Cruise around eBay, and you may decide that auctions are too troublesome. If you gotta have that Balenciaga sweater, nothing beats the Buy It Now feature; simply meet the seller's price, and it's yours. Without that feature, in fact, eBay would make a lot less money. Fixed-price transactions accounted for about $14.6 billion in merchandise volume last year, a third of the total. So let's say you came up with that Buy It Now idea and filed for a patent. And let's say a jury concluded that eBay willfully infringed on your patent and owes you damages. Should a judge automatically order eBay to remove that feature? After all, it's your intellectual property, you have a business you would like to build, and eBay basically trespassed.
The question was debated before the Supreme Court last week in a high-profile patent case, one of several the Justices are hearing this term. The caseload reflects the court's mounting interest in patent wars, which seem to be producing lots of headlines lately. That would include the near shutdown of the popular BlackBerry device, owned by Research in Motion (RIM), of Waterloo, Ont., which had "CrackBerry" fans panicking. RIM coughed up $612.5 million to settle litigation brought by NTP Inc., despite the fact that the U.S. Patent and Trademark Office rejected all eight NTP patents that were the focus of the lawsuit. NTP is appealing the rejection, but RIM caved rather than face the potential of an injunction.
Patent lawsuits have soared over the past decade, up about 58% since 1995. The patent office is drowning in filings; one recent application is for a napkin band printed with advertising. The office is getting known as an easy grader, awarding patents too leniently, to such things as basic medical tests and "business methods" like one-click online shopping. That stifles innovation and blocks new products from the market, according to some experts. "There's a consensus in academia and the legal world that the patent system is seriously out of balance and needs reform," says economist Carl Shapiro of Berkeley's Haas School of Business.
eBay's fight against a Virginia company called MercExchange illustrates how small firms swat away at larger ones, at great cost to both. In 2001 MercExchange founder Tom Woolston, a former military pilot and CIA network engineer, sued eBay, claiming that the company infringed on three patents he filed in the mid-'90s, including one that set out methods for fixed-price online auctions (the so-called Buy It Now patent). In 2003 a jury ruled in Woolston's favor and awarded $35 million in damages.
Then, while the case was winding through the appeals process, the patent office in 2005 issued "initial" rejections of all three patents. Woolston, who is appealing the rejections, says eBay's infringements and dominance of online auctions virtually killed off his auction site, MercExchange, and says nothing less than an injunction will satisfy him. "We want the injunction so eBay's power sellers come to our site," he maintains. You can imagine eBay's view of that position. The case is so important that eBay has hired big-name lobbyists in Washington, such as the Ashcroft Group, a lobbying shop run by former U.S. Attorney General John Ashcroft. Juleanna Glover Weiss, an ex--press secretary for Vice President Dick Cheney, is registered as an eBay lobbyist on "patent reform."