Supreme Court strikes a blow for the e-Goliaths, or does it?

On Monday, May 15, the Supreme Court of the United Status issued a long-awaited verdict in a patent suit between eBay and a small, Virginia-based company, MercExchange. The ruling was unanimous and favourable to eBay, reverting an earlier permanent injunction by US Appeals Court for the Federal Circuit, which prohibited eBay from using patents held by MercExchange. The suit has started in early 2003 and already resulted in eBay paying $30 million to MercExchange.

The Supreme Court ruling comes as welcome relief to large companies after the commotion created by the judicial dogfight between RIM (Research in Motion) and NTP, Inc, which at one point threatened to halt the mobile e-mail Blackberry service. In that case, RIM finally settled the NTP suit for over $600 million.

Can the big boys, including Amazon, Google and Yahoo and many others, now expect that from now on they will be immune to ambushes from “patent trolls,” (small companies that specialise in patent lawsuits)?

This is far from certain. For one thing, the Supreme Court did not completely invalidate the lower court judgement: it ordered a lower court to revisit the injunction order against eBay. And the Supreme Court studiously avoided taking a definitive position on the ultimate validity of preventive injunctions. Certain views expressed by the Court can be interpreted as favourable to MercExchange.

For instance, one of the lower courts questioned MercExchange‘s motives, because the company sought primarily to license its patents rather to transform them into commercial products. But the Supreme Court shot down that reasoning. "Some patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves."

In a concurring opinion, Judge Anthony Kennedy noted that "an industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees". In such cases, "legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.” This may not the last word on the issue.

Both eBay and MercExchange welcomed the Supreme Court judgement and expressed hope that the Appeals Court will ultimately come down on their side. Two things are certain: they cannot be both right; and the jurisprudence on patent licencing is far from settled.