A Supreme Mandate on Injunctions

Patent disputes have become a business as usual for the tech industry. As tech companies grow to become wildly successful, it's virtually expected that some patent-holders, known in the industry as trolls, will attempt to get in on the action by filing lawsuits. But tech companies have now scored a big win in the push for injunctions against their products and services.

As a result of the growing number of lawsuits, the tech industry has been pushing Congress in a mostly fruitless attempt to make changes. On Monday, the sector finally notched a huge victory, this one by way of the U.S. Supreme Court. It all began when MercExchange sued eBay (Nasdaq: EBAY  ) on grounds that the online auctioneer's "Buy It Now" service infringed on MercExchange's patent. Several years ago, a jury awarded MercExchange $35 million. However, MercExchange wanted to go a step further and impose a court order that would have stopped eBay from using the system. In the process, the court ruled unanimously that judges have discretion on whether to impose such injunctions. That makes this a landmark case in the complex yet high-stakes world of patent litigation.

As Research In Motion (Nasdaq: RIMM  ) knows all too well, an injunction can be an extremely powerful weapon. RIMM was pushed toward making its massive $612 million patent settlement with NTP when it faced the threat of having its BlackBerry service shut down.

For eBay, "The Supreme Court's unanimous decision kills any argument that a patent owner is automatically entitled to an injunction if it can establish infringement of a valid, enforceable patent," said partner James M. Smith, who specializes in intellectual-property law at Squire, Sanders, & Dempsey. "This is a shot across the bow of patent owners who use the threat of an injunction to extort large licensing fees."

Smith commented further: "If there had been an injunction, eBay could have found itself in an uncomfortable position. eBay would potentially face negotiations on very high license fees or [the possibility of] abandoning an important technical feature that supported a large important part of their business. Alternatively, eBay could have tried to develop a work-around technology to avoid infringement. It is uncertain whether a work-around would be viable, given the broad nature of business method patents."

eBay investors can breathe a sigh of relief in this case. Since there was no injunction ordered, the company can continue to operate this popular feature without paying high licensing fees or restructuring its business model.

Doubtlessly, plaintiffs of all types will continue to file suits. But now, tech companies -- with their large cash hoards -- will be able to roll the dice and decide whether to settle or fight in court. Going forward, the RIMM-like mega judgments might be a thing of the past. And that's definitely a nice thing for investors in eBay this time, and tech investors overall.

Tom and David Gardner'sMotley Fool Stock Advisornewsletter service has recommended eBay, along with dozens of other companies both within and beyond the tech universe. You can even try out the service free for 30 days.

Fool contributor Tom Taulli does not own shares of companies mentioned in this article.


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