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, “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

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., 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.

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