eBay vs. MercExchangeeBay vs. MercExchange

IEOR 190 GIEOR 190 G

3/16/20093/16/2009

RaniRani

eBay vs. MercExchange (May 2006)eBay vs. MercExchange (May 2006)

• With eBay, (Supreme Court unanimously With eBay, (Supreme Court unanimously decided that) Injunctions should not decided that) Injunctions should not automatically issue on a finding of patent automatically issue on a finding of patent infringementinfringement

So something changed about Injunctive Relief in So something changed about Injunctive Relief in Patent Cases with eBayPatent Cases with eBay

What is Injunction?What is Injunction?

• At the core is the belief that monetary damages At the core is the belief that monetary damages cannot solve all problemscannot solve all problems

• Rationale behind Injunctions – provide fairness Rationale behind Injunctions – provide fairness for someone whose rights have been violated by for someone whose rights have been violated by restoring the “status quo ante” (the way things restoring the “status quo ante” (the way things were before)were before)

e.g. money is no benefit to you if someone e.g. money is no benefit to you if someone continues to trespass your landcontinues to trespass your land

InjunctionInjunction

• is a court order (equitable remedy).is a court order (equitable remedy). Courts take this step when they are of the opinion Courts take this step when they are of the opinion

that a payment of damages only is not good that a payment of damages only is not good enough for a just settlement of the caseenough for a just settlement of the case

(equitable remedy – set of legal principles (equitable remedy – set of legal principles developed thru decisions of courts, rather than developed thru decisions of courts, rather than legislative statutes or executive action)legislative statutes or executive action)

Injunctions can be permanent or temporary Injunctions can be permanent or temporary

eBay vs. MercExchangeeBay vs. MercExchange

• MercExchange, a Virginia-based ecommerce company MercExchange, a Virginia-based ecommerce company owned a business method patent (USP 5,845,265) to owned a business method patent (USP 5,845,265) to provide an Auction Service akin to eBay’s ‘Buy It Now’ provide an Auction Service akin to eBay’s ‘Buy It Now’ feature – which enables users to buy an item for a set feature – which enables users to buy an item for a set price without going thru the bidding process; >30% of price without going thru the bidding process; >30% of eBay’s businesseBay’s business

• Months before eBay came up with its first prototype, Months before eBay came up with its first prototype, MercExch had filed patents that covered the eBay idea.MercExch had filed patents that covered the eBay idea.

• In 2000, eBay initiated negotiations to outright purchase In 2000, eBay initiated negotiations to outright purchase MercExchange’s online auction patent portfolioMercExchange’s online auction patent portfolio

• eBay then abandons its efforts to purchaseeBay then abandons its efforts to purchase

• Then MercExchange sued eBay for patent infringement Then MercExchange sued eBay for patent infringement (2001) for 3 of its patents(2001) for 3 of its patents

Initial RulingInitial Ruling

• In a 2003 Virginia jury trial, it was found that In a 2003 Virginia jury trial, it was found that eBay had willfully infringed MercExch’s patents, eBay had willfully infringed MercExch’s patents, and awarded MercExch $35m, a figure that and awarded MercExch $35m, a figure that reduced to $5.5mreduced to $5.5m

• Following this verdict, MercExch sought an Following this verdict, MercExch sought an injunction – to prevent eBay from using injunction – to prevent eBay from using MercExch’s IP but the judge declined citing MercExch’s IP but the judge declined citing Merc’s own lack of commercial activity in Merc’s own lack of commercial activity in practicing the patents. practicing the patents.

So MercExch apparently fit the description of a So MercExch apparently fit the description of a patent troll.patent troll.

Initial Ruling - District CourtInitial Ruling - District Court

• Denied this requestDenied this request

-- “No injunction” they said on the basis that -- “No injunction” they said on the basis that MercExch does not itself practice the patented MercExch does not itself practice the patented inventioninvention

Judge denies saying “If the court did enjoin the Judge denies saying “If the court did enjoin the defendants here, the court would essentially be defendants here, the court would essentially be opening a Pandora’s box of new problems.opening a Pandora’s box of new problems.

The fight continues …The fight continues …

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

The US Court of Appeals for the The US Court of Appeals for the Federal Circuit (court for all patent Federal Circuit (court for all patent

appeals)appeals)

• ““For” the injunction,For” the injunction, stating that there was a “general rule” that it stating that there was a “general rule” that it

has applied for two decades, (similar to has applied for two decades, (similar to property owners having the right to deny property owners having the right to deny anyone the use of their property)anyone the use of their property)This decision on March 16, 2005 reverses the This decision on March 16, 2005 reverses the original decisionoriginal decisionSo the two lower courts had opposite viewsSo the two lower courts had opposite views

Supreme Court (2006)Supreme Court (2006)

• overturned the Federal Circuit approval of the overturned the Federal Circuit approval of the injunction saying that nothing in the Patent injunction saying that nothing in the Patent Act eliminated the traditional reliance on Act eliminated the traditional reliance on weighing the equitable factors considered in weighing the equitable factors considered in determining whether an injunction should be determining whether an injunction should be issued and set forth a 4-part test to determine issued and set forth a 4-part test to determine if injunctive relief should be grantedif injunctive relief should be granted

Supreme Court (contd)Supreme Court (contd)

4 part test: A plaintiff must demonstrate - 4 part test: A plaintiff must demonstrate - 1.1. Irreparable harmIrreparable harm

2.2. Inadequacies of Remedies at LawInadequacies of Remedies at Law

3.3. An equitable remedy is warranted considering the An equitable remedy is warranted considering the balance of hardships between the Plaintiff and balance of hardships between the Plaintiff and DefendantDefendant

4.4. Public interest would not be disserved by entry of Public interest would not be disserved by entry of a permanent injunctiona permanent injunction

Neither the District Court nor US Court of Appeals Neither the District Court nor US Court of Appeals applied these traditional principlesapplied these traditional principles

Bottom lineBottom line

• Injunctions will be more difficult to obtainInjunctions will be more difficult to obtain

• Permanent injunctions will no longer be Permanent injunctions will no longer be automatic based on a finding of patent automatic based on a finding of patent infringementinfringement

• 28 post eBay decisions from May 2006 – Sept 28 post eBay decisions from May 2006 – Sept 20072007

• Rate of denial for permanent injunctions prior to Rate of denial for permanent injunctions prior to eBay was 16.1% and post eBay was 25.1%eBay was 16.1% and post eBay was 25.1%

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

eBay vs. MercExchangeeBay vs. MercExchangeOpinionsOpinions

• No winners and losers in this caseNo winners and losers in this case

• Supreme Court did not really take sidesSupreme Court did not really take sides

• While eBay has won a reprieve (relieved from While eBay has won a reprieve (relieved from blame), the patent wars are far from overblame), the patent wars are far from over