eBay wins round in 'Buy it now' patent redux

Judge won't force the auction giant to stop using the MercExchange patent, but the tiny patent-licensing firm plans to appeal.
Written by ZDNET Editors, Contributor
A tiny patent-licensing company has once again lost a plea to prohibit eBay from using its patent covering the auction giant's "Buy it now" feature, but the closely watched battle isn't over yet.

Ordered by the U.S. Supreme Court to revisit whether an injunction is necessary in the long-running spat, U.S. District Judge Jerome Friedman in Norfolk, Va., ruled Friday that awarding monetary damages alone to MercExchange is enough to compensate any harms it experienced as a result of eBay's infringement.

That's in large part because the two-man Virginia company has shown public willingness to license its patents to eBay before, during and after the trial, suggesting money is its primary motive, Friedman wrote.

"MercExchange's modus operandi appears to be to seek out companies that are already market participants that are infringing, or potentially infringing, on MercExchange's patents and negotiate to maximize the value of a license, entered into as a settlement to, or avoidance of, litigation," Friedman wrote.

He also added that the firm "has utilized its patents as a sword to extract money rather than as a shield to protect its right to exclude or its market-share, reputation, goodwill, or name recognition, as MercExchange appears to possess none of these."

In May 2003, a federal jury found eBay guilty of infringing on two MercExchange patents and ordered it to pay more than $25 million in damages. At the time, Friedman chose not to issue an injunction, which would have barred eBay from using the patent in its operations, but the U.S. Court of Appeals for the Federal Circuit ultimately did. (The appeals court also threw out the infringement verdict for one of the patents, which it ruled was obvious and therefore invalid, leaving eBay at fault for U.S. Patent No. 5,845,265.)

eBay appealed the injunction decision all the way to the Supreme Court. The justices went on to issue a landmark decision last May designed to make it more difficult for patent holders to force shutoffs of infringing products. In doing so, the high court sent the case back to the district court to weigh the need for an injunction with its new ruling in mind.

In his 49-page opinion released Friday, Friedman said neither the Supreme Court's nor the Federal Circuit's decisions have any direct impact on the earlier jury verdict and damage award related to the "buy it now" patent.

MercExchange attorney Greg Stillman told CNET News.com on Monday that the company is planning to appeal the rejection of the injunction to the Federal Circuit. But before that, the firm plans to ask Friedman to certify the final jury verdict so that it can start collecting the damage payments from eBay, Stillman said.

He added that MercExchange plans to ask the judge to evaluate how much additional money eBay owes for allegedly continuing to infringe since 2003 and how much the online auctioneer will owe in the future, as his company believes the auction giant has been continuing to infringe on its patents. "There's still a fair amount of work to be done," Stillman said.

eBay spokeswoman Catherine Englund said in a written statement Monday that the company was "extremely pleased" with the judge's ruling with regard to the injunction. In a subsequent telephone interview, she also said the company has also devised a workaround that it claims doesn't infringe on MercExchange's patent and has had the solution in place "for some time."

"Basically, regardless of the outcome, we took steps to ensure our business could continue to operate and that our customers would see little to no impact," she said.

Friedman, for his part, said the court has not yet taken a position on whether eBay's "design-around" immunizes it from infringement, which will be a central question when the judge decides whether additional damages are needed to account for any infringement in the period since the jury verdict.

But he did write in his opinion that it would be plausible for eBay to have come up with such a technique because the MercExchange '265 patent is "a business method patent that does not appear to set forth proprietary elements, but rather, relies upon a unique combination of elements present in prior art; such combination of non-unique elements suggests that it can be designed around by removing/altering some of the elements and thus avoiding the 'unique' combination."

eBay said it is also "optimistic" that the U.S. Patent and Trademark Office will ultimately declare that patent invalid. The Patent Office, which is about halfway through its reexamination process, has already issued two preliminary rulings deeming all of the '265 patent's claims invalid as obvious, but it's unclear when a final ruling will emerge.

eBay had asked Friedman to put the entire case on hold while those proceedings played out, but the judge denied that request. He suggested it was unwise to do so because it may take years for a conclusion to be reached, as final Patent Office actions are still subject to appeals both internally and in federal court.

Friedman also pointed to the 2003 jury verdict and the Federal Circuit's upholding of that finding, which both found that eBay had infringed the patent and that the patent itself was valid. (He did, however, allow a temporary halt to a complex portion of the case involving a separate MercExchange e-commerce patent, which is also being reeaxmined. eBay was found not to have violated that patent at the district court level, but the Federal Circuit later vacated that decision.)

Furthermore, because eBay filed for the patent reexamination after the jury verdict had already emerged, Friedman said he feared that putting the case on hold under such circumstances would "create the incentive for adjudicated infringers to seek to circumvent an otherwise enforceable jury verdict by utilizing an alternate forum."

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