Thursday, May 18, 2006

Life after SCOTUS eBay ruling for "patent trolls"

My next column in Rex magazine -- coming out later this month -- is about patents and the RIM-NTP battle that became the most widely covered Waterloo Region business news story of all-time.

RIM's patent misfortunes have helped stir up an angry rabble demanding that something be done about patent trolls. Nobody knows exactly what a patent troll is -- from context, the only definition I can infer in many cases is "someone who holds a patent that we don't think should be enforced" -- but these days they seem to be ranked somewhere near steroid-using athletes on the most-despised list.

They're so hated that many wishful-thinking folks were eager to interpret a U.S. Supreme Court ruling earlier this week as a slam-dunk victory over the trolls. "Supreme Court buries patent trolls," proclaimed a Forbes headline.

Whatever patent trolls are, I'm sure they weren't pleased by the court's decision, but don't be fooled by reports of their interment.

The specific case that the Supreme Court heard was between eBay and MercExchange, largely over the buy-it-now button that eBay uses and MercExchange (and the U.S. Patent and Trademark Office) says it has patented.

Following the ruling, eBay is still on the hook for infringing on the MercExchange patents, it's still facing the uncertainty of whether a judge will impose an injunction, and it still has to pay MercExchange the full award previously determined by the courts -- tens of millions of dollars -- plus ongoing royalties. About the only thing that changed is that the likelihood of an injunction being ordered is now less than near-certainty. How much less? We don't know.

Four of the nine justices attached their names to an opinion that was sensitive to the issue of patent trolls and seemed to imply that entities that "use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees" may be less entitled to an injunction than other patent holders.

The problem is, if that's their definition of a troll, then many university professors and individual inventors would have to be placed in that category. And it's a surprising definition because Supreme Court justices would have to know that holding a patent on an innovation doesn't entitle you to manufacture and sell it. For example, implementing your patent may require other patents which you do not own. If you can't license them, then you won't be able to manufacture products that incorporate your patent.

While it may seem preposterous that a non-operational entity like NTP can threaten the business of a multibillion-dollar corporation like RIM in its biggest market, I suspect that reforms that try to target trolls directly will fail.

Despite all the analysis and commentary that's been published on patent reform, no one has come up with a proposal that would clearly be an improvement on the current system. As bad as things seem to be now, they could be even worse under some of the reforms that have been suggested.