Steven Bauer, a partner at Proskauer Rose in Boston who often represents biotech firms in patent disputes.
The justices drew the line on ruling out injunctive relief in all cases where the patent holder does not use the patents it owns to produce anything, as is often the case with universities. That makes the ruling somewhat less than an unmitigated victory for eBay, since the lower court had refrained from imposing an injunction on the basis of MercExchange not using its patents.
The courts will have to work out on a case-by-case basis when an injunction is appropriate, says Mark Davis, a patent litigator at McDermott, Will & Emery in Washington, D.C. "There's going to be more uncertainty here, and it's going to take a while for the law to develop to figure out when you can expect an injunction," he says.
In a victory for eBay (nasdaq: EBAY - news - people ), the justices ruled unanimously that federal courts must weigh several factors before barring a patent infringer from using a contested technology or business method.
The online auction house had petitioned the Supreme Court to review the practice of automatically issuing a permanent injunction whenever a patent was found valid and infringed, arguing that the rigid standard was not grounded in the law.
At stake for eBay was the viability of the popular, fixed-price "Buy It Now" section of its Web site. MercExchange, a tiny Virginia-based patent-holding company, won millions of dollars in damages when it successfully sued eBay for violating one of its patents related to the fixed-price auction feature.
Now the case will be sent back to the U.S. District Court where eBay originally won the right to continue operating "Buy It Now" while it designs around the patent it infringed.
For years now, the U.S. Court of Appeals' Federal Circuit in Washington, D.C., which reviews all appeals of patent suits, has slapped infringers with permanent injunctions as a matter of course, except in the most extreme circumstances.
But the Supreme Court ruled that traditional "principles of equity" must be taken into account before such a drastic sanction is imposed. These principles include whether the patent holder has suffered irreparable damage or whether monetary awards might be enough to compensate for the harm done to the patent holder.
In this case, a U.S. District Court stopped short of forcing eBay to shut down the service entirely, saying that MercExchange wouldn't be harmed if eBay continues to offer the service while it tries to design around the patents. MercExchange hasn't used its patents, the court wrote, and could eventually be compensated with additional monetary damages if the infringing continued. But on appeal, the Federal Circuit stuck to its rule of always handing down injunctions and reversed the decision.
The high court's decision deals a blow to patent trolls, which are notorious for using the threat of permanent injunction to extort hefty fees in licensing negotiations as well as huge settlements from companies they have accused of infringing. Often, those settlements can be far greater than the value of the infringing technology: Recall the $612.5 million that Canada's Research in Motion (nasdaq: RIMM - news - people ) forked over to patent-holding company NTP to avoid the shutting down of its popular BlackBerry service.
Patent trolls have thrived as American industries have churned out more and more high-tech gizmos containing dozens or even hundred of patented bits of technology. In accepting the case and ruling as they did, the justices seemed to have had it in mind to hem in their power.
But doesn't the ruling also hurt bona fide inventors, not to mention the many universities that fund their research and own the patents? To be sure, it plainly erodes the power that has been typically bestowed by a patent. Patent law unambiguously grants owners of intellectual property the same rights as regular property holders, including the right to exclude others from using their property. But the law also clearly states that injunctions "may"--not "shall"--be issued "in accordance with the principles of equity."
"All this is saying is that District Courts are free to use their discretion and to be fair. And it takes away a little of the edge from those patent-licensing operations," says Steven Bauer, a partner at Proskauer Rose in Boston who often represents biotech firms in patent disputes.
The justices drew the line on ruling out injunctive relief in all cases where the patent holder does not use the patents it owns to produce anything, as is often the case with universities. That makes the ruling somewhat less than an unmitigated victory for eBay, since the lower court had refrained from imposing an injunction on the basis of MercExchange not using its patents.
The courts will have to work out on a case-by-case basis when an injunction is appropriate, says Mark Davis, a patent litigator at McDermott, Will & Emery in Washington, D.C. "There's going to be more uncertainty here, and it's going to take a while for the law to develop to figure out when you can expect an injunction," he says.