The US Patent and Trademark Office has ruled in favor of eBay once again. It confirmed this week its earlier decision that MercExchange’s US Patent No. 5,845,265 (the ‘buy it now’ feature they are using to litigate eBay) is obvious and should never have been issued as a patent. The patent office has already ruled on this matter, but MercExchange got its lawyers to draft 100-page response, thus the need for the confirmation. MercExchange does have the opportunity to respond to this confirmation.
eBay v. MercExchange is still pending in the Supreme Court. The issue is whether MercExchange will be able to issue an injunction to stop eBay from using anything similar to the ‘buy it now’ feature in the patent, even though MercExchange itself is not using the patent. eBay has already stopped using the feature in question, but has chosen to valiantly fight on for the future of our country. Case law is in favor of MercExchange, based on a 1908 court ruling Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908), which dictated that Eastern Paper Bag Co. had the “right to exclude” Continental Paper Bag Co., even though Eastern was not and had no intention of using the patent.
If this case law is upheld, it would spell the end of innovation in the United States.
“If people had understood how patents would be granted when most of today’s ideas were invented and had taken out patents, the industry would be at a complete standstill today. … The solution is patenting as much as we can. A future startup with no patents of its own will be forced to pay whatever price the giants choose to impose. That price might be high. Established companies have an interest in excluding future competitors.”
–Bill Gates, in an internal Microsoft memo of 1991
“We still think it is the right thing to do, to fight what we believe is a wrong decision by the appeals court, an incorrect application of the law”
–eBay spokesman Hani Durzy after the May 2003 appeal.
In order to innovate, companies must use ideas. If those ideas are held by patent holding companies and investors who have no intention of using them, and a financial incentive to exercise their “right to exclude” any other companies from using them, there will be no innovation.