eBay faces partial shutdown in patent dispute

I'll try not to make this the typical knee-jerk patent reaction post so read on. The US Department of Justice weighed in today against eBay in its fight with patent holding company MercExchange. The issue in question is rather narrow: whether an injunction that would force eBay to shut down its "Buy It Now" feature should continue to be delayed or if it should be put into force. The normal auction features of eBay would be unaffected.

Denis Crouch, a patent attorney and avid blogger, has been following the case for some time. He writes:

"In the BlackBerry case, the Government sided with RIM, asking the district court to not issue an injunction.  Here, however, the DOJ has apparently flipped and now supports MercExchange. 

This position goes along with my own thoughts that the Supreme Court will hold that a court should weigh the pros and cons of an injunction before shutting down an infringer, but that there will still be a strong presumption that an injunction will grant — especially when the infringement is willful." 

The briefs by MercExchange and eBay (which you can find on Denis' blog) make interesting reading. Both of them sound perfectly reasonable if you only read one side. But put together, there are some interesting clashes.

Patent lawyer/electrical engineer Thomas Woolston, filed his first patent in April 1995.  According to eBay, this one was ultimately turned down. In September 1995, eBay was launched. According to eBay's brief:

"Two months after eBay’s public launch, MercExchange filed another patent application in November 1995, seeking to expand the description in its original, rejected application. As eBay gained popularity, MercExchange continued to add new claims and, in 1998, ultimately convinced the PTO to issue U.S. Patent No. 5,845,265 (“the ‘265 patent”), at issue here. By then, eBay had been operating its website for three years, achieving remarkable growth and success. MercExchange, taking notice of eBay’s success, developed a strategy of suing."

It turns out that several companies including goto.com and AutoTrader have already paid MercExchange for licensing the patent. Another company, ReturnBuy, when faced with the suit filed for bankruptcy and settled.

Unfortunately the mainstream press doesn't go into the details of the patent. But according to MercExchange's brief, it describes an "electronic market" for the sale of goods:

"In such a market, sellers  can display their wares by posting pictures, descriptions, and prices of goods on a computer network, such as the Internet. A prospective buyer can electronically browse the goods on sale by connecting to the network. After selecting an item, the buyer can complete the purchase electronically, with the ?electronic market? mediating the transaction, including payment, on the buyer?s behalf."

It goes on to describe this as a "novel improvement" over previous approaches such as specialty shops, electronic bulletin boards, and TV shopping channels. It seems pretty obvious to me. How else are you going to sell things over the internet?

So what do you think, does MercExchange deserve the label "patent troll", or is eBay unfairly profiting from Woolston's brilliant innovations for which he deserves millions in compensation? The Supreme Court is scheduled to hear oral arguments on March 29th.