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Battling Patent Trolls: Four Old White Guys Get It

Our legal system relies on precedent to establish order, but the fast pace of change prompted by technology makes past practices out of place in today's age. In Monday's decision in eBay v. MercExchange, a concurrence--written by Anthony Kennedy, 69, and joined by John Paul Stevens, 86, David Souter, 66, and Stephen Breyer, 67--points out that rapid changes in technology and the law mean the economic motives of many patent holders are different today than in the past.

"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," Kennedy writes. "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."

Of course, Kennedy et al speak of patent trolls, companies with a principal business model of making money through patent royalties rather than employing the innovation to produce a product or service.

The justices believe patent violators should be punished--even those who infringe patents held by trolls--but feel monetary damages, not injunctions, could be the best remedy. "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," Kennedy writes. "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."

Kennedy cites a two-and-a-half-year-old Federal Trade Commission report, "To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy," which addresses the interplay between innovation in the 21st century and patents.

The 315-page FTC report addresses a major issue in the eBay-MercExchange battle: the issuance of a patent for what many see as something that's obvious (only nonobvious innovations should get patents). Auctioneer eBay sees MercExchange's patent on fix-price sales processes over the Internet as obvious; MercExchange counters that such a process for an online auction site wasn't so obvious when CEO Tom Woolston dreamed up the idea years ago. The Patent Office is reviewing the MercExchange patent, issuing a preliminary ruling signaling it will invalidate it. But the fact that the government issues--and then rescinds--patents based on second thoughts of obviousness isn't new. It's centuries old.

In 1895, according to the FTC report, inventor George Selden obtained a patent with a claim so broad it literally encompassed most automobiles ever made. "Yet," the report says, "the basic invention covered by that claim--putting a gasoline engine on a chassis to make a car--was so obvious that many people worldwide thought of it independently as soon as the most primitive gasoline engines were developed. The association that licensed the Selden patent collected hundreds of thousands of dollars in royalties--raising costs and reducing the output of automobiles--before Henry Ford and others challenged the patent, and the patent claim was judicially narrowed in 1911."

Sounds familiar, right?

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