Government Sides Against EBay in Patent Dispute

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By Yuki Noguchi
Washington Post Staff Writer
Saturday, March 11, 2006

The federal government yesterday took a position against eBay Inc. in a patent dispute that threatens to shut down one of the online auction site's popular shopping features.

The Office of the Solicitor General said in a brief filed with the Supreme Court that eBay willfully infringed on patents held by Great Falls-based MercExchange LLC and should be enjoined from using its "Buy It Now" feature, which allows users to buy goods at fixed prices rather than compete in auctions. Goods sold using that system account for about a third of eBay's business.

EBay has been found guilty of willfully infringing two patents held by MercExchange but has not been barred from using the systems, because of a district court decision to deny an injunction. An appellate court reversed that decision.

Arguing on behalf of the interests of the Federal Trade Commission and the Justice Department's antitrust division, the solicitor general called on the Supreme Court to allow the injunction.

The high court will hear arguments later this month, and both sides have rallied big commercial interests to support their cases.

The case has struck a chord among many technology companies, for which patents have become critical competitive tools.

If the court finds that violating a patent automatically triggers a shutdown, "that has a big impact," said Stephen Maebius, a patent attorney in Washington who is not affiliated with either side of the case. The issue is whether violation of a single patent should be grounds for shutting down complex software systems that millions of people depend on, he said.

The maker of BlackBerry faced an injunction and settled its patent case last week to preserve service for its 3.2 million customers, for example.

"Patents can shut these systems down," Maebius said. "It really does tinker with the balance of power when it comes to injunctions."

EBay, which also filed its brief in the case yesterday, argued that a litigant should not be able to "automatically" get an injunction. In the case of MercExchange, which ceased doing its online business in 2000, the company was not actively practicing its patent and therefore should not be able to use the threat of a shutdown as a blunt tool against a business, eBay said.

But MercExchange founder Thomas Woolston said it practices its patent by licensing it to other companies. "We compete with eBay every day with our licensees," including Ubid.com and Autotrader.com, he said. EBay should not be able to continue infringing on patents without a license, he said. "If the Supreme Court says 'yes' to the injunction, they will be saying 'yes' to competition."

The solicitor general's brief disputed eBay's claim that the appellate court applied a "nearly automatic" injunction instead of allowing the district court to exercise discretion. It also said the district court erred in accepting eBay's argument that because MercExchange was willing to license its patent, it would not suffer irreparable harm if eBay continued to operate the technology.


© 2006 The Washington Post Company

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