'Patent Trolls' May Live or Die by EBay Supreme Court Ruling

The question of how to appropriately declaw so-called "patent trolls" took center stage March 29 in an important patent infringement case argued before the U.S. Supreme Court.

Loosely defined, a patent troll is a company that owns a portfolio of technology patents but never manufactures anything or licenses the patents for use by others.

Rather, the company exists solely to sue other companies that mistakenly use the technology in their products or services.

Typically, the lawsuits are filed just as an offending product is due to go to market, or against companies already with large customer bases. The economic realities are such that cases are quickly settled.

No where does the patent troll problem seem more profound than in the world of high technology, where eBay (EBAY), of San Jose, Calif., and a bevy of other high-tech companies argue that the practice is rampant.

Now these and other high-tech luminaries are asking the high court to take away a patent trolls' chief weapon: the nearly automatic injunction courts issue against companies found to be in violation of patents.

Otherwise, the threat of an inevitable court injunction, and its particularly brutal financial impact on a company, will continue to provide patent trolls with what eBay and others argue is a legal means of extortion.

But in order to grant eBay's wishes, the court may end up profoundly changing the nature of injunctions as they are applied in other cases.

The potential for such a far-reaching decision has elevated an otherwise mundane patent spat to the national legal spotlight.

Legal experts reading the tea leaves say it's inevitable that the high court will change the standard in which an injunction is considered appropriate. The consensus is that the court will limit its decision by focusing only on instances when a jury has found a company guilty of violating patents.

Patent holders are waiting to hear, in a decision expected in about two months, just how extensive those changes will be.

Perhaps the justices' most important, as well as most difficult, task is not to create situations in which a company bearing troll-like traits is unfairly classified as such.

Many firms have the most honest of intentions to market their innovation, but any number of circumstances might be holding them back.

"Patent trolls abuse the system [and] extort (legal) settlements that vastly exceed the true economic value of the patents," wrote Joseph K. Sino, lead author of a brief arguing in support of eBay provided to the court by Yahoo (YHOO), of Santa Clara, Calif.

"Distinguishing a patent troll from a party that ought to be awarded an injunction isn't always easy."

Nowhere is the case's intricacies better encapsulated than at Qualcomm (QCOM), of San Diego. Qualcomm is one of about 40 technology firms that have registered an opinion one way or another with the high court and is in the camp that opposes eBay.

Qualcomm has good reason to, it argued in a brief it submitted in the case.

The company manufacturers millions of chips a year for cell phone and wireless base stations. It also generates a significant amount of money licensing its 4,500 patents to 125 manufacturers of home electronics, telephone network equipment and cell phones.

But Qualcomm's not making use of all its patents. Some are dormant and linked to products that aren't to be manufactured for years; others may never be used in any way.

So under one interpretation championed by some of eBay's supporters, this means Qualcomm could be considered a patent troll.

But by many other observers' standards, including Qualcomm's, it shouldn't be considered in this class, particularly because Qualcomm's licenses and manufactures products based on a large percentage of the patents it holds.

"The viability of high technology industries depends in significant part on the maintenance of strong patent laws," wrote Kenneth Bass, Qualcomm's attorney of record, in a memo to the court.

Trolls, blackmails, extortion, and other vitriol grows from a case eBay initiated after a federal jury in Virginia decided in 2003 that eBay had violated two patents held by MercExchange, a Great Falls, Va.-based company.

The patents had to do with eBay's "Buy it Now" feature that handles many of the sales that take place on the site.

But U.S. District Judge Jerome B. Friedman ultimately did not prohibit eBay from continuing to sell fixed-price goods.

MercExchange then asked for, and got, the U.S. Court of Appeals for the Federal Circuit to review the lower court's decision against the injunction. eBay successfully petitioned the U.S. Supreme Court to hear its arguments.

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