eBay v. MercExchange

The 8-Year See-Saw Battle

Jennifer Pang

University of California, Berkeley

IEOR 2009

IEOR 190G: Patent Engineering (Fall 08)

Online auction site that allows users to buy/sell items via 2 primary formats: proxy bidding and fixed-price buying

The Issue

Months before eBay founder Pierre Omidyar came up with his first prototype of eBay in 1995, an inventor named Tom Woolston (CEO of MercExchange) filed patents that covered the eBay idea

After eBay got popular, the company intially tried to buy these patents off of Woolston

The Lawsuit

2001: MercExchange founder Tom Woolston sues eBay for infringement on 3 of his patents regarding eBay’s Buy It Now feature

eBay and MercExchange had been in talks for eBay to purchase these 3 patents, but eBay decided to abandon efforts to come to a purchasing agreement

The Patents in Dispute

2085176 - Method and apparatus for using software search agents to find items in electronic markets. (Affects Half.com.)

6202051 - Method and apparatus for conducting person-to-person online auctions. (Auction patent)

58545265 - Consignment nodes (Fixed-price patent)

Patent No. 5,845,265

Specifies a marketplace for goods using a database on one computer to store digital images, text descriptions, prices, and legally binding offers that were previously input from another computer and transmitted across the Internet1

1. http://news.cnet.com/2100-1017-956638.html?tag=mncol;txt

Patent No. 5,845,265

“A buyer, hereinafter participant, may electronically log onto a consignment node via a network connection by use of a PC with participant interface software...[and] present electronic payment to the consignment node by entering a credit card number and expiration date or other forms of electronic payment.”

Patent No. 6,202,051

“Bids are received on the item from participants on the Internet through an auction process that executes in conjunction with the computerized database of data records. Auctioning of the item is terminated when the auction process reaches predetermined criteria. The auction participant is notified of the high bid in the auction process.”

The Initial Ruling

May 27, 2003: Jury rules eBay guilty of willful infringement of MercExchange patents and awards $35 million in damages

June 12, 2003: MercExchange files motion for entry of a permanent injunction order

August 7, 2003: Judge DENIES MercExchange's motion for an injunction against eBay's Buy It Now feature, saying, "If the court did enjoin the defendants here, the court would essentially be opening a Pandora's box of new problems."

The Fight Continues...

2004-2005: eBay requests to have the patents reviewed for legitimacy (even though they had tried to buy them before!)

March 16, 2005: Decision by U.S. Court of Appeals for the Federal Circuit reverses the original decision on permanent injunction

Continuing the See-Saw Battle...

May 15, 2006: Supreme Court REVERSES the Appeals Court decision, stating:

That district court judges have discretion in determining whether "irreparable harm" would result if an injunction is not issued (injunctions should not be automatically issued to patent holders)

That although it was getting rid of the injunction, the original district court had not taken the correct steps to come to an otherwise correct conclusion

Why This Case is Important

Since then, the Supreme Court has come down with a landmark decision designed to make it more difficult for patent holders to get courts to sign off on shutoffs of infringing products, especially if the patent holders don’t practice their patents2

http://news.cnet.com/8301-10784_3-9882151-7.html

Epilogue

This spring, eBay finally bought MercExchange’s patents for an unspecified sum, bringing the 8-year battle to an end

Questions? Comments?