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Supreme Court to Hear EBay Patent Dispute

The U.S. Supreme Court on Wednesday will hear arguments in a patent case involving online auctioneer eBay Inc. (EBAY) that is part of a wider struggle between the software and pharmaceutical industries over the future of the U.S. patent system.

Lawyers for eBay and small e-commerce company MercExchange will square off over whether eBay should be barred from using its popular "Buy it Now" feature, which infringes on two MercExchange patents.

The case is being closely watched to see if the high court will scale back the right of patent holders to get an injunction barring infringers from using their technologies.

Software companies complain they can be held to ransom by owners of questionable patents, while drugmakers oppose any weakening of patent rights, which they say would chill their investment in new medicines.

Patent experts said that, depending on how the high court rules, the case could have a profound impact on the way the courts treat intellectual property in the United States.

"Any time we talk about altering injunctions, we really are talking about altering the fundamental balance of power," said Steve Maebius, a patent lawyer with the firm Foley & Lardner.

The arguments come on the heels of a recent court fight by a small patent-holding company seeking an injunction to shut down of Research In Motion Ltd.'s (RIMM) popular BlackBerry wireless e-mail devices.

RIM settled the case after a judge made it clear that he would impose an injunction.

At issue in the current case is a decision by a federal court of appeals upholding an injunction imposed on eBay at the request of MercExchange.

EBay was found to have infringed on two e-commerce patents that MercExchange said were key to eBay's "Buy it Now" feature, which handles fixed-price sales.

But a U.S. District Court refused to issue an injunction and awarded MercExchange a small amount of damages instead.

The U.S. Court of Appeals for the Federal Circuit, which hears most patent case appeals in the U.S. courts, reversed the decision, citing legal doctrine that gives patent holders the right to an injunction "absent exceptional circumstances."

Hopeful the Supreme Court will overturn the doctrine, some of the largest U.S. software companies have filed friend-of-the-court briefs supporting eBay.

"Money that could go to productive investments is instead diverted to legal fees and settlement payments. The costs of these practices are less innovation or a slower rate of innovation and higher costs for consumers," a group of computer technology companies wrote in a friend-of-the-court brief.

EBay has argued that federal judges should have more discretion to deny an injunction and instead issue a monetary award to the patent holder.

But drug makers oppose watering down the rights of patent holders. They say the right to an injunction is at the core of the U.S. intellectual property system, much like a landowner's right to evict trespassers.

"Limiting the availability of an injunction after a judge or jury have found a patent to be valid and infringed would severely undermine the patent system and drive up the cost of innovation," the industry trade group Pharmaceutical Research and Manufacturers of America said in a friend-of-the-court brief filed with the Supreme Court.

The prospect of change also provoked opposition from a group of U.S. inventors, who said in their court brief that large companies want to support intellectual property rights "only for themselves and companies like theirs."

Separately from the Supreme Court case, the software industry has pressed a campaign on Capitol Hill to weed out illegitimate patents and rein in the power of patent holders.

Lobbying efforts center on legislation being drafted by Rep. Lamar Smith, a Republican from Texas who chairs a key House subcommittee.

Smith introduced a patent-reform bill last year to modernize and overhaul patent laws and help the Patent and Trademark Office do a better job vetting new patents.

Smith's bill originally included a provision making it more difficult to get an injunction, but it was removed from the bill after running into opposition from drugmakers and others.

Smith is expected to introduce a similar bill soon and has been trying to find a compromise on several matters that would be acceptable to the software and pharmaceutical industries, lobbyists said.

The Supreme Court is expected to issue its ruling in the eBay case in several months.