RealTime IT News

Crushing Small Innovators

WASHINGTON -- Suppose someone stole your car. Using your stolen property as startup capitol, the thief builds a profitable cab fleet. You eventually find your car and turn to the courts for justice.

You indisputably prove the thief stole your car, proof of title providing irrefutable evidence of ownership.

You demand damages of the thief, including a cut of his profits and the return of your car. The court agrees and orders damages but, to your astonishment, lets the thief keep the car and continue to run the cab service since he put your car to a higher and better use than you did.

You're outraged, right?

That's how a small Northern Virginia company named MercExchange feels in its long-running patent-infringement battle with online auction giant eBay. That eBay's Buy It Now program infringes on MercExchange's patented process for buying goods at a fixed price is beyond legal dispute: both a district court and an appeals court long ago sided with MercExchange.

The only issue is damages.

The court ordered uncollected damages of nearly $30 million, but MercExchange didn't regain control of its patents. The lower court refused to impose an injunction barring eBay from infringing MercExchange's patents until it reached a settlement with MercExchange.

The lower court said, in effect, $30 million is a pretty handsome settlement for inventing technology you never really took advantage of. Take your winning lottery ticket and go home, the court said.

The appeals court reached an entirely different conclusion, ordering a shutdown of the Buy It Now program until eBay negotiates a settlement with MercExchange. It has not and the profits keep rolling in to eBay with not a drop to MercExchange.

Wednesday morning, the case hits the Supreme Court.

Meanwhile, MercExchange sits empty-handed three years after successfully proving eBay illegally appropriated its property.

Big Tech is four square on eBay's side in this latest patent squabble. Silicon Valley, you see, is annoyed by small innovators exerting their patent rights, particularly when the little guy didn't do much with the patent.

The Valley's icons appear to favor a "use it or lose it" approach, unless they themselves own the patent, in which case they'll sue anyone into oblivion. If they don't own the patent, as MercExchange can attest, they'll take it anyway and leave the small inventor to challenge the impossibly deep pockets of major corporations.

For instance, eBay, which has bitterly fought the case for years with the country's best paid attorneys, has recently hired former Attorney General John Ashcroft to front its Supreme Court case.

As one lawyer involved in the case told internetnews.com, "Under this administration, defendants are rushing to K Street lobbyists to, in effect, overturn court orders."

The entire power structure of the Valley and its surrogates in Washington has united to characterize MercExchange as a "patent troll" -- ruthless collectors of patents who do not use or license their technology but, instead, initiate "opportunistic litigation" for a quick buck.

As prime example A, Big Tech holds out NTP, the patent-holding firm that bedeviled Research in Motion (RIM), the makers of the widely popular BlackBerry handheld e-mail device, into a $612 million settlement.

NTP's main bargaining chip was the threat of a court-ordered permanent injunction against U.S. Blackberry sales. Settle or quit infringing on NTP's patents, the court said. Like MercExchange, the question of infringement was beyond dispute.

From MercExchange's point of view, its case is entirely different from the RIM-NTP dispute. NTP never really proved it had plans for its patents. MercExchange claims eBay ruthlessly crushed whatever plans it had.

MercExchange founder Tom Woolston, an electrical engineer and patent attorney, filed his first patent application involving online marketing in April 1995, several months before eBay organized its business.

In court documents, Woolston says it was always his intention to move into the online auction space. Then eBay came along.

According to MercExchange's Supreme Court brief, eBay approached Woolston in June of 2000 expressing an interest in MercExchange's patent portfolio. A witness who was there at the meeting said MercExchange management became suspicious of eBay's motives when litigators -- not patent attorneys -- arrived to review documentation.

"When negotiations ... broke down, eBay began using MercExchange's technology without authorization," the MercExchange brief states.

"At the same time that eBay began using MercExchange's technology, it was becoming clear that lack of capital would prevent MercExchange from directly commercializing its inventions."

MercExchange then shifted its resources to building a licensing program.

"EBay's willful infringement of MercExchange's patents made licensing difficult, however, because potential licensees recognized that [MercExchange's] patent had little value if MercExchange could not stop others from infringing," the brief states.

AutoTrader.com, for instance, made its payment of royalties to MercExchange contingent on MercExchange successfully stopping eBay's infringement.

In the intervening years since MercExchange won its case in court, eBay has grown even fatter and its pockets have deepened. And MercExchange has yet to receive a dime from eBay.

Unfortunately, that's the message the Valley wants to send to small innovators: We will crush you.