Monday, March 27, 2006

New York Times on eBay case on March 27

The New York Times (Katie Hafner) mentioned that the eBay case has attracted attention because of "the growing issue of how large technology companies deal with the constant threat of patent challenges." Well, sort of. The eBay case concerns the standards for issuing an injunction AFTER patent validity and infringement have been established by a court. This is, of course, a more narrow issue than the "constant threat of patent challenges," and pertains ONLY to the case where the patent "challenge" proved to be a valid assertion of infringement. Not exactly a troll issue. Of course if the "troll," a priori, knows he has no "guaranteed" right to an injunction, that might change the troll's bargaining strategy, but the "troll" separately knows the troll has to win the infringement case BEFORE the injunction weapon can be used. This case may be a bit over-hyped by the media.

To put this in the "troll" box, eBay did bring up the fact that one of the patents of MercExchange (the one on which the permanent injunction would be based) had claims which were rejected in a re-examination. However, that assertion is a little tricky. From page 5 of the February 2006 issue of Intellectual Property Today (available LEXIS):

In the review of MercExchange v. eBay, 401 F.3d 1323, 74 USPQ2d 1225
(CAFC 2005), the US Supreme Court is tackling the question whether the CAFC
erred in setting forth a general rule that a district court, absent exceptional
circumstances, issue a permanent injunction after a finding of
infringement. Although the CAFC used the words "exceptional circumstances" in the
eBay case, previous CAFC language had included "sound reason," "sufficient
reason", and "special reason." In arguing for the standard inquiries to determine
the propriety of an injunction, the eBay brief asserted that the district
court properly found that the public interest did not support granting an

One reason furnished was the uncertain status of the validity of
business method patents. In support, the eBay brief noted, that subsequent to the
district court decision, the PTO had found claims of US 5,845,265 invalid [In
re-exam 90/006,956, filed by eBay under 37 CFR 1.510 on March 5, 2004, after
the district court decision of August 6, 2003 in 275 F.Supp.2d 695, the PTO
issued a non-final Office Action (signed on Feb. 11, 2005 but mailed March 24,
2005) rejecting claims 26-29 under 102(e) and claims 1-25 under 103 over US
5,664,111, the same art found not invalidating in the CAFC decision of March 16,
2005 (401 F.3d 1323).]

To suggest that this was a more pervasive problem, the eBay brief stated that 74% of the time the PTO finds "the patent invalid" or restricts claims. The eBay brief did not mention that re-examinations occur for only a fraction of a percent of issued patents.

The eBay brief also cited Cecil Quillen, 11 Fed. Cir. B. J. 1, 3 for "estimating rate of patent approvals by the PTO to be 97%." Sadly, Quillen and his co-author Ogden Webster never estimated the patent approval rate to be 97%. Rather, they placed the Grant Rate in the range 80% to 97%, with the 97% upper bound rendered invalid by their recognition in Footnote 17 that a patent can issue both from a continuing
application and the corresponding parent application. Although not mentioned in the
eBay brief, Quillen and Webster corrected their view of estimates of the Grant Rate
number the following year (12 Fed. Cir. B. J. 35 (2002), discussed in 86 JPTOS
568 (2004)). In the eBay brief, the 97% number is neither a faithful
representation of what Quillen and Webster said nor an accurate statement of the
patent grant rate at the PTO. As a general observation about citing law reviews,
one notes that it is not a defense to liability to assert the accurate reporting
of (false) information obtained from another source. Lawrence v. Bauer
Pub. & Print. Ltd., 89 N.J. 451, 461, 446 A.2d 469 (NJ 1982). It is no more
reasonable to cite a law review for the proposition that Gary Boone invented the
integrated circuit (see Mark A. Lemley, Patenting Nanotechnology, 58 Stan. L. Rev.
601, 612 (2005)), than it is to cite Woo Suk Hwang for the existence of patient
specific embryonic stem cell lines (see Lawrence B. Ebert, Lessons to be Learned
from the Hwang Matter: Analyzing Innovation the Right Way, accepted JPTOS,
2006). [end IPT material]

The New York Times brought up the various parties presenting "friend of the court" briefs:

Supporting briefs from third parties, including some unlikely ones, have piled up for each side. A pharmaceutical industry trade group filed a brief in support of MercExchange, as did General Electric, Proctor & Gamble, the University of California, a group of venture capitalists and the United States government. All argued in favor of injunctions against those who infringe patents.

A brief filed jointly by Oracle, Microsoft and Intel in support of eBay argued that the injunction rule "has transformed patents into a powerful tool for litigation abuse" and "stifles innovation." EBay has also hired Juleanna Glover Weiss of the Ashcroft Group, a lobbying firm in Washington founded by John Ashcroft, the former United States attorney general, to help with communications efforts related to the case and patent issues in general.

One sees that there is NOT a consensus within business on the legal issues within eBay v. MercExchange. The Wall Street Journal had made a similar point last week.

The Times characterized the issue in this way:

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."

At issue before the Supreme Court on Wednesday is whether the federal circuit court's ruling correctly interpreted federal patent law, which authorizes judges to grant injunctions but does not require them to do so.

The case has attracted an unusual amount of public attention in part because of recent attempts by large corporations to change patent law to lessen the threat posed by so-called nonpracticing patent holders.

The Supreme Court had requested review of the 1908 Supreme Court case, Continental Paper. This pertained to the question of whether an injunction was appropriate when the patentee did NOT practice the invention. The Times wrote:

In his decision to withhold the injunction, the district court judge noted that MercExchange "exists solely to license its patents or sue to enforce its patents, and not to develop or commercialize them."

IPBiz posted pertinent text from the district court and CAFC opinions.

Yet in a telephone interview, Mr. Woolston said that MercExchange had indeed put its patents to commercial use. "Come to and buy a plasma TV," said Mr. Woolston. "We are practicing our inventions."

The Times article suggested that, even if a permanent injunction issued, it would not have an impact on eBay:

Yet, if an injunction is ordered in the eBay case, the day-to-day workings of eBay are not likely to be affected, said Hani Durzy, a spokesman for eBay. Mr. Durzy added that immediately after the verdict in 2003, the company made changes to the Buy It Now feature.

The idea that businessmen should work out these matters, rather than placing them in the hands of courts ill-equipped to deal with business issues, didn't occur to the Times.

[IPBiz post 1394]


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