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DEEPLINKS BLOG

Four Justices Question Patent Trolls and Business Methods at the Supreme Court

May 15, 2006

News hit today that the U.S. Supreme Court has reversed a lower court decision to issue an injunction against eBay for infringing a patent owned by MercExchange on the "Buy Now" feature associated with auction services. EFF filed an amicus brief [PDF] on eBay's behalf. While the decision primarily concerns itself with the proper test for injunctions, one of the concurrences previews four Justices' ideas on the controversial topics of patent trolls and business method patents.

Justice Kennedy's concurrence (joined by Justices Souter, Stevens, and Breyer) also took care to emphasize the importance of patent rights but went on to note that there are situations in which the patent system seems to be failing in its purpose:

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. . . . For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent.

When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.

In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.

With Congress in gridlock over proposed patent reform legislation and four Justices concerned about the potential threat of both patent trolls and business methods to innovation, you can expect many more petitions to the Supreme Court to address these issues.

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