Validity of Certain Business-Method Patents Affirmed
March 16, 2005
Last Month at the Federal Circuit - April 2005
Judges: Bryson (author), Michel, and Clevenger
In MercExchange, L.L.C. v. eBay, Inc., No. 03- 1600 (Fed. Cir. Mar. 16, 2005), the Federal Circuit affirmed the district court’s finding of infringement of one patent by eBay, Inc. (“eBay”) and ReturnBuy, Inc. (“ReturnBuy”), but reversed the finding that eBay had induced ReturnBuy to infringe. The Federal Circuit also found a second patent invalid and, therefore, reversed the district court’s judgment that Half.com, Inc. (“Half.com”) had willfully infringed it. Additionally, the Federal Circuit vacated the lower court’s judgment that a third patent was invalid and remanded for further proceedings. The Federal Circuit also reversed the lower court’s denial of a permanent injunction, but affirmed the denial of enhanced damages and attorney fees.
MercExchange, L.L.C. (“MercExchange”) filed suit against eBay, Half.com (a wholly owned subsidiary of eBay), and ReturnBuy, alleging willful infringement of U.S. Patent No. 5,845,265 (“the ‘265 patent”) by all three Defendants; willful infringement of U.S. Patent No. 6,085,176 (“the ‘176 patent”) by eBay and Half.com; and willful infringement of U.S. Patent No. 6,202,051 (“the ‘051 patent”) by eBay. Half.com owned and operated an Internet Web site that allowed users to search for goods posted on other Internet Web sites and purchase those goods. ReturnBuy owned and operated an Internet Web site that was hosted by the eBay Web site and would direct ReturnBuy customers to the eBay Web site, where items listed for sale by ReturnBuy were displayed in an eBay listing.
The ‘265 patent pertains to a system for selling goods through an “electronic network of consignment stores.” Prospective buyers electronically browse and search for goods stored in the databases of “consignment nodes” operated by consignment stores. Upon purchasing, the buyer can decide to either have the goods shipped to him or resell the goods to another buyer, without taking physical possession of the goods before reselling it. eBay had argued that certain claims of the ‘265 patent could not be infringed because the systems of eBay and Half.com did not “transfer the ownership” of goods for sale under the requirements for title transfer under the Uniform Commercial Code (“UCC”). It had asked that the jury be instructed on UCC requirements and with a statement from the court’s Markman order that transfer of ownership is “not limited to merely modifying the record—legal ownership must be transferred.” The Federal Circuit upheld the district court’s decision not to provide the jury with the additional jury instructions and agreed with the district court’s interpretation of the transfer of ownership limitation based on the teachings of the specification, namely, that the transfer of ownership was accomplished by changing a data record at the consignment node. The Federal Circuit therefore affirmed the district court’s denial of the Defendants’ motion for JMOL of noninfringement of the ‘265 patent.
In reviewing the jury’s finding that the ‘265 patent was not invalid, the Federal Circuit stated that even though the Defendants’ invalidity arguments in district court were based solely on obviousness, the Defendants may argue both anticipation and obviousness on appeal because anticipation is the epitome of obviousness.
After affirming the validity of the ‘265 patent, the Federal Circuit affirmed the jury’s finding that eBay had willfully infringed, but reversed the portion of the judgment holding eBay liable for $5.5 million for inducing ReturnBuy to infringe. The Court found that MercExchange had not demonstrated that eBay intended to induce ReturnBuy to infringe, even though some business contacts existed between the companies. Moreover, to be liable for inducement, according to the Court, the evidence must show that eBay intended to induce ReturnBuy to perform all limitations of the asserted claims.
As for the ‘176 patent, the district court had denied Half.com’s motion for JMOL that the ‘176 patent was invalid and not infringed. The ‘176 patent involves a method of searching a plurality of electronic markets, that is, a trusted network or system where participants can buy, sell, search, or browse goods on-line. The Federal Circuit found that an article by Arthur Keller disclosed each of the limitations of the asserted claims and is enabling. The Court then held that the ‘176 patent was anticipated and, therefore, invalid in light of the prior art and directed entry of judgment for Half.com on the ‘176 patent.
MercExchange cross-appealed to the Federal Circuit seeking reversal of the district court’s SJ of invalidity of the ‘051 patent on the ground that the written description is inadequate. Afterreviewing the declarations of MercExchange’s experts, the Federal Circuit found that MercExchange had introduced sufficient evidence that the specification would be understood by a person of skill in the art such that there was a genuine issue of material fact. The Court vacated the SJ and remanded for further proceedings.
Lastly, the Federal Circuit reviewed the district court’s denial of a permanent injunction and refusal to enhance damages and award attorney fees. The Federal Circuit found that a growing concern over the issuance of “business-method patents” or the possibility of additional infringement trials that may result from Defendants’ attempts to design around were not sufficiently exceptional reasons to justify denial of a permanent injunction. Since the Federal Circuit did not find exceptional circumstances, it ruled that the district court had not abused its discretion in declining to enhance damages or award fees.