EcommerceBytes-Update, Number 164 - April 02, 2006 - ISSN 1528-6703     2 of 8

Editorial: eBay Argues before the Supreme Court

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Last week I was in Washington, DC, to hear eBay, MercExchange and the United States government weigh in on the patent injunction case in front of the Supreme Court on March 29. First, I'll summarize my opinion of the crux of this case, then discuss how it affects the Buy It Now feature.

In 2003, a jury found that eBay had willfully infringed MercExchange's patents. A district court judge denied MercExchange's request for an injunction that would prohibit eBay from offering Buy It Now listings on its website, and it cited several reasons for denying MercExchange's request. Upon appeal, the Federal Circuit - a court set up to hear appeals cases involving patents - said the reasons cited by the District Court were not good reasons and overturned the ruling.

eBay appealed to the Supreme Court. eBay argued that Federal Circuit decision was an "automatic injunction rule" that took away District Court's discretion in making decisions about injunction cases.

eBay is speaking in absolutes. Following eBay's logic, if the Supreme Court reverses the Federal Circuit's decision in this case, it would actually be taking away the Federal Circuit's discretion to reverse bad decisions made by District Courts. If this happens, it seems to me a District Court injunction ruling could never be appealed again.

I have followed this case closely, and my own opinion - without the benefit of legal expertise - is that the District Court judge did indeed use bad reasons to deny an injunction.

The last thing I want is an injunction against eBay's Buy It Now feature - the results could severely impact sellers - but eBay is responsible for the situation in which it finds itself. In 2000, eBay reviewed MercExchange's patents but did not want to pay the licensing fees. Even after it lost the case in May 2003, eBay passed on the patents, despite MercExchange's announcement that it wanted to sell them (http://auctionbytes.com/cab/abn/y03/m05/i30/s01).

eBay has had the opportunity to license or acquire MercExchange's patents but has steadfastly refused. Supreme Court Justice Scalia asked eBay's lawyer why the free markets weren't adequate to solve the issue of licensing - no one is going to hold off on giving the license at the right price, he said.

But eBay has dug its heels into the ground and in doing so, jeopardizes the ability for its sellers to list items using the Buy It Now feature.

eBay said it designed a workaround after the 2003 trial so it is no longer infringing on MercExchange's patent. It's puzzling to me that shareholders, financial analysts and financial press have not pressed eBay to explain the design workaround. eBay will have to tell the District Court eventually, and I would think stakeholders - including sellers - would want to judge for themselves whether the workaround is a real way for eBay to avoid continued infringement. For the record, eBay declined to tell me any details about the workaround.

As someone who follows this industry, it's my opinion that March 29, 2006, was not eBay's finest hour.


About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.


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