A federal court jury in Norfolk, Va., found in 2003 that eBay, the online auction house, was violating three patents owned by MercExchange, a small company in Great Falls, Va. The jury assessed more than $25 million in damages.
But Judge Jerome B. Friedman of Federal Disrict Court, noting that MercExchange "exists solely to license its patents or sue to enforce its patents, and not to develop or commercialize them," refused to issue an injunction that would have barred eBay from continuing to use the patented methods in its Web operations.
The disputed patents enable the processing of transactions for the Web site's fixed-price purchasing feature.
The United States Court of Appeals for the Federal Circuit, a specialized court here that hears all appeals in patent cases, overturned the district court's decision this year and ruled that MercExchange was entitled to the injunction it sought.
The appeals court said that injunctions were the "general rule" in patent infringement cases, and should be withheld only in such "rare instances" as "the need to use an invention to protect public health."
The appeals court granted a stay of its decision to permit eBay to file its Supreme Court appeal, eBay Inc. v. MercExchange, No. 05-130.
As framed by eBay and its many friends of the court from the worlds of technology and intellectual property that filed briefs on its behalf, the issue is whether the federal circuit court's rule correctly interprets federal patent law, which authorizes judges to grant injunctions but does not require them to do so.
EBay's brief said the circuit court had imposed a "drastic restriction" on federal judges' authority to tailor remedies to the facts of each case.
The nearly automatic injunction, eBay argues, is a "powerful and coercive remedy" that "produces tremendous leverage" for plaintiffs in patent litigation.
Patents that are nearly worthless by themselves can be enormously expensive to disentangle once embedded in a production process or complicated technology, the eBay brief asserts, giving patent owners the upper hand in extracting license fees that are higher than the patent itself is worth.
A brief filed by America Online, Google and several other companies described the circuit court's rule on injunctions as "a powerful club" that invites "abusive patent litigation."
A group of 35 law professors specializing in intellectual property offered the following example in the brief they filed on eBay's behalf: "A microprocessor may include 5,000 different inventions, some made by the manufacturer and some licensed from outside. If a microprocessor maker unknowingly infringes a patent on one of those inventions, the patent owner can threaten to stop the sale of the entire microprocessor until the defendant can retool its entire plant to avoid infringement."
EBay and its supporters also argue that the full dimensions and even the validity of a patent are often not clear. In fact, after the adverse district court judgment, eBay went back to the federal Patent and Trademark Office to challenge the MercExchange patents. The federal office's re-examination of the patents is continuing.
In its Supreme Court brief opposing review of the case, MercExchange says it is not a nonpracticing entity, but rather a company that "worked hard to commercialize the technology" covered by the patents. The first of the patents was issued in 1998 to Thomas Woolston, who founded MercExchange.
According to the company's brief, negotiations in mid-2000 to sell its patents to eBay fell through. By later that year, "MercExchange's business efforts were impeded by wide-spread infringement and a lack of capital" and a lawsuit "was its only recourse," the brief asserts.
A five-week jury trial ensued. The Supreme Court, in its order granting the case, said it would reconsider a precedent from 1908, which suggested that injunctions were always an appropriate remedy for patent infringement.